UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended:ended December 31, 20192021 |
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ____________to ____________ |
Commission File Number 001-38598
BLOOM ENERGY CORPORATION
(Exact name of Registrantregistrant as specified in its charter)
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| Delaware | 77-0565408 |
(SateState or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)No.) |
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| 4353 North First Street, San Jose, California | 95134 |
| (Address of principal executive offices) | (Zip Code) |
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| (408) 543-1500 |
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Securities registered pursuant to Section 12(b) of the Securities Exchange ActAct: |
Title of Each Class(1) | Trading Symbol | Name of each exchange on which registered |
| Class A Common Stock, $0.0001 par value | BE | New York Stock Exchange |
(1) Our Class B Common Stock is not registered but is convertible into shares of Class A Common Stock at the election of the holder. |
Indicate by check mark whetherif the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes¨þNo þ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨Noþ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨þ Accelerated filer þ¨ Non-accelerated filer ¨ Smaller reporting company ¨☐ Emerging growth company þ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ
The aggregate market value of the registrant’s Class A common stock held by non-affiliates of the registrant was $659.7 millionapproximately $3.8 billion based upon the closing price of $12.27$26.87 per share of our Class A common stock on the New York Stock Exchange on June 28, 201930, 2021 (the last trading day of the registrant’s most recently completed second quarter). Shares of Class A common stock held by each executive officer, director and holder of 5%10% of more of the outstanding Class A common stock have been excluded in that such persons may be deemed to be affiliates. The determination of affiliate status if not necessarily a conclusive determination for other purposes.
The number of shares of the registrant’s common stock outstanding as of March 16, 2020February 15, 2022 was as follows:
Class A Common Stock, $0.0001 par value 90,231,067161,284,535 shares
Class B Common Stock, $0.0001 par value 34,872,88815,832,833 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the 20202022 Annual Meeting of Stockholders (2020(the “2022 Proxy Statement)Statement”) are incorporated into Part III hereof. The 20202022 Proxy Statement will be filed with the U.S. Securities and Exchange Commission ("SEC") within 120 days after the registrant’s year ended December 31, 2019.2021.
Bloom Energy Corporation
Annual Report on Form 10-K for the Years Ended December 31, 20192021
Table of Contents
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| Part I | |
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| Part II | |
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| Item 6 - [Reserved] | |
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| Item 9C - Disclosure Regarding Foreign Jurisdictions that Prevent Inspection | |
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| Part III | |
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| Part IV | |
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Unless the context otherwise requires, the terms "we," "us," "our," "Bloom Energy," "Bloom" and the "Company" each refer to Bloom Energy Corporation and all of its subsidiaries.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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, including our expectations regarding: our ability to expand into and be successful in new markets, including the potential impact of our restatement,biogas and hydrogen market; the impact of the COVID-19 pandemic, expectedpandemic; statements about our supply chain; operating results, business strategies,results; the sufficiency of our cash and our liquidity,liquidity; projected costs and cost reductions,reductions; development of new products and improvements to our existing products, the impact of recently adopted accounting pronouncements,products; our manufacturing capacity and manufacturing costs,costs; the adequacy of our agreements with our suppliers,suppliers; legislative actions and regulatory compliance,and environmental compliance; competitive position,position; management’s plans and objectives for future operations,operations; our ability to obtain financing,financing; our ability to comply with debt covenants or cure defaults, if any,any; our ability to repay our debt obligations as they come due,due; trends in average selling prices,prices; the success of our power purchase agreement entities, expectedcustomer financing arrangements; capital expenditures,expenditures; warranty matters,matters; outcomes of litigation,litigation; our exposure to foreign exchange, interest and credit risk,risk; general business and economic conditions in our markets,markets; industry trends,trends; the impact of changes in government incentives,incentives; risks related to cybersecurity breaches, privacy and data security,security; the likelihood of any impairment of project assets, long-lived assets and investments,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,revenue; future deployment of our Bloom Energy Servers expansion into new markets,and Bloom Electrolyzer; our ability to expand our business with our existing customers,customers; our ability to increase efficiency of our product,products; our ability to decreasemarket out products successfully in connection with the cost of our product, our future operating resultsglobal energy transition and financial position,shifting attitudes around climate change; our business strategy and plans and our objectives for future operationsoperations; and the impact of recently adopted accounting pronouncements.
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 Part I, Item 1A, - Risk Factors 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 Part I, Item 1A, - Risk Factors and elsewhere in this Annual Report on Form 10-K.
Explanatory Note
General
On February 11, 2020, our management, in consultation with the Audit Committee of our Board of Directors, determined that Bloom's previously issued consolidated financial statements as of and for the year ended December 31, 2018, as well as the unaudited interim financial statements for the three-month period ended March 31, 2019, the three- and six-month periods ended June 30, 2019 and 2018 and the three- and nine-month periods ended September 30, 2019 and 2018, should no longer be relied upon due to misstatements related to our Managed Services Agreements and similar arrangements, and we would restate such financial statements to make the necessary accounting corrections. The revenue for the Managed Services Agreements and similar transactions will now be recognized over the duration of the contract instead of upfront. In addition, management determined that the impact of these misstatements to periods prior to the three months ended June 30, 2018 was not material to warrant restatement of reported figures, however, our consolidated financial statements as of and for the year ended December 31, 2017, selected financial data as of and for the year ended December 31, 2016 and the relevant unaudited selected quarterly financial data for the three month period ended March 31, 2018 would be revised to correct these misstatements.
The misstatements are described in greater detail below.
Restatement Background
As described in our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on February 12, 2020, there were certain misstatements in prior periods financial statements relating to the accounting treatment for our Managed Services Agreements. Under our Managed Services program, we sell our equipment to a bank financing party under a sale-leaseback agreement, which pays us for the Energy Server and takes title to the Energy Server. We then enter into a service contract with an end customer, who pays the bank a fixed, monthly fee for its use of the Energy Server and pays us for our maintenance and operation of the Energy Server.
The majority of these Managed Services Agreements and similar transactions were originally recorded as sales, subject to an operating lease, in which revenues and associated costs were recognized at the time of installation and acceptance of the Bloom Energy Server at the customer site.
In December 2019, in the course of reviewing a Managed Services transaction that closed on November 27, 2019 under a Managed Services Agreements financing (as reported in our Current Report on Form 8-K filed with the SEC on December 5, 2019), an issue was identified related to the accounting for our Managed Services Agreements transactions. The issue primarily related to whether the terms of our Managed Services Agreements and similar arrangements, including the events of default provisions, satisfied the requirements for sales under the revenue accounting standards or instead required us to follow lease accounting standards (ASC 840). Subsequently, it was determined that the previous accounting for the Managed Services Agreements and similar transactions resulted in material misstatements, as the Managed Services Agreements and similar transactions should have been accounted for as financing transactions under lease accounting standards.
The impact of the correction of the misstatement is to recognize amounts received from the bank financing party as a financing obligation, and the Energy Server is recorded within property, plant and equipment, net on our consolidated balance sheets. In addition, payments received by the bank from the customer now cover amounts owed to the bank based on the power generated by the systems. We recognize revenue for the electricity generated by the systems, based on these payments, and the corresponding financing obligation to the bank is also amortized as payments are received from the customer, with interest thereon being calculated on an effective interest rate basis. Depreciation expense is also recognized over the estimated useful life of the Energy Server.
In addition, another error was identified related to stock-based compensation costs associated with manufacturing employees that were previously expensed, but should have been capitalized as a component of Energy Server manufacturing costs to inventory, deferred cost of revenues, construction-in-progress and property, plant and equipment as per ASC 330 and SEC Staff Accounting Bulletin Topic 14. These costs will now be expensed on consumption of the related inventory and over the economic useful life of the property, plant and equipment, as applicable.
Also, as part of a review of historical revenue agreements as a result of the issues above, it was noted that the Company failed to identify embedded derivatives in certain revenue agreements for an escalator price protection (“EPP”) feature given to its customers. As a result, the Company has recorded a derivative liability, with an offset to revenue, to account for the fair value of this feature at inception and will record the liability at its then fair value at each period end.
Finally, there were certain other immaterial misstatements identified or which had been previously identified which are also being corrected in connection with the restatement and/or revision of previously issued financial statements.
The correction of the misstatements resulted in a cumulative overstatement of revenue totaling $192.1 million through September 30, 2019, including $178.8 million relating to the cumulative period from April 1, 2018 through September 30, 2019 that is being restated in this Annual Report on Form 10-K, and $13.3 million relating to the cumulative period from January 1, 2016 through March 31, 2018 that is being revised in this Annual Report on Form 10-K. The corresponding cumulative overstatement of cost of revenue totaled $166.1 million through September 30, 2019, including $149.4 million relating to the cumulative period from April 1, 2018 through September 30, 2019 that is being restated in this Annual Report on Form 10-K, and additionally $16.7 million relating to the cumulative period from January 1, 2016 through March 31, 2018 that is being revised in this Annual Report on Form 10-K. We do not believe that the misstatements are material to any period prior to the three month period ended June 30, 2018.
Restatement, Revision and Recasting of Previously Issued Consolidated Financial Statements
This Annual Report on Form 10-K restates and revises previously filed amounts included in the 2018 Annual Report, including the consolidated financial statements as of December 31, 2018 and for the fiscal years ended December 31, 2018, 2017 and 2016.
The relevant unaudited Selected Quarterly Financial Data for the quarterly periods ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018 has also been restated, and March 31, 2018 has been revised. Additionally, the 2019 unaudited Selected Quarterly Financial Data included in this Annual Report on Form 10-K have also been recast for the effects of ASC 606 which we adopted with effect from January 1, 2019, using the modified retrospective method.
See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, and Note 3, Revenue Recognition, and Note 18, Unaudited Selected Quarterly Financial Data, in Item 8, Financial Statements and Supplementary Data for additional information.
The restatement and revision resulted in the following impacts to our previously reported results (in thousands, except per share data):
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| | | Nine Months Ended September 30, | | Year Ended December 31, |
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| | | Restatement Impact | | Restatement Impact | | Revision Impact |
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| Total revenues | | $ | (70,156 | ) | | $ | (109,390 | ) | | $ | (10,373 | ) |
| Gross profit (loss) | | (17,233 | ) | | (11,320 | ) | | 1,733 |
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| Net loss available to common stockholders (increase) | | (36,793 | ) | | (31,787 | ) | | (13,763 | ) |
| Basic and diluted loss per common share (increase) | | (0.32 | ) | | (0.60 | ) | | (1.34 | ) |
Internal Control Considerations
In connection with the restatement, our management has assessed the effectiveness of our internal control over financial reporting. Based on this assessment, management identified a material weakness in our internal control over financial reporting resulting in the conclusion by our Chief Executive Officer and Chief Financial Officer that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2019. Management is taking steps to remediate the material weakness in our internal control over financial reporting, as described in Item 9A.
See Item 9A, Controls and Procedures, for additional information related to the identified material weakness in internal control over financial reporting and the related remediation measures.
Part I
ITEM 1 - BUSINESS
Overview
Bloom Energy’sOur mission is to make clean, reliable andenergy affordable energy for everyone in the world. Our product,We created the Bloom Energy Server, is a stationaryfirst large-scale, commercially viable solid oxide fuel-cell based power generation platform built forthat empowers businesses, essential services, critical infrastructure and communities to responsibly take charge of their energy.
Our technology, invented in the digital ageUnited States, is one of the most advanced electricity and capable of delivering highly reliable, always-on, 24x7 constant power that is also clean and sustainable. Thehydrogen producing technologies on the market today. Our fuel-flexible Bloom Energy Server converts standard low-pressureServers can use biogas, hydrogen, natural gas, or biogas intoa blend of fuels to create resilient, sustainable and cost-predictable power at significantly higher efficiencies than traditional, combustion-based resources. In addition, our same solid oxide platform that powers our fuel cells can be used to create hydrogen, which is increasingly recognized as a critically important tool necessary for the full decarbonization of the energy economy. Our enterprise customers include some of the largest multinational corporations in the world. We also have strong relationships with some of the largest utility companies in the United States and the Republic of Korea.
At Bloom Energy, we look forward to a net-zero future. Our technology is designed to help enable this future in order to deliver reliable, low-carbon, 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 kilowattsa world facing unacceptable levels of power disruptions. Our resilient platform has kept electricity available for our customers through hurricanes, earthquakes, typhoons, forest fires, extreme heat and grid failures. Unlike traditional combustion power generation, our platform is community-friendly and designed to significantly reduce emissions of criteria air pollutants. We have made tremendous progress making renewable fuel production a reality through our biogas, hydrogen and electrolyzer programs, and we believe that we are well-positioned as a core platform and fixture in a footprint roughly equivalentthe new energy paradigm 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. These solutions can also be configured as Bloom Energy AlwaysON Microgrids, providing the capability to power facilities independently of the main electrical grid indefinitely.help organizations and communities achieve their net-zero objectives.
Our team has decades of experience in the various specialized disciplines and systems engineering concepts embedded in thisour technology. We had 240have 287 issued patents in the United States and 124147 issued patents internationally as of December 31, 2019.
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.
We currently have installations in eleven states in the United States (California, Connecticut, Delaware, Maryland, Massachusetts, North Carolina, New Jersey, New York, Pennsylvania, Utah and Virginia) as well as in Japan, India and the Republic of Korea.2021.
The United States is currently our biggest market and represents our largest market and installed base of Bloom Energy Servers. Some of our largest customers in the U.S.United States include AT&T, Caltech, Delmarva Power & Light Company, Equinix, The Home Depot, Kaiser Permanente and The Wonderful Company. We also work actively with a number of U.S. financing partners such as Southern PowerSecure Holdings, Inc. ("The Southern Company"), Duke Energy One, Inc., Key Equipment Finance, a division of KeyBank National Association, and Assured Guaranty Municipal Corporation. These finance partnerswho purchase our systems and deploy theour systems at end-customers’ facilities in order to provide “electricity-as-a service."
Outside of the electricity as a service.
SouthUnited States, the Republic of Korea is a world leader in the deployment of fuel cells for utility-scale electric power generation with approximately 300 megawatts ("MW") deployed.generation. We entered this market with a first deployment of an 8.35 MW8.35-megawatt ("MW") Bloom Energy Server solution for a Korean utility that began commercial operation in 2018 and it2018. The Republic of Korea now represents our second largestsecond-largest market. SK ecoplant Co., Ltd. (“SK ecoplant,” formerly known as SK Engineering and& Construction Co., Ltd.), a subsidiary of the SK Group, serves as the primary distributor of our systems in Souththe Republic of Korea. In October 2021, we announced an expansion of our existing partnership with SK ecoplant, that includes purchase commitments of at least 500MW of power for our Energy Servers between 2022 and 2025 on a take or pay basis, the creation of hydrogen innovation centers in the United States and the Republic of Korea to advance green hydrogen commercialization, and an equity investment in Bloom Energy.
We are also operating smaller deployments in India and Japan with commercial customers, with additional projects in development in Europe, Southeast Asia and these markets are still developing.Australia.
Our headquarters is located at 4353 North First Street, San Jose, California 95134 and our telephone number is (408) 543-1500. Our website address is www.bloomenergy.com. The information contained on any website referred to in this Annual Report on Form 10-K does not form any part of this Annual Report on Form 10-K and is not incorporated by reference herein unless expressly noted.
Our History
We were incorporated in the state of Delaware on January 18, 2001 as Ion America Corporation. On September 20, 2006, we changed our name to Bloom Energy Corporation.
Our most significant deployment milestones to date include:
Our first commercial deployment: 400 kilowatt deployment for a major internet company in August 2008;
Our first deployment under a PPA financing: Completion of the first deployment that was financed pursuant to a PPA in October 2010;
The largest commercial customer deployment of fuel cell technology in the United States: 10 megawatt deployment at a major consumer technology company’s data center completed in December 2012;
The first large scale deployment of fuel cell technology to provide mission critical, primary power to a data center, without traditional backup power from diesel generators, batteries and UPS systems: 9.8 megawatt deployment in Utah in two phases completed in September 2013 and March 2015;
The largest utility scale deployment of fuel cell technology in the United States: 30 megawatt deployment in Delaware for Delmarva completed in November 2013;
The first international deployments: First site deployed in Japan to provide uninterruptible power completed in June 2013; first site deployed in India in the second quarter of 2016; first site deployed in South Korea and first Power Tower deployment in the fourth quarter of 2018; and
Major cumulative deployment milestones: Cumulative deployment of 50 megawatts by September 2012, cumulative deployment of 100 megawatts by September 2013, cumulative deployment of 200 megawatts by June 2016, cumulative deployment of 300 megawatts by March 2018, 85th microgrid installed in May 2019, and cumulative deployment of 380 megawatts by December 2019.
In July 2018, we completed an initial public offering of our common shares and sold 20,700,000 shares of our Class A common stock into the market.
Industry Background
According to Marketline, the market for electric power is one of the largest sectors of the global economy with total revenues of $2.5 trillion in 2017, and is projected to grow to $3.4 trillion in 2022.
There are numerous challenges facing producers ofthe traditional system for producing and delivering 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 itswhere centralized mainframe computing and landline telephone systems' shiftsystems ultimately gave way to the ubiquitous and highly personalized distributed technologies seen today.today, as well as the reimagining of business processes, culture and customer experiences.
Increasing capital costsResilience is now a strategic imperative. The rising frequency and intensity of natural disasters and extreme weather in recent years underscores a critical need for greater grid resilience. 2021 was characterized by increasing, frequent and costly extreme weather events. In the United States alone, there were 20 weather/climate disaster events with losses exceeding $1 billion each. These events included droughts, flooding, tropical cyclones, tsunamis, wildfires and winter storms, resulting in
billions of dollars in economic impact. 2021 was also the seventh consecutive year with 10 or more billion dollar climate-related events in the United States. Extreme weather’s economic toll is rising as well. The total cost of 2021’s billion dollar weather events is estimated at $145 billion, the third most costly year on record, while the total cost for the last five years exceeds one-third of the total disaster cost of the last 42 years.
Stakeholders across industries grapple with the question of how 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,prepare for more intense natural disasters while maintaining course toward achieving their climate targets. These climate threats are 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. In 2019, California’s major utilities shut off power to millions of people and businesses as part of their Public Power Safety Shutoff program to reduce the risk of their electric equipment sparking fires, which left some customers without power for nearly six days. These outages result in annual losses 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-attackcyber-attacks and physical sabotage to the centralized grid infrastructure.
Intermittent generation sources such as wind These acute issues further add to a chronic concern; the fragility of decades-old energy system elements that have suffered from deferred maintenance and solar are negatively impacting grid stability. Asreplacement, which can only be partially remedied by the penetrationbillions of wind and solar resources increases, balancing real-timedollars of new investment from the recently passed infrastructure bill. In an increasingly electrified world, from electric vehicles, to automated manufacturing, to the digitalization of everything, power supply and demand becomesreliability are more challengingimportant now than ever. This has elevated the discussion around the essential role that distributed generation and costly. Duemicrogrids can play in improving the resilience of both businesses and the grid. As outages increase, businesses are considering the “cost of not having power” instead of just the “cost of power.” Energy resilience is becoming an issue business leaders can no longer afford to these challenges, solutions are neededneglect – both from a strategic and cost perspective.
Rise in centralized capacity constraints. The traditional centralized grid model is increasingly showing weaknesses. For example, in the summer of 2021, California issued an emergency proclamation order, documenting the drastic measures that provide constant base load 24x7 electricmust be taken to secure sufficient capacity to be able to avert catastrophic blackouts. Californians were asked to conserve energy, customers with diesel generators were being asked to run them and the state suspended many environmental permitting rules and regulations related to the deployment of power thatgeneration. This is reliable, clean and without the shortcomingsone of the existingmany reasons why microgrids, localized energy systems that can operate alongside a main grid or disconnect and operate autonomously, are playing an increasingly important role, providing a critical, twenty-four hours a day and seven days a week ("24x7"), always-on energy solution, powering critical infrastructure, or intermittent sources such as windoffsetting demand on the grid, and solar. This needsupplying power to the grid when it 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.most needed.
Increasing focus on reducing harmful local emissions. The electric power sector, which today produces more greenhouse gases than any other sectorAir pollution is the fifth leading risk factor for mortality worldwide. Indeed, calculations of the global economy, is undereconomic and health benefits associated with reducing localized air pollution such as nitrogen oxides, which are produced by combusting fuel, and particulate matter emissions have been found to exceed the economic and health benefits of reducing carbon emissions. And, unfortunately, the COVID-19 pandemic has only further shed light on these detrimental health impacts. Recent studies have linked long-term exposure to air pollution and COVID-19 death rates. They have also found that, nationwide, low-income communities of color are exposed to significantly higher levels of pollution, experiencing higher levels of lung disease and other ailments as a result. Policymakers are rightly increasing pressure to do its part to reducethe emphasis on reducing such emissions. Policy initiatives to reduce harmful local emissions from power generation are widespread, includingas they consider the adoption of renewable portfolio standardsRenewable Portfolio Standards (“RPS”) or other mandated targets for low- or zero-carbon power generation.
Lack of accessHydrogen is key 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. zero-carbon future. We believe these countries are likelyhydrogen will be a critical foundation for the energy industry of the future, a truly clean alternative for both natural gas and transportation fuels. Hydrogen’s unique advantages – high energy density, zero carbon gas emissions from consumption, and ease of storage and transportation – make it an especially attractive investment opportunity for those interested in a zero-carbon energy mix. Given the well-documented challenges that utilities and grid operators have faced as they integrate increasingly intermittent renewable resources on the grid, predictable round-the-clock hydrogen power will be an invaluable resource as more grids move towards a truly zero-carbon resource mix. The key limiting factor in the use of hydrogen, which does not readily exist in nature as a separate molecule, is that it cannot be mined, extracted or otherwise produced in its desired state without a manufacturing process. As both transportation and the electricity sector transition to develop a hybrid solution consisting ofzero-carbon future, there will thus be increasing demand for both centralizedtechnologies that can efficiently generate power using hydrogen, and distributed electrical power infrastructure to accelerate the availability of power.
for large-scale electrolysis or carbon capture technology that can produce clean hydrogen at scale.
Our SolutionSolutions
TheWe were the first company to successfully commercialize and scale the solid oxide platform. Our platform delivers distributed electricity and hydrogen generation through our stationary fuel cells, our solid oxide electrolyzer and our marine technology.
Distributed electricity production. Our stationary fuel cell solution, the Bloom Energy Server, deliversis designed to deliver reliable, resilient, clean and affordable energy particularly in areas of high electricity costs, through its advanced distributedfor utilities and organizations alike. Ideally suited for microgrid and primary power generation system that is customizable, always-on and a source of primary base load power.
Theapplications, the Bloom Energy Server is based on our proprietary solid oxide fuel cell technology whichthat converts fuel, such as natural gas, biogas, hydrogen, or a blend of these fuels, into electricity through an electrochemical process without combustion. The primary input to the system is standard low-pressure natural gas or biogas from local gas lines. The high-quality electrical output of our Energy Server iscan be connected to the customer’s main electrical feed, thereby avoiding the transmission and distribution losses associated with a centralized grid system. Each Bloom Energy Server is
modular and composed of independent 50-kilowatt power modules. A typical configuration includes multiple power modules in a single Energy Server and can produce 250up to 300 kilowatts of power in a footprint roughly equivalent to that of half a standard 30 foot shipping container, or approximately 125 times more space-efficient than solar power generation.parking space. 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. The Bloom Energy Server iscan be easily integrated into corporatecommunity environments due to its aesthetically attractive design, compact space requirement, and minimal noise profile.profile and lack of criteria air pollutants.
Hydrogen generation. We believe we are uniquely positioned for the hydrogen future of tomorrow. Using the same solid oxide platform as our Energy Server, the Bloom Electrolyzer is designed to produce scalable and cost-effective hydrogen solutions. Our modular design makes the Bloom Electrolyzer ideal for applications across gas, utilities, nuclear, concentrated solar, ammonia and heavy industries. Our solid oxide, high-temperature electrolyzer is designed to produce hydrogen onsite more efficiently than low-temperature PEM and alkaline electrolyzers. Because it operates at high temperatures, the Bloom Electrolyzer is designed to require less energy to break up water molecules and produce hydrogen. As electricity accounts for nearly 80 percent of the cost of hydrogen from electrolysis, using less electricity increases the economics of hydrogen production and helps bolster adoption. The Bloom Electrolyzer is designed to produce green hydrogen from 100 percent renewable power. Using less electricity increases the economics of hydrogen production and helps bolster adoption. The hydrogen produced onsite at a customer’s facility can either be used as a fuel source or stored for consumption at a later point.
Marine Transportation. We have also adapted our fuel cell technology to advance the decarbonization of the marine industry through the design and development of fuel cell powered ships. The marine sector is a significant source of global pollution, as many ships continue to use carbon-rich fuels such as bunker fuel, diesel, and other hydrocarbons. As global infrastructure for hydrogen and other emission-free fuels continue to develop, our modular, fuel-flexible and upgradable platform is designed to allow for existing ships in service to be upgraded, allowing the marine sector long-term flexibility and scalability for improved, future-proof, ship design. Furthermore, noise pollution and mechanical vibrations are substantially reduced when Bloom’s fuel cells are used as a power source aboard ships. Our platform is IMO 2040- and 2050-ready today, with the ability to operate on liquefied natural gas, biogas and blended hydrogen. We are committed to developing the platform to accommodate multiple renewable fuels, like green methanol and bio-ethanol, as the marine fuel market develops.
Our Value Proposition
Our energy platform has three key value proposition has five key elements which allow us to deliver a better electron: reliability,propositions: resiliency, cost savings and predictability, sustainability and personalization.predictability. We seek to provide a complete, integrated “behind-the-meter” solution including installation, equipment, service, maintenance and, in somelimited cases, bundled fuel. The fivethree elements of our value proposition emphasize those areas where there is a strong customer need and where we believe we can deliver superior performance.
Reliability. Our Energy Servers deliver always-on, 24x7 base load power with very high availability of power, mission-critical reliability and grid-independent capabilities. The Bloom Energy Server can be configured to eliminate the need for traditional backup power equipment such as diesel generators, batteries and uninterruptible power systems.
Resiliency. Our Energy Servers avoid the vulnerabilities of conventional transmission and distribution lines by generating power on-site where the electricity is consumed. The system operates at very high availability due to its modular and fault-tolerant design, which includes multiple independent power generation modules that can be hot-swapped.hot-swapped to provide uninterrupted service. Unlike traditional combustion generation, Bloom Energy Servers can be serviced and maintained without powering down the system. Importantly, our systemsBloom Energy Servers that utilize the existing natural gas infrastructure which isrely on a redundant underground mesh network.network, intended to provide for extremely high fuel availability that is protected from the natural disasters that often disrupt the power grid.
Cost Sustainability. Our Energy Servers uniquely address both the causes and consequences of climate change. Our projects lower carbon emissions by displacing less-efficient fossil fuel generation on the grid, which improves air quality, including in vulnerable communities, by generating electricity without combustion, offsetting combustion from grid resources as well as eliminating the need for dirtier diesel backup power solutions. Our microgrid deployments provide customers with critical resilience to grid instability, including disruptions resulting from climate-related extreme weather events. Our products achieve this while consuming no water during operation, with optimized land use as a result of our high-power density.
We are focused on product innovation, including the continued reduction of carbon emissions from our products, and we are engaged in multiple efforts to align our product roadmap with a zero-carbon trajectory. We are developing new applications and market opportunities in sectors with dirtier grids and higher marginal emissions displacement. In July 2021, we announced that we will convert our entire global natural gas fleet to certified low-leak natural gas to reduce the release of harmful methane emissions stemming from upstream gas production. We are also focused on scaling use of renewable natural gas (“RNG”) – which is pipeline quality natural gas derived from biogas produced from decomposing organic waste, generally from landfills, agricultural waste and wastewater treatment facilities – as fuel for our Energy Servers and building capacity within the RNG market to broaden adoption.
Additionally, we are pushing technology and business model boundaries to pioneer carbon capture and utilization and storage potential. It is both more feasible and cost-effective to capture carbon-dioxide emissions from our Energy Servers than from combustion generation, as no costly and complex separation of other gases like nitrogen is required. Captured carbon-dioxide emissions can be stored in underground geologic formations or utilized in new products or processes.
We continue to progress on our development and commercialization of scalable and cost-effective 100 percent hydrogen solutions and zero emission power generation. Our flexible and modular platform approach allows for customization at the time of equipment commissioning and a pathway to upgrade existing systems to align with the sustainability goals of our customers over time. In 2021, we announced the commercial availability of our hydrogen-powered fuel cells and electrolyzers capable of producing clean hydrogen. Our 100 kilowatt hydrogen-powered Energy Server project in the Republic of Korea commenced operations in April 2021 and our electrolyzer project has been successfully installed and began producing hydrogen in January 2022.
Finally, we continue to leverage our platform in innovative ways, including collaborating with the Department of Energy's Idaho National Lab to efficiently create clean hydrogen using our electrolyzer and excess nuclear energy; generating green hydrogen by integrating our electrolyzer with Heliogen’s concentrated solar energy system; and working with others to find uses of our products in the hydrogen economy.
Predictability. In contrast to the rising and unpredictable cost outlook for grid electricity, we offer our customers the ability to lock in cost for electric power (other thanover the long-term. Unlike the grid price of natural gas) overelectricity, which reflects the long-term.cost to maintain and update the entire transmission and distribution system, our price to our customers is based solely on their individual project. In the regions where the majority of our Energy Servers are deployed, our solution typically provides electricity to our customers at a cost that is competitive with traditional grid power prices. In addition, our solution provides greater cost predictability versus rising grid prices. Whereas grid prices are regulated and subject to frequent change based on the utility’s underlying costs, customers can contract with us for a known price in each year of their contract. Moreover, we provide customers with a solution that includesoffers all of the fixed equipment and maintenance costs for the life of the contract.
Sustainability. In operation, Bloom’sOur Energy Servers uniquely address both the causes and consequences of climate change. Our projects lower carbon emissions by displacing less efficient grid alternatives. We improve air quality, often in vulnerable communities, by generating electricity without combustion, and our microgrid deployments provide critical resilience from grid instability, driven increasingly by climate related extreme weather events. Our products achieve this all while using no water during operation and atare designed to deliver 24x7 power with very high power density, which optimizes land use.
We are focused on constant product innovation, including the continued reduction of carbon emissions from our productsavailability, mission-critical reliability and are engaged in multiple efforts to align Bloom’s product roadmap with a zero emission trajectory. Already we are developing new applications and market opportunities in sectors with dirtier grids and higher marginal emissions displacement. We are focused on scaling use of renewable natural gas ("RNG") which is derived from biogas produced from decomposing organic waste from landfills, agricultural waste, and wastewater from treatment facilities, as fuel for our Energy Servers and building capacity within the market to further broader adoption. RNG is a biogas that has been upgraded to a quality similar to fossil natural gas and has a methane concentration of 90% or greater.
Additionally, we are pushing technology and business model boundaries to pioneer carbon emissions capture, utilization & storage ("CCUS") potential. Because carbon and nitrogen never mix in Bloom’s Servers, it is both feasible and cost effective to capture CO2 emissions, which can be stored in underground geologic formations or utilized in new products or processes. Finally, our research and development efforts continue to focus on preparing our Energy Servers to utilize renewable hydrogen fuel, a 100% clean fuel which is produced by breaking down water into hydrogen and oxygen using electrolysis. No new greenhouse gases would be produced when Energy Servers run on hydrogen, and using excess renewable capacity to create hydrogen would also help support further renewable adoption, compounding emissions benefits.
With our distributed, always-on, non-combustion process of generating clean electricity, Bloom works every day to reduce emissions, build resilience, and promote sustainable communities.
Personalization. grid-independent capabilities. The Bloom Energy Server is designed as a platform which can be customizedconfigured to eliminate the needs of each customerneed for traditional backup power equipment such as diesel generators, batteries and uninterruptible power systems by providing primary power to a facility that seamlessly continues to deliver power even when the grid fails. Our Energy Servers are designed to offer consistent power quality supply for mission critical operations that require a high level of electrical reliability resiliency, sustainability, and cost predictability. For example,uninterrupted availability, such as data centers, hospitals, and biotechnology facilities. This is particularly important as society becomes more reliant on digital systems and sophisticated operational technology. Power quality issues can cause equipment failure, downtime, data corruption and increased operational costs
Further, our Energy Servers were designed to provide ‘quick time to power’– the ability to be deployed and begin generating power in as little as days or weeks – as an important value proposition for customers that need to ramp up power quickly. This capability is ideal for customers who need critical power but are facing utility capacity constraints, delays or additional costs. The modularity, quick deployment, ease of installation and small footprint of our Energy Servers facilitate ease of accessibility to power.
Our Energy Server can be enhanced with AlwaysON Microgridmicrogrid components to deliver higher levels of reliability and grid independentgrid-independent operation. Customers can optimize their solution for mission-critical level, power quality solutions, such as in a data center application, to more basic outage protection, such as for a retail store. Customers also have a variety of choices for financing vehicles, contract duration, pricing schedules and fuel procurement.
Technology
Our solid oxide technology platform is the foundation for both our Energy Servers and our Bloom Electrolyzer. The solid-oxide fuel cells in our Energy Servers convert fuel, such as natural gas, biogas, hydrogen, or biogas,a blend of fuels into electricity through an electrochemical reaction without burning the fuel. Each individual fuel cell is composed of three layers: an electrolyte sandwiched between a cathode and an anode. The electrolyte is a solid ceramic material, and the anode and cathode are made from inks that coat the electrolyte. Unlike other types of fuel cells, no precious metals, corrosive acids or molten materials are required. These fuel cells are the foundational building block of our Bloom Energy Server. We combine a number of the fuel cells into a stack, and then combine a number of the stacks to form 50 kilowatt power modules (depending upon the generation required by the customer). Any number of these Energy Server systems can be arranged in various configurations to form solutions from hundreds of kilowatts to many tens of megawatts. Regardless of the starting size of a solution, further scaling can be accomplished after the initial solution deployment, creating on-goingongoing flexibility and scalability for the customer.
Our electrolyzer technology dates to the 1980s, when our co-founders first developed electrolyzers to support the U.S. military and later NASA’s Mars exploration programs. In a primary power configuration, the early 2000s, 19 patents were awarded to Bloom Energy Serverfor its electrolyzer technology. With reduced renewable energy costs and the global movement to decarbonize, we believe it is interconnectedthe right moment to the customer’s electric grid connection. By regulation, thecommercialize our hydrogen technology. The Bloom Energy Server must stop exporting power in case ofElectrolyzer is based on our solid oxide technology, and is designed to generate hydrogen from electricity at superior efficiencies compared to PEM and alkaline solutions. Our electrolyzer advances decarbonization efforts by providing a grid outage. However, Energy Servers can be upgraded to AlwaysON Microgrid solutions as add-on options at any point in time to enable continuous operation in the event of grid interruption. When in an always-on configuration, the Energy Server continually powers critical loads while the grid serves as a backup. Should there be a disruption to grid power, the critical load, which is already receiving primary power from the Energy Server, experiences no disruption. The combination of always-on power from our Energy Server, utilizingclean fuel for carbon-free generation, injection into the natural gas infrastructure,pipeline, transportation, or for use in industrial processes. Because it operates at high temperatures, the Bloom Electrolyzer requires less energy to break up water molecules and secondary feed from the independent electric grid results in a very highly available and reliable solution.produce hydrogen.
Research and Development
Our research and development organization has addressed complex applied materials, processing and packaging challenges through the invention of many proprietary advanced material science solutions. Over more than a decade, Bloom has built a world-class team of solid oxide fuel cell scientists and technology experts. Our team comprises technologists with degrees in Materials Science, Electrical Engineering, Chemical Engineering, Mechanical Engineering, Civil Engineering and Nuclear Engineering, and includes more than 46 PhDs.43 PhDs within these or related fields. This team has continued to develop innovative technology improvements for our Energy Servers. Since our first-generation technology, we have reduced the costs and increased the output of our systems through the next generation of our Energy Servers achievingand increased power densitythe life of our fuel cells by over two and electrical efficiency, reduced cost and improved reliability.half times.
We have invested and will continue to invest a significant amount in research and development. See our discussion of research and development expenses in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K for further information.
Competition
We primarily compete against gas engines, combined heat and power systems, and the utility grid with diesel back-up, based on superior reliability, resiliency, cost savings, predictability and sustainability, all of which can be customized to the needs of individual customers. The customer has no singleCustomers do not currently have alternative solutionsolutions that providesprovide all of these important attributes in one platform. As we are able to drive our costs down and make technological improvements, we expect our economic value proposition to continue to improve relative to grid power in additional markets.
Other sources of competition – and the attributes competitionthat differentiate us – include:
•Intermittent solar power. power paired with storage. Solar power is intermittent and best suited for addressing day-time peak power requirements, while Bloom providesour Energy Servers are designed to provide stable base loadbaseload generation. Storage technology is intended to address the intermittency of solar power, but the low power density of the combined technologies and efficiencythe challenges of extended poor weather events that sharply decrease solar technologypower production and battery recharging makes the combined solution impractical for most commercial and industrial customers.customers looking to offset a significant amount of power. As a point of comparison, our Energy Servers provide the same power output in 1/125th125th of the footprint of a photovoltaic solar installation, allowing us to serve far more of a customer’s energy requirements based on a customer’s available and typically limited space.
•Intermittent wind power. Power from wind turbines is intermittent, similar to solar power. Typically, wind power is deployed for utility-side, grid-scale applications in remote locations but not as a customer-side, distributed power alternative due to prohibitive space requirements and permitting issues. Where distributed wind power is available, it can be combined with storage, with similar benefits and challenges to solar-and-storage combinations. Remote wind farms feeding into the grid are dependent upondo not help end customers avoid the vulnerablevulnerabilities and costs of the transmission and distribution infrastructure to transport power to the point of consumption.
system.
•Traditional co-generation systems. These systems deliver a combination of electric power and heat.heat from combustion sources. We believe that we compete favorably because of our non-combustion platform, superior electrical efficiencies, significantly less complex deployment (avoiding heating systems integration), better performance on emissionsintegration and noise,requiring less space), superior availability, aesthetic appeal and reliability.
Unlike these systems, which depend on the full and concurrent utilization of waste heat to achieve high efficiencies, we can provide highly efficient systems to any customer based solely on their power needs.•Traditional backup equipment. As our Energy Servers deliver always-onreliable power, particularly in microgrid configurations where our Energy Servers can operate during grid outages, they can obviate the need for traditional backup equipment
such as diesel generators. WeBy providing combustion-free power 24x7 rather than just as backup, we generally compete by offeringoffer a better integrated, more reliable, cleaner and cost-effective solution versusthan these grid-plus-backup systems.
•Other commercially available fuel cells. Basic fuel cell technology is over 100 years old. The BloomOur Energy Server uses advanced solid oxide fuel cell technology, which produces electricity directly from oxidizing a fuel. The type of solid oxide fuel cell that we compete against has a solid oxide or ceramic electrolyte. The advantages of our technology include higher efficiency, long-term stability, elimination of the need for an external fuel reformer, ability to use biogas, or natural gas, or hydrogen as a fuel, low emissions and relatively low cost. There are a variety of fuel cell technologies, characterized by their electrolyte material, including:
◦Proton exchange membrane fuel cells ("PEM"(“PEM”). PEM fuel cells typically are used in on-boardonboard transportation applications, such as powering forklifts, because of their compactness and ability for quick starts and stops. However, PEM technology requires an expensive platinum catalyst, which is susceptible to poisoning by trace amounts of impurities in the fuel or exhaust products. These fuel cells require hydrogen as anhigh cost fuel input sourcesources of energy or an external fuel reformer, which adds to the cost, complexity and electrical inefficiency of the product. As a result, they are not typically an economically viable option for stationary base loadbaseload power generation.
◦Molten carbonate fuel cells ("MCFC"(“MCFC”). MCFCs are high-temperature fuel cells that use an electrolyte composed of a molten carbonate salt mixture suspended in a porous, chemically inert ceramic matrix of beta-alumina solid electrolyte. The primary disadvantages of current MCFC technology are durability and lower electrical efficiency compared to solid oxide fuel cells. Current versions of the product are built for 300 kilowattskilowatt systems, and they are monolithic.monolithic rather than modular. Smaller sizes are typically not economically viable. In many applications where the heat produced by these fuel cells is not commercially or internally useable continuously, mitigating the heat buildup also becomes a liability.
◦Phosphoric acid fuel cells ("PAFC"(“PAFC”). PAFCs are a type of fuel cell that uses liquid phosphoric acid as an electrolyte. Developed in the mid-1960s and field-tested since the 1970s, they were the first fuel cells to be commercialized. PAFCs have been used for stationary power generators with output in the 100 kilowatt to 400 kilowatt range. PAFCs are best suited to combined heat and power output applications whichthat require carefully matching and constant monitoring of power and heat requirements (heat is typically not required all year long thus significant efficiency is lost), often making the technology difficult to implement. Further, disadvantages include low power density and poor system output stability.
Intellectual Property
Intellectual property is an essential differentiator for our business, and we seek protection for our intellectual property whenever possible. We rely upon a combination of patents, copyrights, trade secrets, and trademark laws, along with employee and third partythird-party non-disclosure agreements and other contractual restrictions to establish and protect our proprietary rights.
We have developed a significant patent portfolio to protect elements of our proprietary technology. As of December 31, 2019,2021, we had 240287 issued patents and 8396 patent applications pending in the United States, and we had an international patent portfolio comprised of 124comprising 147 issued patents and 5080 patent applications pending. Our U.S. patents are expected to expire between 2023 and 2036.2040. While patents are an important element of our intellectual property strategy, our business as a whole is not dependent on any one patent or any single pending patent application.
We continually review our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration of our domain names and trademarks and service marks in the United States and in some locations abroad. "Bloom Energy"“Bloom Energy” and the "BE"“BE” logo are our registered trademarks in certain countries for use with Energy Servers and our other products. We also hold registered trademarks for, among others, “Bloom Box," "Bloom Electrons," "BloomConnect,"” “BloomConnect,” “BloomEnergy,” and “Energy Server"Server” in certain countries. In an effort to protect our brand, as of December 31, 2019,2021, we had 8eight registered trademarks in the United States, 3440 registered trademarks in Australia, China, the European Union, India, Japan, Republic of Korea, Taiwan, the United Kingdom Japan, South Korea, and Taiwan, and 3two pending applications in China.
When appropriate, we enforce our intellectual property rights against other parties. For more information about risks related to our intellectual property, please see the risk factors set forth under the caption "Item 1A. Part I, Item 1A, Risk Factors" including the following risks disclosed under the heading "RisksFactors - Risks Related to Our Intellectual Property": "Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly," "Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection,Property.
either of which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours," and "We may need to defend ourselves against claims that we infringed, misappropriated, or otherwise violated the intellectual property rights of others, which may be time-consuming and would cause us to incur substantial costs."
Manufacturing Facilities
Our primary manufacturing facilities for the fuel cells and Energy Servers assembly are in Sunnyvale, California, Fremont, California, and Newark, Delaware and Sunnyvale, California. The 226,600 square footDelaware. We own our 76,000 square-foot manufacturing facility that we own in Newark, iswhich was our first purpose-built Bloom Energy manufacturing center and was designed specifically for copy-exact duplication as we expand, which we believe will help us scale more efficiently. Additionally, we lease various manufacturing facilities in Sunnyvale and Mountain View, California. Our current lease for our Sunnyvale manufacturing facilities, entered into in April 2005, expires in 2020 and is in the process of being extended, and our current lease for our manufacturing facility in Mountain View, entered into in December 2011, expires in December 2020. Our California facilities comprise approximately 281,265 square feet of manufacturing space.
We believe our current manufacturing facilities are adequate to support our business for the next few years. Our Newark facility includes an additional 5025 acres available for factory expansion and/or the co-location of supplier plants. Both of our two principalWe lease various manufacturing facilities are powered by Bloom Energy Servers.in California. The current lease for our 50,000 square-foot principal Sunnyvale manufacturing facility expires in December 2023. We leased a new 89,000 square-foot R&D and manufacturing facility in Fremont, California that became operational in April 2021. Additionally, we leased a new 164,000 square-foot manufacturing facility in Fremont, California that became operational in January 2022.
In 2020, we established a light-assembly facility in the Republic of Korea, in connection with our efforts to develop a local supplier ecosystem through a joint venture with SK ecoplant. Operations began in early July 2020.
Please see Part I, Item 2, Properties for additional information regarding our facilities.
Supply Chain
Our supply chain has been developed, since our early days as a company,founding, with a group of high qualityhigh-quality suppliers that support automotive, semiconductor and other traditional manufacturing organizations. ManyThe production of thefuel cell systems requires rare earth elements, precious metals, scarce alloys and industrial commodities. Our operations require raw materials, and in certain cases, third-party services that require special manufacturing processes. We generally have multiple sources of supply for our raw materials and services except in cases where we have specialized technology and material property requirements. Our supply base is spread around many geographies in Asia, Europe and India, consisting of suppliers with multiple areas of expertise in compaction, sintering, brazing and dealing with specialty material manufacturing techniques. That where possible, we responsibly source components that they produce for us are customizedlike interconnects and have long lead time components.balance of system components from various manufacturers on both a contracted and a purchase order basis. We have beenmulti-year supply agreements with some of our supply partners for supply continuity and pricing stability. We are working to mitigate these long lead times by developing second sources and have developed an active business continuity program. We, along with our suppliers also purchase longand partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale.
There have been a number of disruptions throughout the global supply chain as the global economy opens up and drives demand for certain components that has outpaced the return of the global supply chain to full production. We continued to manage disruptions from an increase in lead itemstimes for most of our components due to assure componenta variety of factors, including supply for continuity.shortages, shipping delays and labor shortages, and we expect this to continue into the first half of 2022. During 2021, we experienced delays from certain vendors and suppliers as a result of these factors, although we were able to mitigate the impact so that we did not experience delays in the manufacture of our Energy Servers and only one instance of a significant delay in the installation of our Energy Servers. For additional information on our supply chain, please see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – COVID-19 Pandemic.
Services
We offerprovide operations and maintenance services agreements ("O&M Agreements") for all of our Energy Servers, which are renewable at the election of the customer on an annual basis. The customer agrees to pay an on-goingongoing service fee and in return Bloom monitors, maintainswe monitor, maintain and operatesoperate the Bloom Energy Servers systems on the customer's behalf. We currently service and maintain every installed Bloom Server worldwide.
OurAs of December 31, 2021, our in-house service organization had 11478 dedicated field service personnel distributed across multiple locations in 17 locations as of December 31, 2019. Standard customer contractsboth the United States and internationally. Our standard O&M Agreements include service covering all on-going system operation, maintenance, including the periodic refresh and replacement of power modules, and 24x7full remote monitoring and control.24x7 operation of the systems as well as preventative maintenance, in terms of filter and adsorbents replacements and on-site part and periodic fuel cell module replacements.
Our two Remote Monitoring and Control Centers (“RMCC”) provide 24x7 coverage of every installed Bloom Energy Server worldwide. By situating our RMCC centers in the United States and India we are able to provide 24x7 coverage cost effectively and also provide a dual redundant system with either site able to operate continuously should an issue arise. Each Bloom Energy Server we ship includes instrumentation and a secure telemetry connection that enables either RMCC to redundant Remote Monitoring and Control Center ("RMCC") facilities that are geographically well separated. There are two RMCC facilities which provide constant monitoring ofmonitor over 500 system performance parameters and predictive factors.real time. This comprehensive monitoring capability enables the RMCC operators to have a detailed understanding of the internal operation of our power modules. Using proprietary, internally developed software, the RMCC operators can optimize fleetdetect changes and override the onboard automated control systems to remotely adjust parameters to ensure the optimum system performance remotely from either RMCCis maintained. In addition, we undertake advanced predictive analytics to identify potential issues before they arise and undertake adjustments prior to a failure occurring.
Our services organization also has a dedicated Repair & Overhaul ("R&O") facility, based in Delaware, in close proximity to our product manufacturing facility. As needed, operators can dispatch field servicesThis R&O facility undertakes full refurbishment of returned fuel cell modules with the capability to restore it to full power, efficiency and life with a less than three weeks turnaround. This close proximity to our Delaware manufacturing facility enables us to review the condition of returned modules and inform improved manufacturing processes.
Purchase and Financing Options
In order to appeal to the sitelargest variety of customers, we make available several options to locally restoreour customers. Both in the United States and enhance performance. The RMCC facilities communicateabroad, we sell Energy Servers directly to customers. In the United States, we also enable customers' use of the Energy Servers through a secure networkpay as you go offering, made possible through third-party ownership financing arrangements.
Often our offerings take advantage of local incentives. In the United States, our financing arrangements are structured to optimize both federal and can operate together or independentlylocal incentives, including the Investment Tax Credit (“ITC”) and accelerated depreciation. Internationally, our sales are made primarily to provide full servicesdistributors who on-sell to, and install for, customers; these deals are also structured to use local incentives applicable to our Energy Servers. Increasingly, we use trusted installers and other sourcing collaborations in the United States to generate transactions.
With respect to the third-party financing options in the United States, a customer may choose a contract for the fleet.
We currently service and maintain all of our Energy Servers.
Customer Financing
We assist our customers by providing innovative financing options which, in addition to aiding in customer purchase, provides us an expanded addressable customer base. We have developed multiple options for our customers to acquire the power ouruse Energy Servers produce. These offerings providein exchange for a range of options that include the purchase of our systems outright with operations and maintenance services contracts,capacity-based flat payment (a “Managed Services Agreement”) or one for the purchase of electricity that ourgenerated by the Energy Servers produce without any upfront costs through various financing vehicles including leases and power purchase agreements ("PPAs"in exchange for a scheduled dollars per kilowatt hour rate (a “Power Purchase Agreement” or “PPA”) that combine.
Certain customer payments in a Managed Services Agreement are required regardless of the costlevel of our systems, warranty and service, financing, andperformance of the Energy Server; in some cases fuel into monthly paymentsit may also include a variable payment based on the electricity produced.
Our largest PPA financing partner, through our Third-Party PPA Program, is the Southern Company, one of the largest utility companies in the United States. Other project financing partners include Key Bank, Wells Fargo, Credit Suisse, Duke Energy and Constellation EnergyServer's performance or a performance-related set-off. Managed Services Agreements are then financed pursuant to a sale-leaseback with a financial institution (a subsidiary of Exelon Corporation)“Managed Services Financing”).
PPAs are typically financed on a portfolio basis. We have financed portfolios through tax equity partnerships, acquisition financings and direct sales to investors (each, a “Portfolio Financing”).
For additional information about our different financing options, please see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Purchase and Financing Options.
Sales, Marketing and Partnerships
We marketsell our Energy Servers primarilyServer platform through a singlecombination of direct and indirect sales channels. At present, most of our U.S. sales are through our direct sales organization supportedforce, which is segmented by project finance, business development, government affairsvertical and type of account. A large part of our direct sales force is now focused on our expansion efforts in the United States and creating new opportunities internationally. We are also expanding our relationship with utilities. We have developed a network of strategic energy advisors that originate new opportunities and referrals to Bloom Energy, which has been a valuable source of high-quality leads.
We pursue relationships with other companies and partners in areas where collaboration can produce product advancement and acceleration of entry into new geographic and vertical markets. The objectives and goals of these relationships can include one or more of the following: technology exchange, joint sales and marketing, teams. In additionor access to our internal resources, we work with multiple partners to generate customer leads and develop projects. In 2017, we announced our first distributorship agreement withnew geographic markets. SK Group, a company locatedecoplant in the Republic of Korea. Pursuant to this agreement, SK Engineering and ConstructionKorea is a distributorstrategic power generation and distribution partner. Together, we have transacted nearly 200 MW of Bloomprojects totaling more than $1.8 billion of equipment and expected service revenue. In October 2021, we announced an expansion of our existing partnership with SK ecoplant, hat includes purchase commitments of at least 500MW of power for our Energy Servers between 2022 and 2025 on a take or pay basis, the creation of hydrogen innovation centers in the United States and the Republic of Korea.Korea to advance green hydrogen commercialization, and an equity investment in Bloom Energy in December 2021. Please see Note 18 - SK ecoplant Strategic Investment in in Part II, Item 8, Financial Statements and Supplementary Data.
Sustainability
Bloom Energy Servers reduce carbon emissions and save water comparedAs a manufacturer, our commitment to traditional coal power generation systems, and save water comparedsustainability is reflected not only through the impacts of our products in operation but also through our internal commitment to traditional natural gas power generation systems. Thus, our primary sustainability goal is to maximize sales of Bloom Energy Servers and provide the longest and most economically sustainable life cycle possible for the fuel cells comprising our Bloom Energy Servers through reliability enhancement programs.
We seek to minimize our environmental footprint with research and development initiatives designed to extend system operating life while reducing consumption of new material in our Energy Servers. We have an end-to-end recycling approach to recover components from end-of-life units for reuse or recycling and we have dedicated facilities in our manufacturing locations in Delaware and California to inspect and dismantle components removed during scheduled maintenance. We have an audit program to identify improvement opportunities at suppliers and also work to reduce their one-way packaging to minimize materials going to landfills.
These initiatives in combination provide a robust and comprehensive sustainability strategy that focuses both externally on our impact on the wider environment and internally onresource efficiency, responsible design, materials management and recycling. We endeavor to consistently increase our supply chain responsibility and approach to human capital management in ways that help us to continue to deliver products that add long-term societal value.
We are driven by the promise of our contribution to the transformation and decarbonization of energy and transportation sectors globally. We are working to make our technology available across a growing list of applications including biogas, carbon capture, hydrogen, marine and microgrid projects critical to aligning with a two-degree warming trajectory.
Bloom Energy Servers produce clean, reliable energy without combustion that provide greenhouse gas, air quality, water, land-use and resilience benefits for customers and the communities they serve. The Bloom Electrolyzer is designed to utilize the same solid oxide technology platform in a highly efficient and cost-effective hydrogen production process. Our innovative solid oxide fuel cell platform technology offers modular and flexible solutions configurable to address both the causes and consequences of climate change.
Our Energy Servers withdraw water only during start-up and if the system needs to restart. Otherwise, Energy Servers use no water during operation, avoiding water withdrawals of more than 18,000 gallons per megawatt hour. Conversely, thermal power plants require significant amounts of water for cooling. In fact, the number one use of water in the United States is for cooling power plants. To produce one megawatt per hour for a year, thermoelectric power generation for the U.S. grid withdraws approximately 156 million gallons of water more than our platform.
We are focused on energy efficiency in our production and administrative processes, and have introduced a significant amount of energy-efficient plant automation over the last several years. Our own Energy Servers power our facilities, where suitable, as efficient and resilient energy sources. We also use our Energy Servers to charge employee vehicles at manufacturing facility locations, and as we broaden the integration of our Energy Servers across our real estate portfolio, we will continue to support our employees with lower carbon intensity and resilient onsite electric vehicle charging.
We take a cradle-to-grave perspective on product design and use. We strive to reuse components and recoverable materials where feasible and use conflict-free, non-toxic new resources where needed. We design our equipment so that components can be easily refurbished as needed instead of requiring new equipment. Finally, we cover as many materials and components as possible during end-of-life management, reusing these materials and components. As a function of an approximately 30,000-pound Bloom Energy Server, the weight of components that go to the landfill without a recycling or refurbishment stream comprises approximately 510 pounds, or less than approximately 2% of the total server weight.
U.S. & Global Climate Issues
Global warming and resulting extreme weather are having significant economic, environmental and social impacts in the United States and around the world. These and anticipated future impacts have resulted in wide array of market and regulatory responses, and will continue to do so. Our business can be impacted by climate change, and by those market and regulatory responses, in a variety of ways. We closely follow the impacts of climate change on the energy system and its customers, as well as the regulatory, policy and voluntary measures taken in response to those impacts, so that we may understand and respond to changing conditions that may affect our company, our customers, and our investors and business partners. We are responsive to the recommendations from the Task Force on Climate-related Financial Disclosures ("TCFD"), as well as disclosure guidance from the Sustainability Accounting Standards Board (“SASB”). We issued our first TCFD and SASB aligned Sustainability Report in 2021, and plan to follow up with another aligned report in 2022.
The direct impacts of climate change on energy systems, including the increased risk they pose to energy service disruption, may provide increased opportunity for our extremely reliable and resilient energy generation. New or more stringent international accords, national or state legislation, or regulation of greenhouse gas emission may increase demand for our bioenergy and hydrogen-based products, but they may also make it more expensive or impractical to deploy natural gas-fueled Energy Servers in some markets notwithstanding their enhanced environmental performance relative to combustion-based technologies, or may cause the loss of regulatory or policy incentives for those deployments. Examples include an anticipated greenhouse gas standard for participation in favorable fuel cell tariffs under consideration in California, new climate emissions restrictions or the introduction of carbon pricing, and the adoption of bans or restrictions on new natural gas interconnections by some local jurisdictions. For more on climate and environmental related risks, see Part I, Item 1A, Risk Factors – Risks Related to Legal Matters and Regulations.
Permits and Approvals
Each Bloom Energy Server installation must be designed, constructed and operated in compliance with applicable federal, state, international and local regulations, codes, standards, guidelines, policies and laws. To install and operate our systems, we, our customers and our partners are required to obtain applicable permits and approvals from federal, state and local authorities for the installation of Bloom Energy Servers and the Bloom Electrolyzer and for the interconnection systems with the local electrical utility.utility and, where the gas distribution system is used, the gas utility as well.
Government Policies and Incentives
There are varying policy frameworks across the United States and abroad designed to support and accelerate the adoption of clean and/or reliable distributed power generation and hydrogen technologies such as Bloom Energy Servers.Servers and the Bloom Electrolyzer. These policy initiatives come in the form of tax incentives, cash grants, performance incentives, environmental attribute credits, permitting regimes, interconnection policies and/or specificapplicable gas or electric tariffs.
The U.S. federal government providedprovides businesses with an Investment Tax Credit ("ITC")ITC under Section 48 of the Internal Revenue Code, available to the owner of our Energy Server for systems purchased and placed into service. The credit wasis equal to 30%26 percent of expenditures for capital equipment and installation, and the credit for fuel cells is capped at $1,500 per 0.5 kilowatt of capacitycapacity. The credit will remain at 26 percent through 2022 and then step down to 22 percent in 2019 and will decrease2023. Under current law the credit is set to 26%expire in 2020. For more information on the reinstated ITC, please see Investment Tax Credits in Note 1 of the Notes to the Consolidated Financial Statements.2024.
Our Energy Servers are currently installed at customer sites in eleven states in the United States, each of which has its own enabling policy framework. Some states have utility procurement programs and/or renewablerenewables portfolio standards for which our technology is eligible. Our Energy Servers currently qualify for tax exemptions, incentives or other customer incentives in many states including the states of California, New Jersey, Connecticut, Massachusetts, Rhode Island, Maryland and New York. These policy provisions are subject to change.
Although we generally are not regulated as a utility, federal, state, international and local government statutes and regulations concerning electricity heavily influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, competition with utilities and the interconnection of customer-owned electricity generation. Federal, state, international and local governments continuously modify these statutes and regulations. Governments, often acting through state utility or public service commissions, change and adopt different rates for commercial customers on a regular basis. These changes can have a positive or negative impact on our ability to deliver cost savings to customers for the purchase of electricity.
To operate our systems, we obtain interconnection agreements from the applicable local primary electricity and gas utilities. In almost all cases, interconnection agreements are standard form agreements that have been pre-approved by the local public utility commission or other regulatory body with jurisdiction over interconnection agreements. As such, no additional regulatory approvals are typically required once interconnection agreements are signed.
Product safety standards for stationary fuel cell generators have been established by the American National Standards Institute ("ANSI"). These standards are known as ANSI/CSA FC-1. Our products are designed to meet this standard. Further, we utilize the Underwriters' Laboratory, or UL, to certify compliance with the standard. Energy Server installation guidance is provided by NFPA 853: Standard for the Installation of Stationary Fuel Cell Power Systems. Installations at sites are carried out to meet the requirements of this standard.
Government Regulations
Our business is subject to a changing patchwork of energy and environmental laws and regulations that prevail at the federal, state, regional and local level as well as in those foreign jurisdictions in which we operate. Most existing energy and environmental laws and regulations preceded the introduction of our innovative fuel cell technology and were adopted to apply to technologies existing at the time, namely large coal, oil or gas-fired power plants, and more recently solar and wind plants.
Although we generally are not regulated as a utility, existing and future federal, state, international and local government statutes and regulations concerning electricity heavily influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, competition with utilities, the interconnection of customer-owned electricity generation, interconnection to the gas distribution system, and other issues relevant to the deployment and operation of our products, as applicable. Federal, state, international and local governments continuously modify these statutes and regulations. Governments, often acting through state utility or public service commissions, change and adopt or approve different requirements for regulated entities and rates for commercial customers on a regular basis. These changes can have a positive or negative impact on our ability to deliver cost savings to customers.
At the federal level, the Federal Energy Regulatory Commission (“FERC”) has authority to regulate, under various federal energy regulatory laws, wholesale sales of electric energy, capacity, and ancillary services, and the delivery of natural gas in interstate commerce. Some of our tax equity partnerships in which we participate are subject to regulation under FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with FERC.In addition, our project with Delmarva Power & Light Company is subject to laws and regulations relating to electricity generation, transmission, and sale at the federal level and in Delaware. To operate our systems, we obtain interconnection agreements from the applicable local primary electricity and gas utilities. In almost all cases, interconnection agreements are standard form agreements that have been pre-approved by the state or local public utility commission or other regulatory bodies with jurisdiction over interconnection agreements. As such, no additional regulatory approvals are typically required for deployment of our systems once interconnection agreements are signed, although they may be required for the export and subsequent sale of electricity or other regulated products.
Product safety standards for stationary fuel cell generators have been established by the American National Standards Institute (“ANSI”). These standards are known as ANSI/CSA FC-1. Our products are designed to meet these standards. Further, we utilize the Underwriters' Laboratory, or UL, to certify compliance with these standards. Energy Server installation guidance
is provided by NFPA 853: Standard for the Installation of Stationary Fuel Cell Power Systems. Installations at sites are carried out to meet the requirements of these standards.
Currently, there is generally little guidance from theseenvironmental agencies on whether or how certain environmental laws and regulations may or may not be appliedapply to our technology.technologies. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties or third-party damages. In addition, ensuring we are inmaintaining compliance with applicable environmental laws, such as the comprehensiveComprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) in the United States, requires significant time and management resources.
At the federal level, the Federal Energy Regulatory Commission ("FERC") has authority to regulate under various federal energy regulatory laws, wholesale sales of electric energy, capacity, and ancillary services, and the delivery of natural gas in interstate commerce. Also, several of our power purchase agreement entities ("PPA Entities") are subject to regulation under FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with FERC, which increases our costs and subjects us to additional regulatory oversight.
Several states in which we currently operate, including California, require permits for emissions of hazardous air pollutants based on the quantity of emissions, most of which require permits only for quantities of emissions that are higher than those observed from our Energy Servers. Other states in which we operate, including New York, New Jersey and North Carolina, have specific exemptions for fuel cells. In addition, our project with Delmarva Power & Light Company is subject to laws and regulations relating to electricity generation, transmission, and sale in Delaware and at the federal level.
Although we generally are not regulated as a utility, federal, state, and local government statutes and regulations concerning electricity heavily influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, and the rules surrounding the interconnection of customer-owned electricity generation for specific technologies. In the United States, governments frequently modify these statutes and regulations. Governments, often acting through state utility or public service commissions, change and adopt different requirements for utilities and rates for commercial customers on a regular basis.
For more information about the regulations to which we are subject and the risks to our costs and operations related thereto, please see the risk factors set forth under the caption "ItemPart I, Item 1A, - Risk Factors - “Risks Related to Legal Matters and Regulations.”
Backlog
The timing of delivery and installations of our products havehas a significant impact on the timing of the recognition of product and installation revenue. Many factors can cause a lag between the time that a customer signs a purchase order and our recognition of product revenue. These factors include the number of Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, and customer facility construction schedules. Many of these factors are unpredictable and their resolution is often outside of our or our customers’ control. Customers may also ask us to delay an installation for reasons unrelated to the foregoing, including delays in their obtaining financing. Further, due to unexpected delays, deployments may require unanticipated expenses to expedite delivery of materials or labor to ensure the installation meets the timing objectives. These unexpected delays and expenses can be exacerbated in periods in which we deliver and install a larger number of smaller projects. In addition, if even relatively short delays occur, there may be a significant shortfall between the revenue we expect to generate in a particular period and the revenue that we are able to recognize. For our installations, revenue and cost of revenue can fluctuate significantly on a periodic basis depending on the timing of acceptance and the type of financing used by the customer.
See Part II, Item 7, Management's Discussion & Analysis of Financial Condition and Results of Operations -– Purchase and Financing Options --– Delivery and Installation,for additional information on backlog.
Human Capital
Legal Proceedings
From timeWe are committed to time, we are involvedattracting and retaining exceptional talent. Investing in various legal proceedings or subjectand inspiring our people to claims arising in the ordinary course ofdo their best work is critical for our business. Although the results of legal proceedings and claims cannot be predicted with certainty, we are not currently party to any legal proceedings the outcome of which, in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. For a discussion of legal proceedings, see "Legal Matters" under Note 14, Commitments and Contingencies, in the notes to our consolidated financial statements. Employees
success. As of December 31, 2019,2021, we had 1,518 employees and contractors. We had approximately 1,2521,719 full-time employees worldwide, of which 9791,404 were located in the United States, 256274 were located in India and 1741 were located in other countries. We have never experienced a work stoppage,During 2021, our workforce grew by 30% as compared to 2020.
In order to attract and retain our employees, we believe our relationsstrive to maintain an inclusive, diverse and safe workplace, with opportunities for our employees to be good.grow and develop in their careers, supported by strong compensation, benefits and health and wellness programs. We are mission driven, and we hire and develop talent with a passion toward achieving our mission.
Inclusion and Diversity
Our cultural foundation is one of innovation, results, respect and doing the right thing. One of our greatest strengths is the talent of our employees. We believe diverse talent leads to better decision making and that creating an inclusive environment best positions us to meet the needs of our customers, stockholders and the communities in which we live and work.
We continuously evolve our hiring strategies, tracking our progress and holding ourselves accountable to advancing global diversity. We seek to hire employees from a broad pool of talent with diverse backgrounds, perspectives and abilities and
we believe diverse leaders serve as role models for our inclusive workforce. We are proud of our progress, yet we strive for continuous improvement.
Our continued engagement with organizations that work with diverse communities has been vital to our efforts to increase women and minority representation in our workforce. Our “Careers at Bloom Silicon Valley” Campaign targets recruiting diverse talent from underserved communities for hourly manufacturing roles. To promote inclusivity, we advertise our jobs in multiple languages and participate in community job fairs giving equal access to opportunities. We actively engage local community leaders to gain access to untapped underserved communities to attract talent that is generally not easily accessible. We are building a diverse talent slate of future generation leaders through our progressive university program.
We recruit talent in diverse communities through:
•Veteran outreach programs
•Society of Women Engineers
•Society of Hispanic Engineers
•Society of Black Engineers
•Historical Black Colleges and Universities
We believe that our stats are strong, our culture of inclusivity is stronger (as of December 31, 2021):
•60% of our employee population globally is ethnically diverse
•Women make up 21% of our employee population globally
•Our senior leadership team consists of four ethnically diverse individuals and three women
•Women make up 20% of our leadership population (Director and above)
Talent Development
We recently introduced a comprehensive Contribution Assessment Program designed to link performance to business results enabling each employee to make a direct connection between their role and contributions and the success of Bloom. This comprehensive program includes goal setting, monthly check-ins, feedback solicitation and self-assessments. Our Contribution Assessment Program provide employees with the resources required to achieve their goals and engage in meaningful feedback discussions with their manager leading to development, exposure to new experiences, and real-time learnings.
We provide a series of global employee learning sessions to support our employees' ability to effectively engage with their manager. We have expanded our development focus by investing in building management capabilities. Our employees’ have easy access to resources to empower their success via our newly introduced internal website.
Compensation and Benefits
Our talent strategy is integral to our business success and we design competitive and innovative compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs (which vary by country/region) include annual bonuses, stock awards, an employee stock purchase plan, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, parental leave, flexible work schedules, an extensive mental health program and fitness center. We recently added access to financial planning and education for all levels of the organization. In addition to our broad-based equity award programs, we have used targeted equity-based grants to facilitate retention of critical talent with specialized skills and experience.
Building Connections - With Each Other and our Communities
Building connections between our employees and community is key to achieving our mission. Employee engagement is enhanced through connections, learnings and the pride of giving back. Our Connected Employee Series offers cross-functional learnings to all employees and our Employee Community Series introduces influential community leaders to our increasing role in the broader community and world.
We have actively played an impactful role in the community. In support of frontline hospital and healthcare workers, we launched our Inaugural Bloom Energy “Stars & Strides” community run/walk fundraiser where employees and families were
encouraged to participate, and co-sponsoring mobile vaccinations in underserved communities. Employees are encouraged to participate in local volunteer activities.
Health, Safety and Wellness
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees and their families with access to a variety of innovative, flexible and convenient health and wellness programs, including benefits that provide and encourage proactive protection and to support their financial, physical and mental well-being by providing tools and resources accessible at or outside of work.
In response to the COVID-19 pandemic, in 2020 and again in 2021, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This included having some of our employees work from home, while implementing additional safety measures for the 40% of our employees continuing critical on-site work in our manufacturing, installation and service organizations. For these populations, we have developed a robust program of on-site testing. Starting during the summer of 2021, we reopened our offices, with testing and vaccination requirements, but we continue to remain flexible and attentive to our employees concerns and safety.
Community Investment in 2021
The health and well-being of our people, communities and planet are paramount. Early in the COVID-19 pandemic, we were deemed an essential business. In collaboration with the University of Illinois and El Camino Health, we launched the University of Illinois’ Shield T3 COVID testing system and hosted a mobile laboratory at our facility in Sunnyvale. We have been powering and hosting the mobile lab to provide rapid testing for Bay Area organizations and schools.
Throughout the COVID-19 pandemic, our Energy Servers have been delivering power to facilities around the globe that are providing essential services. We have deployed more than 20,000 fuel cell modules since our first commercial shipments in 2009, sending power to hospitals, healthcare manufacturing facilities, biotechnology facilities, grocery stores, hardware stores, banks, telecom facilities and other critical infrastructure applications.
Our employees are mission-driven and passionately invest their time in support of our local communities. Our inaugural Bloom Energy Stars and Strides charity race in San Jose helped raise money for the Valley Medical Center Foundation in August 2021. In addition, our employees have helped tackle food insecurity by boxing 9,000 pounds of produce to feed 360 families in the Bay Area, mentored University of Delaware students to help them complete their senior design program, and organized holiday toy drives with Toys for Tots.
Seasonal Trends and Economic Incentives
Our business and results of financial operations are not subject to industry-specific seasonal fluctuations. The desirability of our solution can be impacted by the availability and value of various governmental, regulatory and tax basedtax-based incentives which may change over time.
Corporate Facilities
Our corporate headquarters and principal executive offices are located at 4353 North First Street, San Jose, CA 95134, and our telephone number is (408) 543-1500. We entered into the lease for our new corporate headquarters, consisting of 181,000 square feet of multi-floor office space, which commenced in January 2019 and expires in December 2028. Our headquarters is used for administration, research and development, and sales and marketing and also houses one of our RMCC facilities.
Please see Part I, Item 2, - "Properties" for additional information regarding our facilities.
Available Information
Our website address is www.bloomenergy.com and our investor relations website address is
https://investor.bloomenergy.com. InformationWebsites are provided throughout this document for convenience only. The information contained on our websitethe referenced websites does not constitute a part of and is not a part ofincorporated by reference into this Annual Report on Form 10-K. Through a link on our website, we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our Annual ReportReports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, of the Exchange Act, as well as proxy statements and certain filings relating to beneficial ownership of our securities. The SEC also
maintains a website at www.sec.gov that contains all reports that we file or furnish with the SEC electronically. All such filings, including those on our website, are available free of charge.
ITEM 1A - RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider the material risks and uncertainties described below that make an investment in us speculative or risky, as well as the other information in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before you decide to purchase our securities. Many of these risks and uncertainties are beyond our control, and the occurrenceA manifestation of any of the eventsfollowing risks could, in circumstances we may or developments described below, or of additional risksmay not be able to accurately predict, render us unable to conduct our business as currently planned and uncertainties not presently known to us or that we currently deem immaterial, could materially and adversely affect our reputation, business, prospects, growth, financial condition, cash flows, liquidity and operating results and prospects.results. In such an event,addition, the occurrence of one or more of these risks may cause the market price of our Class A common stock couldto decline, and you could lose all or part of your investment. It is not possible to predict or identify all such risks and uncertainties, as our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. Therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face.
This Risk Factor Summary
The following summarizes the more complete risk factors that follow. It should be read in conjunction with the complete Risk Factors section is divided by topic for easeand should not be relied upon as an exhaustive summary of reference as follows: Risks Relating to Our Business, Industry and Sales; Risks Related to Our Products and Manufacturing; Risks Relating to Government Incentive Programs; Risks Related to Legal Matters and Regulations; Risks Relating to Our Intellectual Property; Risks Relating to Our Financial Condition and Operating Results; Risks Related to Our Liquidity; Risks Related to Our Operations; and Risks Related to Ownership of Our Common Stock.all the material risks facing our business.
Risks RelatingRelated to Our Business, Industry and Sales
•The distributed generation industry is an emerging market and distributed generation may not receive widespread market acceptance,.
The distributed generation industry is still relatively nascent in an otherwise mature and heavily regulated industry, and we cannot be sure that potential customers will accept distributed generation broadly, or our Energy Server products specifically. Enterprises which may be unwilling to adopt our solution over traditional or competing power sources for any number of reasons including the perception that our technology is unproven, they lack confidence in our business model, the perceived unavailability of back-up service providers to operate and maintain the Energy Servers, and lack of awareness of our product or their perception of regulatory or political headwinds. Because this is an emerging industry, broad acceptance of our products and services is subject to a high level of uncertainty and risk. If the market develops more slowly than we anticipate, our business will be harmed.
Our limited operating history and our nascent industry make evaluating our business and future prospects difficult.
From our inception in 2001 through 2009, we were focused principally on research and development activities relating to our Energy Server technology. We did not deploy our first Energy Server and did not recognize any revenue until 2009. Since that initial deployment, our business has expanded significantly over a comparatively short time, given the characteristics of the electric power industry. As a result, we have a limited history operating our business at its current scale. Furthermore, our Energy Server is a new type of product in the nascent distributed energy industry. Consequently, predicting our future revenue and appropriately budgeting for our expenses is difficult, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates or if we adjust our estimates in future periods, our operating results and financial position could be materially and adversely affected.
•Our products involve a lengthy sales and installation cycle, and if we fail to close sales on a regular and timely basis, our business could be harmed.
Our sales cycle is typically 12 to 18 months but can vary considerably. In order to make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our product and our technology. The period between initial discussions with a potential customer and the eventual sale of even a single product typically depends on a number of factors, including the potential customer’s budget and decision as to the type of financing it chooses to use as well as the arrangement of such financing. Prospective customers often undertake a significant evaluation process which may further extend the sales cycle. Once a customer makes a formal decision to purchase our product, the fulfillment of the sales order by us requires a substantial amount of time. Generally, the time between the entry into a sales contract with a customer and the installation of our Energy Servers can range from nine to twelve months or more. This lengthy sales and installation cycle is subject to a number of significant risks over which we have little or no control. Because of both the long sales and long installation cycles, we may expend significant resources without having certainty of generating a sale.
These lengthy sales and installation cycles increase the risk that an installation may be delayed and/or may not be completed. In some instances, a customer can cancel an order for a particular site prior to installation, and we may be unable to recover some or all of our costs in connection with design, permitting, installation and site preparations incurred prior to cancellation. Cancellation rates can be between 10% and 20% in any given period due to factors outside of our control including an inability to install an Energy Server at the customer’s chosen location because of permitting or other regulatory issues, delays or unanticipated costs in securing interconnection approvals or necessary utility infrastructure, unanticipated
changes in the cost, or other reasons unique to each customer. Our operating expenses are based on anticipated sales levels, and many of our expenses are fixed. If we are unsuccessful in closing sales after expending significant resources or if we experience delays or cancellations, our business could be materially and adversely affected. Since we do not recognize revenue on the sales of our products until installation and acceptance, a small fluctuation in the timing of the completion of our sales transactions could cause operating results to vary materially from period to period.
•Our Energy Servers have significant upfront costs, and we will need to attract investors to help customers finance purchases.
Our Energy Servers have significant upfront costs. In order to assist our customers in obtaining financing for our products, we have traditional lease programs with two leasing partners who have prequalified our product and provide financing for customers through various leasing arrangements. In addition to the traditional lease model, we also offer Power Purchase Agreement Programs, including Third-Party PPAs, in which financing the cost of the Energy Server is provided by an entity that owns the Energy Servers (an "Operating Company") and funded by a subsidiary investment entity (an "Investment Company") which is financed by us and/or in combination with Equity Investors. We refer to the Operating Company and its subsidiary Investment Company collectively as a PPA Entity. In recent periods, the substantial majority of our end customers have elected to finance their purchases, typically through Third Party PPAs.
We will need to grow committed financing capacity with existing partners or attract additional partners to support our growth. Generally, at any point in time, the deployment of a portion of our backlog is contingent on securing available financing. Our ability to attract third-party financing depends on many factors that are outside of our control, including the investors’ ability to utilize tax credits and other government incentives, interest rate and/or currency exchange fluctuations, our perceived creditworthiness and the condition of credit markets generally. Our financing of customer purchases of our Energy Servers is subject to conditions such as the customer’s credit quality and the expected minimum internal rate of return on the customer engagement, and if these conditions are not satisfied, we may be unable to finance purchases of our Energy Servers, which would have an adverse effect on our revenue in a particular period. If we are unable to help our customers arrange financing for our Energy Servers generally, our business will be harmed. Additionally, the Managed Services and Traditional Lease options, as with all leases, are also limited by the customer’s willingness to commit to making fixed payments regardless of the performance of the Energy Servers or our performance of our obligations under the customer agreement.
Further, our sales process for transactions that require financing require that we make certain assumptions regarding the cost of financing capital. Actual financing costs may vary from our estimates due to factors outside of our control, including changes in customer creditworthiness, macroeconomic factors, the returns offered by other investment opportunities available to our financing partners, and other factors. If the cost of financing ultimately exceeds our estimates, we may be unable to proceed with some or all of the impacted projects or our revenue from such projects may be less than our estimates.
If we are unable to procure financing partners willing to finance such deployments or if the cost of such financing exceeds our estimates, our business would be negatively impacted.
•The economic benefits of our Energy Servers to our customers depend on the cost of electricity available from alternative sources, including local electric utility companies, whichand such cost structure is subject to change.
We believe that a customer’s decision to purchase our Energy Servers is significantly influenced by the price, the price predictability of electricity generated by our Energy Servers in comparison to the retail price and the future price outlook of electricity from the local utility grid and other energy sources. The economic benefit of our Energy Servers to our customers includes, among other things, the benefit of reducing such customer’s payments to the local utility company. The rates at which electricity is available from a customer’s local electric utility company is subject to change and any changes in such rates may affect the relative benefits of our Energy Servers. Even in markets where we are competitive today, rates for electricity could decrease and render our Energy Servers uncompetitive. Several factors could lead to a reduction in the price or future price outlook for grid electricity, including the impact of energy conservation initiatives that reduce electricity consumption, construction of additional power generation plants (including nuclear, coal or natural gas) and technological developments by others in the electric power industry which could result in electricity being available at costs lower than those that can be achieved from our Energy Servers. If the retail price of grid electricity does not increase over time at the rate that we or our customers expect, it could reduce demand for our Energy Servers and harm our business.
Further, the local electric utility may impose “departing load,” “standby,” or other charges, including power factor charges, on our customers in connection with their acquisition of our Energy Servers, the amounts of which are outside of our control and which may have a material impact on the economic benefit of our Energy Servers to our customers. Changes in the rates offered by local electric utilities and/or in the applicability or amounts of charges and other fees imposed or incentives granted by such utilities on customers acquiring our Energy Servers could adversely affect the demand for our Energy Servers.
In some states and countries, the current low cost of grid electricity, even together with available subsidies, does not render our product economically attractive. •If we are unablenot able to continue to reduce our costscost structure in the future, our ability to a level at which our Energy Servers would be competitive in such markets, or if we are unable to generate demand for our Energy Servers based on benefits other than electricity cost savings, such as reliability, resilience, or environmental benefits, our potential for growthbecome profitable may be limited.impaired.
Furthermore, an increase in the price of natural gas or curtailment of availability (e.g., as a consequence or physical limitations or adverse regulatory conditions for the delivery of production of natural gas) or the inability to obtain natural gas service could make our Energy Servers less economically attractive to potential customers and reduce demand.
•We rely on interconnection requirements and net metering arrangements that are subject to change.
Because our Energy Servers are designed to operate at a constant output twenty-four hours a day, seven days a week, and our customers’ demand for electricity typically fluctuates over the course of the day or week, there are often periods when our Energy Servers are producing more electricity than a customer may require, and such excess electricity must be exported to the local electric utility. Many, but not all, local electric utilities provide compensation to our customers for such electricity under “net metering” programs. Utility tariffs and fees, interconnection agreements and net metering requirements are subject to changes in availability and terms and some jurisdictions do not allow interconnections or export at all. At times in the past, such changes have had the effect of significantly reducing or eliminating the benefits of such programs. Changes in the availability of, or benefits offered by, utility tariffs, the net metering requirements or interconnection agreements in place in the jurisdictions in which we operate on in which we anticipate expanding into in the future could adversely affect the demand for our Energy Servers.
•We currently face and will continue to face significant competition.
We compete for customers, financing partners, and incentive dollars with other electric power providers. Many providers of electricity, such as traditional utilities and other companies offering distributed generation products, have longer operating histories, have customer incumbency advantages, have access to and influence with local and state governments, and have access to more capital resources than do we. Significant developments in alternative technologies, such as energy storage, wind, solar, or hydro power generation, or improvements in the efficiency or cost of traditional energy sources, including coal, oil, natural gas used in combustion, or nuclear power, may materially and adversely affect our business and prospects in ways we cannot anticipate. We may also face new competitors who are not currently in the market. If we fail to adapt to changing market conditions and to compete successfully with grid electricity or new competitors, our growth will be limited which would adversely affect our business results.
•We derive a substantial portion of our revenue and backlog from a limited number of customers, and the loss of or a significant reduction in orders from a large customer could have a material adverse effect on our operating results and other key metrics.
In any particular period, a substantial amount of•Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify partners to assist in such development or expansion, and our total revenue could come from a relatively small number of customers. As an example, in the year ended December 31, 2019, two customers, The Southern Companyproducts may not be successful if we are unable to maintain alignment with evolving industry standards and SK (Korea) accounted for approximately 34% and 23% of our total revenue, respectively. In the year ended December 31, 2018, one customer, The Southern Company accounted for approximately 51% of our total revenue. A unit of The Southern Company wholly owns a Third-Party PPA, and that entity purchases Energy Servers which are then provided to various end customers under PPAs. The loss of any large customer order or any delays in installations of new Energy Servers with any large customer would materially and adversely affect our business results.requirements.
Risks RelatingRelated to Our Products and Manufacturing
•Our business has been and will continuecontinues to be adversely affected by the COVID-19 pandemic.
We have been and will continue monitoring and adjusting as appropriate our operations in response to the COVID-19 pandemic. Although we have been able to maintain some of our operations as an “Essential Business” in California and Delaware, other operations have been delayed or suspended under applicable government orders and guidance. Our remaining operations could be delayed or suspended at any time in the event of changes to applicable government orders or the interpretation of existing orders.
Our headquarters and certain of our manufacturing facilities are located in Santa Clara County, California. On March 17, 2020, Santa Clara County became subject to a government mandated “shelter in place” order, which was superseded by an Executive Order issued by the Governor of California that extends indefinitely. Similarly, effective March 25, 2020, our manufacturing facilities in Newark, Delaware became subject to the Governor of Delaware’s Declaration of a State of Emergency Due to a Public Health Threat initially issued on March 12, 2020 and in effect until further notice. Additionally our installation activities in all areas, but especially New York, Connecticut, New Jersey, California and Massachusetts, are
adversely impacted by similar mandates in these jurisdictions. In response, we have closed our headquarters building and directed employees, unless they are directly supporting essential manufacturing production operations or maintenance activities, to work from their homes. This has caused and may continue to cause disruptions in certain of our operations, including our research and development, sales, marketing, installation and operations and maintenance activities. Although our affected manufacturing facilities continue to operate while these orders are in effect, we cannot provide assurances that the COVID-19 pandemic or additional governmental actions in response thereto will not further impact our operations (in California, Delaware or elsewhere). For example, if our management, employees, contractors, customers or affiliates, such as the third party general contractors with which we partner for installations, are affected by illness or by preventative measures such as social distancing, our operations, demand for our product, and installation, maintenance and oversight activities may be disrupted or we may be required to incur additional costs in order to maintain operations. In addition, to the extent that any of our employees separate from us in response to the pandemic or governmental responses to the pandemic, it may be difficult or impossible to replace them.
We are also experiencing delays from certain vendors and suppliers that have been affected more directly by COVID-19, which, in turn, could cause delays in the manufacturing and installation of our Energy Servers. It may not be possible to find replacement products or supplies, and ongoing delays could affect our business and growth. For example, our international operations, including in South Korea and India, have been disrupted by the COVID-19 pandemic and by governmental responses to the pandemic. In India, orders by the National Disaster Management Authority and the Ministry of Home Affairs issued March 24, 2020 have “prescribed a lockdown for containment of COVID-19 Epidemic in the country,” according to the Press Information Bureau of the Government of India. These orders have had the effect of disrupting the supply chain on which we rely for certain parts critical to our manufacturing and maintenance capabilities, which impacts both our sale and installation of new products and our operations and maintenance of previously-sold Energy Servers. For example, both the primary and secondary sources of a particular part on which we rely are in India. We are working on measures to address or mitigate the effect of these circumstances, but we cannot guarantee that we will succeed in finding alternate suppliers that are able to meet our needs.
Even if we are able to identify alternate suppliers that are able to meet our needs, the international air and sea logistics systems have been heavily impacted by the COVID-19 pandemic. Air carriers have significantly reduced their passenger and air freight capacity, and many ports are either temporarily closed or have reduced their hours of operation. Actions by government agencies may further restrict the operations of freight carriers, which would negatively impact our ability to receive the parts and supplies we need to manufacture our Energy Servers or to deliver them to our customers.
Our 5% Notes and 6% Notes mature in December 2020. We have actively been working on extending the maturity date of these Notes or securing refinancing, and our efforts have been negatively impacted by the COVID-19 pandemic, which has decreased the availability of credit. If we are unable to secure an extension or refinancing for the 5% Notes and/or 6% Notes before they mature, we may have insufficient cash to repay such Notes and our financial condition could be adversely impacted.
We also rely on third party financing for our customer’s purchases of our Energy Servers. If these financiers experience liquidity problems or elect to suspend or cancel investments in our projects, we may be unable to secure financing for our customer purchases, which in turn impacts our ability to deploy our Energy Servers and receive cash and recognize revenue. We have already experienced one delayed closing due to a financier’s inability to close in light of its own liquidity concerns, and we may experience more.
Our installation operations have also been adversely impacted by the COVID-19 pandemic, and these adverse impacts may increase in severity or continue indefinitely, including following the lifting of “shelter in place” orders. For example, our projects have experienced delays and may continue to experience delays relating to, among other things, shortages in available labor for design, installation and other work; the effects on the COVID-19 pandemic on our suppliers in general but especially our general contractors, their sub-contractors, medium-voltage electrical gear suppliers, and a wide range of engineering and construction related specialist suppliers on whom we rely for successful and timely installations; the completion of work required by gas and electric utilities on which we are critically dependent; necessary civil and utility inspections; and the review of our permit submissions and issuance of permits with multiple authorities that have jurisdiction over our activities. Additionally we have experienced delays and interruptions to our installation activities where customers have shut down or otherwise limited access to their facilities. This may continue to affect our ability to install our systems or increase in severity as the pandemic continues to affect key markets such as New York, Connecticut, New Jersey, Massachusetts and California.
We are not the only business impacted by these shortages and delays, which means that we may in the future face increased competition for scarce resources, which may result in continuing delays or increases in the cost of obtaining such services, including increased labor costs and/or fees to expedite permitting. Additionally, while construction activities have to date been deemed “essential business” and allowed to proceed in many jurisdictions, we have experienced interruptions and
delays caused by confusion related to exemptions for “essential business” amongst our suppliers and their sub-contractors. Future changes in applicable government orders or regulations, or changes in the interpretation of existing orders or regulations, could result in reductions in the scope of permitted construction activities or prohibitions on such activities. An inability to install our Energy Servers would negatively impact our acceptances, our cash and our revenue.
Additionally, our maintenance activities may be negatively impacted by COVID-19, including heightened health and safety protocols mandated by governmental orders or our customers that may increase our cost in performing such activities and/or delays or denials of access to customer sites to perform necessary maintenance activities on previously-sold Energy Servers. If we are delayed in, or unable to, performing scheduled or unscheduled maintenance, our previously-installed Energy Servers will likely experience adverse performance impacts including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may be subject to increased costs in the future.
We cannot predict at this time the full extent to which COVID-19 will impact our business, results and financial condition, which will depend on many factors. These include, among others, the extent of harm to public health, the willingness of our employees to travel and work in our manufacturing facilities and at installation sites even if permitted to do so, the disruption to the global economy and to our potential customer base, and impacts on liquidity and the availability of capital. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers and partners, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee that we will be able to do so.
•Our future success depends in part on our ability to increase our production capacity, and we may not be able to do so in a cost-effective manner.
To the extent we are successful in growing our business, we may need to increase our production capacity. Our ability to plan, construct, and equip additional manufacturing facilities is subject to significant risks and uncertainties, including the following:
The expansion or construction of any manufacturing facilities will be subject to the risks inherent in the development and construction of new facilities, including risks of delays and cost overruns as a result of factors outside our control such as delays in government approvals, burdensome permitting conditions, and delays in the delivery of manufacturing equipment and subsystems that we manufacture or obtain from suppliers.
In order for us to expand internationally, we have entered into joint venture agreements that have allowed us to add manufacturing capability outside of the United States. Adding manufacturing capacity in any international location will subject us to new laws and regulations including those pertaining to labor and employment, environmental and export import. In addition, it brings with it the risk of managing larger scale foreign operations.
We may be unable to achieve the production throughput necessary to achieve our target annualized production run rate at our current and future manufacturing facilities.
Manufacturing equipment may take longer and cost more to engineer and build than expected, and may not operate as required to meet our production plans.
We may depend on third-party relationships in the development and operation of additional production capacity, which may subject us to the risk that such third parties do not fulfill their obligations to us under our arrangements with them.
We may be unable to attract or retain qualified personnel.
If we are unable to expand our manufacturing facilities, we may be unable to further scale our business. If the demand for our Energy Servers or our production output decreases or does not rise as expected, we may not be able to spread a significant amount of our fixed costs over the production volume, resulting in a greater than expected per unit fixed cost, which would have a negative impact on our financial condition and our results of operations.
If we are not able to continue to reduce our cost structure in the future, our ability to become profitable may be impaired.
We must continue to reduce the manufacturing costs for our Energy Servers to expand our market. Additionally, certain of our existing service contracts were entered into based on projections regarding service costs reductions that assume continued advances in our manufacturing and services processes which we may be unable to realize. While we have been successful in reducing our manufacturing and services costs to date, the cost of components and raw materials, for example, could increase in the future. Any such increases could slow our growth and cause our financial results and operational metrics to suffer. In addition, we may face increases in our other expenses including increases in wages or other labor costs as well as installation, marketing, sales or related costs. We may continue to make significant investments to drive growth in the future. In
order to expand into new electricity markets (in which the price of electricity from the grid is lower) while still maintaining our current margins, we will need to continue to reduce our costs. Increases in any of these costs or our failure to achieve projected cost reductions could adversely affect our results of operations and financial condition and harm our business and prospects. If we are unable to reduce our cost structure in the future, we may not be able to achieve profitability, which could have a material adverse effect on our business and our prospects.
•If our Energy Servers contain manufacturing defects, our business and financial results could be harmed.
Our Energy Servers are complex products and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects only discovered once the Energy Server is deployed in the field. Changes in our supply chain or the failure of our suppliers to otherwise provide us with components or materials that meet our specifications could also introduce defects into our products. In addition, as we grow our manufacturing volume, the chance of manufacturing defects could increase. Any manufacturing defects or other failures of our Energy Servers to perform as expected could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts, and significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
Furthermore, we may be unable to correct manufacturing defects or other failures of our Energy Servers in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance, and our business reputation.
•The performance of our Energy Servers may be affected by factors outside of our control, which could result in harm to our business and financial results.results.
Field conditions, such as the quality of the natural gas supply and utility processes which vary by region and may be subject to seasonal fluctuations, have affected the performance of our Energy Servers and are not always possible to predict until the Energy Server is in operation. Although we believe we have designed new generations of Energy Servers to better withstand the variety of field conditions we have encountered, as we move into new geographies and deploy new service configurations, we may encounter new and unanticipated field conditions. Adverse impacts on performance may require us to incur significant re-engineering costs or divert the attention of our engineering personnel from product development efforts. Furthermore, we may be unable to adequately address the impacts of factors outside of our control in a manner satisfactory to our customers. Any of these circumstances could significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
•If our estimates of the useful life for our Energy Servers are inaccurate or we do not meet service andour performance warranties and performance guaranties, or isif we fail to accrue adequate warranty and guaranty reserves, our business and financial results could be harmed.
We offer certain customers the opportunity to renew their operations and maintenance service agreements on an annual basis, for up to 30 years, at prices predetermined at the time of purchase of the Energy Server. We also provide performance warranties and guaranties covering the efficiency and output performance of our Energy Servers. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the useful life of our Energy Servers and their components, including assumptions regarding improvements in power module life that may fail to materialize. We do not have a long history with a large number of field deployments, and our estimates may prove to be incorrect. Failure to meet these performance warranties and guaranty levels may require us to replace the Energy Servers at our expense or refund their cost to the customer, or require us to make cash payments to the customer based on actual performance, as compared to expected performance, capped at a percentage of the relevant equipment purchase prices. We accrue for product warranty costs and recognize losses on service or performance warranties when required by U.S. GAAP based on our estimates of costs that may be incurred and based on historical experience. However, as we expect our customers to renew their maintenance service agreements each year, the total liability over time may be more than the accrual. Actual warranty expenses have in the past been and may in the future be greater than we have assumed in our estimates, the accuracy of which may be hindered due to our limited history operating at our current scale.
As of December 31, 2019, we had a total of 35 megawatts in total deployed early generation servers, including our first and second generation servers, out of our total installed base of 456 megawatts. None of these early generation servers are recognized as our property, plant and equipment. We expect that our deployed early generation Energy Servers, if not upgraded with our more current generation power modules, may continue to perform at a lower output and efficiency level and, as a result, the maintenance costs may exceed the contracted prices that we expect to generate if our customers continue to renew their maintenance service agreements with respect to those servers. Further, the Energy Servers held on our consolidated financial statements, including those acquired through our Managed Services and PPA programs, could be impaired or have their useful life shortened in the future if adequate maintenance services are not performed or if a determination is made to upgrade the Energy Servers.
•Our business is subject to risks associated with construction, utility interconnection, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
Because we generally do not recognize revenue on the sales of our Energy Servers until installation and acceptance except where a third party is responsible for installation (such as in our sales in the Republic of Korea), our financial results depend to a large extent on the timeliness of the installation of our Energy Servers. Furthermore, in some cases, the installation of our Energy Servers may be on a fixed price basis, which subjects us to the risk of cost overruns or other unforeseen expenses in the installation process.
The construction, installation, and operation of our Energy Servers at a particular site is also generally subject to oversight and regulation in accordance with national, state, and local laws and ordinances relating to building codes, safety, environmental protection, and related matters, and typically require various local and other governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal. It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations, to design our Energy Servers to comply with these varying standards, and to obtain all applicable approvals and permits. We cannot predict whether or when all permits required for a given project will be granted or whether the conditions associated with the permits will be achievable. The denial of a permit or utility connection essential to a project or the imposition of impractical conditions would impair our ability to develop the project. In addition, we cannot predict whether the permitting process will be lengthened due to complexities and appeals. Delay in the review and permitting process for a project can impair or delay our and our customers’ abilities to develop that project or may increase the cost so substantially that the project is no longer attractive to us or our customers. Furthermore, unforeseen delays in the review and permitting process could delay the timing of the installation of our Energy Servers and could therefore adversely affect the timing of the recognition of revenue related to the installation, which could harm our operating results in a particular period.In addition, the completion of many of our installations depends on the availability of and timely connection to the natural gas grid and the local electric grid. In some jurisdictions, local utility companies or the municipality have denied our request for connection or have required us to reduce the size of certain projects. In addition, some municipalities have recently adopted restrictions that prohibit any new construction that allows for the use of natural gas. For more information regarding these restrictions, please see the risk factor entitled "As a fossil fuel-based technology, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in our customers’ energy procurement policies." Any delays in our ability to connect with utilities, delays in the performance of installation-related services, or poor performance of installation-related services by our general contractors or sub-contractors will have a material adverse effect on our results and could cause operating results to vary materially from period to period.
Furthermore, we rely on the ability of our third-party general contractors to install Energy Servers at our customers’ sites and to meet our installation requirements. We currently work with a limited number of general contractors, which has impacted and may continue to impact our ability to make installations as planned. Our work with contractors or their sub-contractors may have the effect of us being required to comply with additional rules (including rules unique to our customers), working conditions, site remediation, and other union requirements, which can add costs and complexity to an installation project. The timeliness, thoroughness, and quality of the installation-related services performed by some of our general contractors and their sub-contractors in the past have not always met our expectations or standards and may not meet our expectations and standards in the future.
Any significant disruption in the operations at our manufacturing facilities could delay the production of our Energy Servers, which would harm our business and results of operations.
We manufacture our Energy Servers in a limited number of manufacturing facilities, any of which could become unavailable either temporarily or permanently for any number of reasons, including equipment failure, material supply, public health emergencies or catastrophic weather or geologic events. For example, several of our manufacturing facilities are located in an area prone to earthquakes. In the event of a significant disruption to our manufacturing process, we may not be able to easily shift production to other facilities or to make up for lost production, which could result in harm to our reputation, increased costs, and lower revenues.
•The failure of our suppliers to continue to deliver necessary raw materials or other components of our Energy Servers in a timely manner and to specification could prevent us from delivering our products within required time frames and could cause installation delays, cancellations, penalty payments and damage to our reputation.
We rely on a limited number of third-party suppliers for some of the raw materials and components for our Energy Servers, including certain rare earth materials and other materials that may be of limited supply. If our suppliers provide insufficient inventory at the level of quality required to meet customer demand or if our suppliers are unable or unwilling to
provide us with the contracted quantities (as we have limited or in some case no alternatives for supply), our results of operations could be materially and negatively impacted. If we fail to develop or maintain our relationships with our suppliers, or if there is otherwise a shortage or lack of availability of any required raw materials or components, we may be unable to manufacture our Energy Servers or our Energy Servers may be available only at a higher cost or after a long delay. Such delays could prevent us from delivering our Energy Servers to our customers within required time frames and cause order cancellations. We have had to create our own supply chain for some of the components and materials utilized in our fuel cells. We have made significant expenditures in the past to develop our supply chain. In many cases, we entered into contractual relationships with suppliers to jointly develop the components we needed. These activities are time and capital intensive. Accordingly, the number of suppliers we have for some of our components and materials is limited and, in some cases, sole sourced. Some of our suppliers use proprietary processes to manufacture components. We may be unable to obtain comparable components from alternative suppliers without considerable delay, expense, or at all, as replacing these suppliers could require us either to make significant investments to bring the capability in-house or to invest in a new supply chain partner. Some of our suppliers are smaller, private companies, heavily dependent on us as a customer. If our suppliers face difficulties obtaining the credit or capital necessary to expand their operations when needed, they could be unable to supply necessary raw materials and components needed to support our planned sales and services operations, which would negatively impact our sales volumes and cash flows.
Moreover, we have in the past and may in the future experience unanticipated disruptions to operations or other difficulties with our supply chain or internalized supply processes due to exchange rate fluctuations, volatility in regional markets from where materials are obtained (particularly China and Taiwan), changes in the general macroeconomic outlook, global trade disputes, political instability, expropriation or nationalization of property, public health emergencies such as the recent Covid-19 viral outbreak, civil strife, strikes, insurrections, acts of terrorism, acts of war, or natural disasters. The failure by us to obtain raw materials or components in a timely manner or to obtain raw materials or components that meet our quantity and cost requirements could impair our ability to manufacture our Energy Servers or increase their costs or service costs of our existing portfolio of Energy Servers under maintenance services agreements. If we cannot obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our Energy Servers to our customers within required time frames, which could result in sales and installation delays, cancellations, penalty payments, or damage to our reputation, any of which could have a material adverse effect on our business and results of operations. In addition, we rely on our suppliers to meet quality standards, and the failure of our suppliers to meet or exceed those quality standards could cause delays in the delivery of our products, cause unanticipated servicing costs, and cause damage to our reputation.
Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify suppliers to deliver new materials and components on a timely basis.
We continue to develop products for emerging markets and, as we move into those markets, must qualify new suppliers to manufacture and deliver the necessary components required to build and install those new products. Identifying new manufacturing partners is a lengthy process and is subject to significant risks and uncertainties. If we are unable to identify reliable manufacturing partners in a new market, our ability to expand our business could be limited and our financial conditions and results of operations could be harmed.
•We have, in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations.
We have entered into long-term supply agreements with certain suppliers. Some of these supply agreements provide for fixed or inflation-adjusted pricing, substantial prepayment obligations and in a few cases, supplier purchase commitments. These arrangements could mean that we end up paying for inventory that we did not need or that was at a higher price than the market. Further, we face significant specific counterparty risk under long-term supply agreements when dealing with suppliers without a long, stable production and financial history. Given the uniqueness of our product, many of our suppliers do not have a long operating history and are private companies that may not have substantial capital resources. In the event any such supplier experiences financial difficulties, it may be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers or whether we may secure new long-term supply agreements. Additionally, many of our parts and materials are procured from foreign suppliers, which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes in applicable international trade regulations such as taxes, tariffs or quotas. Any of the foregoing could materially harm our financial condition and our results of operations.
•We face supply chain competition, including competition from businesses in other industries, which could result in insufficient inventory and negatively affect our results of operations.operations.
Certain of our suppliers also supply parts and materials to other businesses including businesses engaged in the production of consumer electronics and other industries unrelated to fuel cells. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply of the items in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers, which could materially harm our financial condition and our results of operations.
•We, and some of our suppliers, obtain capital equipment used in our manufacturing process from sole suppliers and, if this equipment is damaged or otherwise unavailable, our ability to deliver our Energy Servers on time will suffer.
Some of the capital equipment used to manufacture our products and some of the capital equipment used by our suppliers have been developed and made specifically for us, are not readily available from multiple vendors, and would be difficult to repair or replace if they did not function properly. If any of these suppliers were to experience financial difficulties or go out of business or if there were any damage to or a breakdown of our manufacturing equipment and we could not obtain replacement equipment in a timely manner, our business would suffer. In addition, a supplier’s failure to supply this equipment in a timely manner with adequate quality and on terms acceptable to us could disrupt our production schedule or increase our costs of production and service.
•Possible new trade tariffs could have a material adverse effect on our business.
Our business is dependent on•Any significant disruption in the availabilityoperations at our headquarters or manufacturing facilities could delay the production of raw materials and components for our Energy Servers, particularly electrical components common in the semiconductor industry, specialty steel products / processing and raw materials. Tariffs imposed on steel and aluminum imports have increased the cost of raw materials for our Energy Servers and decreased the available supply. Additional new tariffs or other trade protection measures which are proposed or threatened and the potential escalation of a trade war and retaliation measures could have a material adverse effect on our business, results of operations and financial condition.
To the extent practicable, given the limitations in supply chain previously discussed, although we currently maintain alternative sources for raw materials, our business is subject to the risk of price fluctuations and periodic delays in the delivery of certain raw materials, which tariffs may exacerbate. Disruptions in the supply of raw materials and components could temporarily impair our ability to manufacture our Energy Servers for our customers or require us to pay higher prices in order to obtain these raw materials or components from other sources, which could affect our business and our results of operations. While it is too early to predict how the recently enacted tariffs on imported steel will impact our business, the imposition of tariffs on items imported by us from China or other countries could increase our costs and could have a material adverse effect on our business and our results of operations.
A failure to properly comply (or to comply properly) with foreign trade zone laws and regulations could increase the cost of our duties and tariffs.
We have established two foreign trade zones, one in California and one in Delaware, through qualification with U.S. Customs, and are approved for "zone to zone" transfers between our California and Delaware facilities. Materials received in a foreign trade zone are not subject to certain U.S. duties or tariffs until the material enters U.S. commerce. We benefit from the adoption of foreign trade zones by reduced duties, deferral of certain duties and tariffs, and reduced processing fees, which help us realize a reduction in duty and tariff costs. However, the operation of our foreign trade zones requires compliance with applicable regulations and continued support of U.S. Customs with respect to the foreign trade zone program. If we are unable to maintain the qualification of our foreign trade zones, or if foreign trade zones are limited or unavailable to us in the future, our duty and tariff costs would increase, which could have an adverse effect onharm our business and results of operations.
Risks RelatingRelated to Government Incentive Programs
•Our business currently depends onbenefits from the availability of rebates, tax credits and other financial programs and incentives, and the reduction, modification, or elimination of such benefits could cause our revenue to decline and harm our financial results.
The U.S. federal government and some state and local governments provide incentives to end users and purchasers of our Energy Servers in the form of rebates, tax credits, and other financial incentives, such as system performance payments and payments for renewable energy credits associated with renewable energy generation. In addition, some countries outside the U.S. also provide incentives to end users and purchasers of our Energy Servers. We currently have operations and sell our Energy Servers in Japan, China, India, and the Republic of Korea (collectively, our "Asia Pacific region"), where Renewable Portfolio Standards ("RPS") are in place to promote the adoption of renewable power generation, including fuel cells. Our Energy Servers have qualified for tax exemptions, incentives, or other customer incentives in many states including the states of
California, Connecticut, Massachusetts, New Jersey and New York. Some states have utility procurement programs and/or renewable portfolio standards for which our technology is eligible. Our Energy Servers are currently installed in eleven U.S. states, each of which may have its own enabling policy framework. We rely on these governmental rebates, tax credits, and other financial incentives to significantly lower the effective price of the Energy Servers to our customers in the U. S. and the Asia Pacific region. Our financing partners and Equity Investors in Bloom Electrons programs may also take advantage of these financial incentives, lowering the cost of capital and energy to our customers. However, these incentives or RPS may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.
For example, the previous federal ITC, a federal tax incentive for fuel cell production, expired on December 31, 2016. Without the availability of the ITC benefit incentive, we lowered the price of our Energy Servers to ensure the economics to our customers would remain the same as it was prior to losing the ITC benefit, adversely affecting our gross profit. While the ITC was reinstated by the U.S Congress on February 9, 2018 and made retroactive to January 1, 2017, under current law it will phase out on December 31, 2022, as noted below:
the 30% ITC credit was reinstated retroactive to January 1, 2017;
installations that commence construction before January 1, 2020 are eligible for a 30% credit;
installations that commence construction in 2020 are eligible for a 26% credit;
installations that commence construction in 2021 are eligible for a 22% credit; and
installations have to be placed in service by January 1, 2024 or the installations become ineligible for the credit.
The ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives. In the case of Energy Servers purchased by PPA Entities, the PPA Entities bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future.
As another example, the California Self Generation Incentive Program ("SGIP") is a program administered by the California Public Utilities Commission ("CPUC") which provides incentives to investor-owned utility customers that install eligible distributed energy resources. In July 2016, the CPUC modified the SGIP to provide a smaller allocation of the incentives available to generating technologies such as our Energy Servers and a larger allocation to storage technologies. As modified, the SGIP will require all eligible power generation sources consuming natural gas to use a minimum 50% biogas to receive SGIP funds in 2019 and 100% in 2020. In addition, the CPUC provided a further limitation on the available allocation of funds that any one participant may claim under the SGIP. The SGIP has been extended until January 1, 2026. Our customer sites accepted benefiting from the SGIP represented approximately 3% and 4% of total sites accepted for the years ended December 31, 2019 and 2018, respectively.
Changes in federal, state, or local programs or the RPS in the Asia Pacific region could reduce demand for our Energy Servers, impair sales financing, and adversely impact our business results. The continuation of these programs depends upon political support which to date has been bipartisan and durable. Nevertheless, one set of political activists aggressively seeks to eliminate these programs while another set seeks to deny access to these programs for any technology that relies on natural gas, regardless of the technology’s positive contribution to reducing air pollution, reducing carbon emissions or enabling electric service to be more reliable and resilient.
•We rely on tax equity financing arrangements to realize the benefits provided by investment tax creditsITCs and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed.
We expect that any Energy Server deployments through financed transactions (including our Bloom Electrons programs, our leasing programs and any Third-Party PPA Programs) will receive capital from financing parties ("Equity Investors") who derive a significant portion of their economic returns through tax benefits. Equity Investors are generally entitled to substantially all of the project’s tax benefits, such as those provided by the ITC and Modified Accelerated Cost Recovery System ("MACRS") or bonus depreciation, until the Equity Investors achieve their respective agreed rates of return. The number of and available capital from potential Equity Investors is limited, we compete with other energy companies eligible for these tax benefits to access such investors, and the availability of capital from Equity Investors is subject to fluctuations based on factors outside of our control such as macroeconomic trends and changes in applicable taxation regimes. Concerns regarding our limited operating history, lack of profitability and that we are only the party who can perform operations and maintenance on our Energy Servers have made it difficult to attract investors in the past. Our ability to obtain additional financing in the future depends on the continued confidence of banks and other financing sources in our business model, the market for our Energy Servers, and the continued availability of tax benefits applicable to our Energy Servers. In addition, conditions in the general economy and financial and credit markets may result in the contraction of available tax equity financing. If we are unable to enter into tax equity financing agreements with attractive pricing terms, or at all, we may not be able to obtain the
capital needed to fund our financing programs or use the tax benefits provided by the ITC and MACRS depreciation, which could make it more difficult for customers to finance the purchase of our Energy Servers. Such circumstances could also require us to reduce the price at which we are able to sell our Energy Servers and therefore harm our business, our financial condition, and our results of operations.
Risks Related to Legal Matters and Regulations
•We are subject to various environmentalnational, state and local laws and regulations that could impose substantial costs upon us and cause delays in the delivery and installation of our Energy Servers.
•The installation and operation of our Energy Servers are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our Energy Servers, especially as these regulations evolve over time.
•With respect to our products that run, in part, on fossil fuel, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in our customers’ energy procurement policies.
Risks Related to Our Intellectual Property
•Our failure to effectively protect and enforce our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.
•Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection, either of which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
•We may need to defend ourselves against claims that we infringed, misappropriated, or otherwise violated the intellectual property rights of others, which may be time-consuming and would cause us to incur substantial costs.
Risks Related to Our Financial Condition and Operating Results
•We have incurred significant losses in the past and we may not be profitable for the foreseeable future.
•Our financial condition and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our Class A common stock.
•If we fail to manage our growth effectively, our business and operating results may suffer.
•If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.
•Our ability to use our deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.
Risks Related to Our Liquidity
•We must maintain the confidence of our customers in our liquidity, including in our ability to timely service our debt obligations and in our ability to grow our business over the long-term.
•Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities’ outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
•We may not be able to generate sufficient cash to meet our debt service obligations.
Risks Related to Our Operations
•We may have conflicts of interest with our PPA Entities.
•Expanding operations internationally could expose us to additional risks.
•Data security breaches and cyberattacks could compromise our intellectual property or other confidential information and cause significant damage to our business and reputation.
•If we are unable to attract and retain key employees and hire qualified management, technical, engineering, finance and sales personnel, our ability to compete and successfully grow our business could be harmed.
Risks Related to Ownership of Our Common Stock
•The stock price of our Class A common stock has been and may continue to be volatile.
•We may issue additional shares of our Class A common stock in connection with any future conversion of the Green Notes (as defined herein) or in connection with our transaction with SK ecoplant, which may dilute our existing stockholders and potentially adversely affect the market price of our Class A common stock.
•The dual class structure of our common stock and the voting agreements among certain stockholders have the effect of concentrating voting control of our Company with KR Sridhar, our Chairman and Chief Executive Officer, and also with those stockholders who held our capital stock prior to the completion of our initial public offering, which limits or precludes your ability to influence corporate matters and may adversely affect the trading price of our Class A common stock.
Risks Related to Our Business, Industry and Sales
The distributed generation industry is an emerging market and distributed generation may not receive widespread market acceptance, which maymake evaluating our business and future prospects difficult.
The distributed generation industry is still an emerging market in an otherwise mature and heavily regulated industry, and we cannot be sure that potential customers will accept distributed generation broadly, or our Energy Server products specifically. Enterprises may be unwilling to adopt our solution over traditional or competing power sources for any number of reasons, including the perception that our technology or our company is unproven, lack of confidence in our business model, the perceived unavailability of back-up service providers to operate and maintain the Energy Servers, and lack of awareness of our product or their perception of regulatory or political headwinds. Because distributed generation is an emerging industry, broad acceptance of our products and services is subject to a high level of uncertainty and risk. If the market for our products and services does not continue to develop as we anticipate, our business will be harmed. As a result, predicting our future revenue and appropriately budgeting for our expenses is difficult, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates or if we adjust our estimates in future periods, our operating results and financial position could be materially and adversely affected.
Our products involve a lengthy sales and installation cycle, and if we fail to close sales on a regular and timely basis, our business could be harmed.
Our sales cycle is typically 12 to 18 months but can vary considerably. In order to make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our product and our technology. The period between initial discussions with a potential customer and the eventual sale of even a single product typically depends on a number of factors, including the potential customer’s budget and decision as to the type of financing it chooses to use, as well as the arrangement of such financing. Prospective customers often undertake a significant evaluation process that may further extend the sales cycle. Once a customer makes a formal decision to purchase our product, the fulfillment of the sales order by us requires a substantial amount of time. Generally, the time between the entry into a sales contract with a customer and the installation of our Energy Servers can range from nine to twelve months or more. This lengthy sales and installation cycle is subject to a number of significant risks over which we have little or no control. Because of both the long sales and long installation cycles, we may expend significant resources without having certainty of generating a sale.
These lengthy sales and installation cycles increase the risk that an installation may be delayed and/or may not be completed. In some instances, a customer can cancel an order for a particular site prior to installation, and we may be unable to recover some or all of our costs in connection with design, permitting, installation and site preparations incurred prior to cancellation. Cancellation rates can be between 10% and 20% in any given period due to factors outside of our control, including an inability to install an Energy Server at the customer’s chosen location because of permitting or other regulatory issues, delays or unanticipated costs in securing interconnection approvals or necessary utility infrastructure, unanticipated changes in the cost, or other reasons unique to each customer. Our operating expenses are based on anticipated sales levels, and many of our expenses are fixed. If we are unsuccessful in closing sales after expending significant resources or if we experience delays or cancellations, our business could be materially and adversely affected. Since, in general, we do not recognize revenue
on the sales of our products until installation and acceptance, a small fluctuation in the timing of the completion of our sales transactions could cause our operating results to vary materially from period to period.
Our Energy Servers have significant upfront costs, and we will need to attract investors to help customers finance purchases.
Our Energy Servers have significant upfront costs. In order to expand our offerings to customers who lack the financial capability to purchase our Energy Servers directly and/or who prefer to lease the product or contract for our services on a pay-as-you-go model, we subsequently developed various financing options that enabled customers use of the Energy Servers without a direct purchase through third-party ownership financing arrangements. For an overview of these different financing arrangements, please see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Purchase and Financing Options. If in any given quarter we are not able to secure funding in a timely fashion, our results of operations and financial condition will be negatively impacted. We continue to innovate our customer contracts to attempt to attract new customers and these may have different terms and financing conditions from prior transactions.
We rely on and need to grow committed financing capacity with existing partners or attract additional partners to support our growth, finance new projects and new types of product offerings, including fuel cells for the hydrogen market. In addition, at any point in time, our ability to deploy our backlog is contingent on securing available financing. Our ability to attract third-party financing depends on many factors that are outside of our control, including an investors' ability to utilize tax credits and other government incentives, interest rate and/or currency exchange fluctuations, our perceived creditworthiness and the condition of credit markets generally. Our financing of customer purchases of our Energy Servers is subject to conditions such as the customer’s credit quality and the expected minimum internal rate of return on the customer engagement, and if these conditions are not satisfied, we may be unable to finance purchases of our Energy Servers, which would have an adverse effect on our revenue in a particular period. If we are unable to help our customers arrange financing for our Energy Servers generally, our business will be harmed. Additionally, the Managed Services Financing option, as with all leases, is also limited by the customer’s willingness to commit to making fixed payments regardless of the performance of the Energy Servers or our performance of our obligations under the customer agreement. To the extent we are unable to arrange future financings for any of our current projects, our business would be negatively impacted.
Further, our sales process for transactions, which require financing, require that we make certain assumptions regarding the cost of financing capital. Actual financing costs may vary from our estimates due to factors outside of our control, including changes in customer creditworthiness, macroeconomic factors, the returns offered by other investment opportunities available to our financing partners, and other factors. If the cost of financing ultimately exceeds our estimates, we may be unable to proceed with some or all of the impacted projects or our revenue from such projects may be less than our estimates.
The economic benefits of our Energy Servers to our customers depend on the cost of electricity available from alternative sources, including local electric utility companies, and such cost structure is subject to change.
We believe that a customer’s decision to purchase our Energy Servers is significantly influenced by its price, the price predictability of electricity generated by our Energy Servers in comparison to the retail price, and the future price outlook of electricity from the local utility grid and other energy sources. These prices are subject to change and may affect the relative benefits of our Energy Servers. Factors that could influence these prices and are beyond our control include the impact of energy conservation initiatives that reduce electricity consumption; construction of additional power generation plants (including nuclear, coal or natural gas); technological developments by others in the electric power industry; the imposition of “departing load,” “standby,” power factor charges, greenhouse gas emissions charges, or other charges by local electric utility or regulatory authorities; and changes in the rates offered by local electric utilities and/or in the applicability or amounts of charges and other fees imposed or incentives granted by such utilities on customers. In addition, even with available subsidies for our products, the current low cost of grid electricity in some states in the United States and some foreign countries does not render our product economically attractive.
Furthermore, an increase in the price of natural gas or curtailment of availability (e.g., as a consequence of physical limitations or adverse regulatory conditions for the delivery of production of natural gas) or the inability to obtain natural gas service could make our Energy Servers less economically attractive to potential customers and reduce demand.
If we are not able to continue to reduce our cost structure in the future, our ability to become profitable may be impaired.
We must continue to reduce the manufacturing costs for our Energy Servers to expand our market. Additionally, certain of our existing service contracts were entered into based on projections regarding service costs reductions that assume
continued advances in our manufacturing and services processes that we may be unable to realize. Future increases to the cost of components and raw materials would offset our efforts to reduce our manufacturing and services costs. For example, during the second half of 2021, we experienced price increases in raw materials, which are used in our components and subassemblies for our Energy Servers. Any increases in the costs of components, raw materials and/or labor, whether as a result of supply chain pressures, inflation or rising interest rates, could slow our growth and cause our financial results and operational metrics to suffer.
In addition, we may face increases in our other expenses including increases in wages or other labor costs as well as installation, marketing, sales or related costs. In order to expand into new electricity markets (in which the price of electricity from the grid is lower) while still maintaining our current margins, we will need to continue to reduce our costs. Increases in any of these costs or our failure to achieve projected cost reductions could adversely affect our results of operations and financial condition and harm our business and prospects. If we are unable to reduce our cost structure in the future, we may not be able to achieve profitability, which could have a material adverse effect on our business and our prospects.
We rely on interconnection requirements and export tariff arrangements that are subject to change.
Because our Energy Servers are designed to operate at a constant output 24x7, while our customers’ demand for electricity typically fluctuates over the course of the day or week, there are often periods when our Energy Servers are producing more electricity than a customer may require, and such excess electricity must generally be exported to the local electric utility. Export of customer-generated power is generally provided for in the United States under federal, state or local laws and regulations. Many, but not all, local electric utilities provide compensation to our customers for such electricity under “fuel cell net metering” (which often differs from solar net metering) or other customer generation programs. Utility tariffs and fees, interconnection agreements and fuel cell net metering requirements are subject to changes in availability and terms, and some jurisdictions do not allow interconnections or export at all. At times in the past, such changes have had the effect of significantly reducing or eliminating the benefits of such programs. Changes in the availability of, or benefits offered by, utility tariffs, the applicable net metering requirements or interconnection agreements in the jurisdictions in which we operate or in which we anticipate expanding into in the future could adversely affect the demand for our Energy Servers. For example, in California, the fuel cell net metering tariff currently expires in 2023. We cannot predict the outcome of regulatory proceedings addressing tariffs that would include customers utilizing fuel cells. If there is not an economical tariff for customers utilizing fuel cells in a given jurisdiction, it may limit or end our ability to sell and install our Energy Servers in that jurisdiction. Further, permitting and other requirements applicable to electric and gas interconnections are subject to change. For example, some jurisdictions are limiting new gas interconnections, although others are allowing new gas interconnections for non-combustion resources like our Energy Servers. In addition, the rules and regulations regarding the production, transportation and storage of hydrogen, including with respect to safety, environmental and market regulations and policies, are in flux and may limit the market for our products that operate with hydrogen.
We currently face and will continue to face significant competition.
We compete for customers, financing partners and incentive dollars with other electric power providers. Many providers of electricity, such as traditional utilities and other companies offering distributed generation products, have longer operating histories, customer incumbency advantages. access to and influence with local and state governments, and access to more capital resources than us. Significant developments in alternative technologies, such as energy storage, wind, solar or hydro power generation, or improvements in the efficiency or cost of traditional energy sources, including coal, oil, natural gas used in combustion, or nuclear power, may materially and adversely affect our business and prospects in ways we cannot anticipate. We may also face new competitors who are not currently in the market. If we fail to adapt to changing market conditions and to compete successfully with grid electricity or new competitors, our growth will be limited, which would adversely affect our business results.
We derive a substantial portion of our revenue and backlog from a limited number of customers, and the loss of or a significant reduction in orders from a large customer could have a material adverse effect on our operating results and other key metrics.
In any particular period, a substantial amount of our total revenue has and could continue to come from a relatively small number of customers. As an example, in the year ended December 31, 2021, two customers accounted for approximately 43% and 11% of our total revenue. The loss of any large customer order or any delays in installations of new Energy Servers with any large customer would materially and adversely affect our business results.
Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify partners to assist in such development or expansion, and our products may not be successful if we are unable to maintain alignment with evolving industry standards and requirements.
We continue to develop new products for new markets and, as we move into those markets, we may need to identify new business partners and suppliers in order to facilitate such development and expansion, such as our entry into the hydrogen market or the development of the Bloom Electrolyzer. Identifying such partners and suppliers is a lengthy process and is subject to significant risks and uncertainties, such as an inability to negotiate mutually-acceptable terms for the partnership. In addition, there could be delays in the design, manufacture and installation of new products and we may not be timely in the development of new products, limiting our ability to expand our business and harming our financial condition and results of operations.
In addition, as we continue to invest in research and development to sustain or enhance our existing products, the introduction of new technologies and the emergence of new industry standards or requirements could render our products obsolete. Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and standards-setting organizations. If market acceptance of our products is reduced or delayed or the standards-setting organizations fail to develop timely commercially viable standards our business would be harmed.
Risks Related to Our Products and Manufacturing
Our business has been and continues to be adversely affected by the COVID-19 pandemic.
We continue to monitor and adjust as appropriate our operations in response to the COVID-19 pandemic. The precautions that we have implemented in our operations may not be sufficient to prevent exposure to COVID-19. While we do maintain protocols to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning, masking if required by the local authorities as well as providing testing for all employees, there is no guarantee that these measures will prevent an outbreak.
If a significant number of employees are exposed and sent home, particularly in our manufacturing facilities, our production could be significantly impacted. Furthermore, since our manufacturing process involves tasks performed at both our California and Delaware facilities, an outbreak at either facility would have a substantial impact on our overall production, and in such case, our cash flow and results of operations including revenue will be adversely affected.
During the COVID-19 pandemic, we have experienced delays from certain vendors and suppliers, which, in turn, could cause delays in the manufacturing and installation of our Energy Servers and adversely impact our cash flows and results of operations including revenue. Alternative or replacement suppliers may not be available and ongoing delays could affect our business and growth. In addition, new and potentially more contagious variants of the COVID-19 virus may develop, which can lead to future disruptions in the availability or price of these or other parts, and we cannot guarantee that we will succeed in finding alternate suppliers that are able to meet our needs. In addition, international air and sea logistics systems have been heavily impacted by the COVID-19 pandemic. Actions by government agencies may further restrict the operations of freight carriers and the operation of ports, which would negatively impact our ability to receive the parts and supplies we need to manufacture our Energy Servers or to deliver them to our customers.
Our installation operations have also been impacted by the COVID-19 pandemic. For example, our installation projects have experienced delays relating to, among other things, shortages in available labor for design, installation and other work; the inability or delay in our ability to access customer facilities due to shutdowns or other restrictions; the decreased productivity of our general contractors, their sub-contractors, medium-voltage electrical gear suppliers, and the wide range of engineering and construction related specialist suppliers on whom we rely for successful and timely installations; the stoppage of work by gas and electric utilities on which we are critically dependent for hook-ups; and the unavailability of necessary civil and utility inspections as well as the review of our permit submissions and issuance of permits by multiple authorities that have jurisdiction over our activities.
We are not the only business impacted by these shortages and delays, which means that we are subject to risk of increased competition for scarce resources, which may result in delays or increases in the cost of obtaining such services, including increased labor costs and/or fees. An inability to install our Energy Servers would negatively impact our acceptances, and thereby impact our cash flows and results of operations, including revenue.
As to maintenance operations, if we are delayed in or unable to perform scheduled or unscheduled maintenance, our previously-installed Energy Servers will likely experience adverse performance impacts including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may be subject to increased costs in the future.
We continue to remain in close communication with our manufacturing facilities, employees, customers, suppliers and partners, but there is no guarantee we will be able to mitigate the impact of this ongoing situation.
Our future success depends in part on our ability to increase our production capacity, and we may not be able to do so in a cost-effective manner.
To the extent we are successful in growing our business, we may need to increase our production capacity. Our ability to plan, construct and equip additional manufacturing facilities is subject to significant risks and uncertainties, including the following:
•The risks inherent in the development and construction of new facilities, including risks of delays and cost overruns as a result of factors outside our control, which may include delays in government approvals, burdensome permitting conditions, and delays in the delivery of manufacturing equipment and subsystems that we manufacture or obtain from suppliers.
•Adding manufacturing capacity in any international location will subject us to new laws and regulations including those pertaining to labor and employment, environmental and export / import. In addition, it brings with it the risk of managing larger scale foreign operations.
•We may be unable to achieve the production throughput necessary to achieve our target annualized production run rate at our current and future manufacturing facilities.
•Manufacturing equipment may take longer and cost more to engineer and build than expected, and may not operate as required to meet our production plans.
•We may depend on third-party relationships in the development and operation of additional production capacity, which may subject us to the risk that such third parties do not fulfill their obligations to us under our arrangements with them.
•We may be unable to attract or retain qualified personnel. For example, currently the market for manufacturing labor has been constrained, which could pose a risk to our ability to increase production.
If we are unable to expand our manufacturing facilities or develop our existing facilities in a timely manner to meet increased demand, we may be unable to further scale our business, which would negatively affect our results of operations and financial condition. Conversely, if the demand for our Energy Servers or our production output decreases or does not rise as expected, we may not be able to spread a significant amount of our fixed costs over the production volume, resulting in a greater than expected per unit fixed cost, which would have a negative impact on our financial condition and our results of operations.
If our Energy Servers contain manufacturing defects, our business and financial results could be harmed.
Our Energy Servers are complex products and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects only discovered once the Energy Server is deployed in the field. Changes in our supply chain or the failure of our suppliers to otherwise provide us with components or materials that meet our specifications could introduce defects into our products. As we grow our manufacturing volume, the chance of manufacturing defects could increase. In addition, new product introductions or design changes made for the purpose of cost reduction, performance improvement, fulfilling new customer requirements or improved reliability could introduce new design defects that may impact Energy Server performance and life. Any design or manufacturing defects or other failures of our Energy Servers to perform as expected could cause us to incur significant service and re-engineering costs, divert the attention of our engineering personnel from product development efforts, and significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
Furthermore, we may be unable to correct manufacturing defects or other failures of our Energy Servers in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance, and our business reputation.
The performance of our Energy Servers may be affected by factors outside of our control, which could result in harm to our business and financial results.
Field conditions, such as the quality of the natural gas supply and utility processes, which vary by region and may be subject to seasonal fluctuations or environmental factors such as smoke from wild fires, have affected the performance of our Energy Servers and are not always possible to predict until the Energy Server is in operation. As we move into new geographies and deploy new service configurations, we may encounter new and unanticipated field conditions (including as a result of
climate change). Adverse impacts on performance may require us to incur significant service and re-engineering costs or divert the attention of our engineering personnel from product development efforts. Furthermore, we may be unable to adequately address the impacts of factors outside of our control in a manner satisfactory to our customers. Any of these circumstances could significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
If our estimates of the useful life for our Energy Servers are inaccurate or we do not meet our performance warranties and performance guaranties, or if we fail to accrue adequate warranty and guaranty reserves, our business and financial results could be harmed.
We offer certain customers the opportunity to renew their O&M Agreements (defined herein) on an annual basis, for up to 30 years, at prices predetermined at the time of purchase of the Energy Server. We also provide performance warranties and performance guaranties covering the efficiency and output performance of our Energy Servers. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the useful life of our Energy Servers and their components, including assumptions regarding improvements in power module life that may fail to materialize. We do not have a long history with a large number of field deployments, especially for new product introductions, and our estimates may prove to be incorrect. Failure to meet these warranty and performance guaranty levels may require us to replace the Energy Servers at our expense or refund their cost to the customer, or require us to make cash payments to the customer based on actual performance, as compared to expected performance, capped at a percentage of the relevant equipment purchase prices. We accrue for product warranty costs and recognize losses on service or performance warranties when required by U.S. GAAP based on our estimates of costs that may be incurred and based on historical experience. However, as we expect our customers to renew their O&M Agreements each year, the total liability over time may be more than the accrual. Actual warranty expenses have in the past been and may in the future be greater than we have assumed in our estimates, the accuracy of which may be hindered due to our limited history operating at our current scale. Therefore, if our estimates of the useful life for our Energy Servers are inaccurate or we do not meet our performance warranties and performance guaranties, or if we fail to accrue adequate warranty and guaranty reserves, our business and financial results could be harmed.
Our business is subject to risks associated with construction, utility interconnection, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
Because we generally do not recognize revenue on the sales of our Energy Servers until installation and acceptance except where a third party is responsible for installation (such as in our sales in the Republic of Korea and certain cases in the United States), our financial results depend to a large extent on the timeliness of the installation of our Energy Servers. Furthermore, in some cases, the installation of our Energy Servers may be on a fixed price basis, which subjects us to the risk of cost overruns or other unforeseen expenses in the installation process.
The construction, installation, and operation of our Energy Servers at a particular site is also generally subject to oversight and regulation in accordance with national, state, and local laws and ordinances relating to building codes, safety, environmental protection, and related matters, and typically require various local and other governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal. For more information regarding these restrictions, please see the risk factors in the section entitled "Risks Related to Legal Matters and Regulations." As a result, unforeseen delays in the review and permitting process could delay the timing of the construction and installation of our Energy Servers and could therefore adversely affect the timing of the recognition of revenue related to the installation, which could harm our operating results in a particular period.
In addition, the completion of many of our installations depends on the availability of and timely connection to the natural gas grid and the local electric grid. In some jurisdictions, local utility companies or the municipality have denied our request for connection or have required us to reduce the size of certain projects. In addition, some municipalities have recently adopted restrictions that prohibit any new construction that allows for the use of natural gas. For more information regarding these restrictions, please see the risk factor entitled "As a technology that runs, in part, on fossil fuel, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in our customers’ energy procurement policies." Any delays in our ability to connect with utilities, delays in the performance of installation-related services, or poor performance of installation-related services by our general contractors or sub-contractors will have a material adverse effect on our results and could cause operating results to vary materially from period to period.
Furthermore, we rely on the ability of our third-party general contractors to install Energy Servers at our customers’ sites and to meet our installation requirements. We currently work with a limited number of general contractors, which has impacted and may continue to impact our ability to make installations as planned. Our work with contractors or their sub-contractors may
have the effect of our being required to comply with additional rules (including rules unique to our customers), working conditions, site remediation, and other union requirements, which can add costs and complexity to an installation project. The timeliness, thoroughness, and quality of the installation-related services performed by some of our general contractors and their sub-contractors in the past have not always met our expectations or standards and may not meet our expectations and standards in the future.
The failure of our suppliers to continue to deliver necessary raw materials or other components of our Energy Servers in a timely manner and to specification could prevent us from delivering our products within required time frames and could cause installation delays, cancellations, penalty payments and damage to our reputation.
We rely on a limited number of third-party suppliers, and in some cases sole suppliers, for some of the raw materials and components for our Energy Servers, including certain rare earth materials and other materials that may be of limited supply. If our suppliers provide insufficient inventory at the level of quality required to meet our standards and customer demand or if our suppliers are unable or unwilling to provide us with the contracted quantities (as we have limited or in some case no alternatives for supply), our results of operations could be materially and negatively impacted. If we fail to develop or maintain our relationships with our suppliers, or if there is otherwise a shortage or lack of availability of any required raw materials or components, we may be unable to manufacture our Energy Servers or our Energy Servers may be available only at a higher cost or after a long delay.
Recently, due to increased demand across a range of industries, the global supply chain for certain raw materials and components, including semiconductor components and specialty metals, has experienced significant strain. The COVID-19 pandemic has also contributed to and exacerbated this strain. There can be no assurance that the impacts of the pandemic on the supply chain will not continue, or worsen, in the future. Significant delays and shortages could prevent us from delivering our Energy Servers to our customers within required time frames and cause order cancellations, which would adversely impact our cash flows and results of operations.
In some cases, we have had to create our own supply chain for some of the components and materials utilized in our fuel cells. We have made significant expenditures in the past to develop our supply chain. In many cases, we entered into contractual relationships with suppliers to jointly develop the components we needed. These activities are time and capital intensive. In addition, some of our suppliers use proprietary processes to manufacture components. We may be unable to obtain comparable components from alternative suppliers without considerable delay, expense, or at all, as replacing these suppliers could require us either to make significant investments to bring the capability in-house or to invest in a new supply chain partner. Some of our suppliers are smaller, private companies, heavily dependent on us as a customer. If our suppliers face difficulties obtaining the credit or capital necessary to expand their operations when needed, they could be unable to supply necessary raw materials and components needed to support our planned sales and services operations, which would negatively impact our sales volumes and cash flows.
The failure by us to obtain raw materials or components in a timely manner or to obtain raw materials or components that meet our quantity and cost requirements could impair our ability to manufacture our Energy Servers or increase their costs or service costs of our existing portfolio of Energy Servers under O&M Agreements. If we cannot obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our Energy Servers to our customers within required time frames, which could result in sales and installation delays, cancellations, penalty payments, or damage to our reputation, any of which could have a material adverse effect on our business and results of operations. In addition, we rely on our suppliers to meet quality standards, and the failure of our suppliers to meet those quality standards could cause delays in the delivery of our products, unanticipated servicing costs, and damage to our reputation.
We have, in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations.
We have entered into long-term supply agreements with certain suppliers. Some of these supply agreements provide for fixed or inflation-adjusted pricing, substantial prepayment obligations and in a few cases, supplier purchase commitments. These arrangements could mean that we end up paying for inventory that we did not need or that was at a higher price than the market. Further, we face significant specific counterparty risk under long-term supply agreements when dealing with suppliers without a long, stable production and financial history. Given the uniqueness of our product, many of our suppliers do not have a long operating history and are private companies that may not have substantial capital resources. In the event any such supplier experiences financial difficulties, it may be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers or whether we may secure new long-term supply agreements. Additionally, many of our parts and
materials are procured from foreign suppliers, which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes in applicable international trade regulations such as taxes, tariffs, or quotas. Any of the foregoing could materially harm our financial condition and our results of operations.
We face supply chain competition, including competition from businesses in other industries, which could result in insufficient inventory and negatively affect our results of operations.
Certain of our suppliers also supply parts and materials to other businesses including businesses engaged in the production of consumer electronics and other industries unrelated to fuel cells. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply of the items in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers, which could materially harm our financial condition and our results of operations.
We, and some of our suppliers, obtain capital equipment used in our manufacturing process from sole suppliers and, if this equipment is damaged or otherwise unavailable, our ability to deliver our Energy Servers on time will suffer.
Some of the capital equipment used to manufacture our products and some of the capital equipment used by our suppliers have been developed and made specifically for us, are not readily available from multiple vendors, and would be difficult to repair or replace if they did not function properly. If any of these suppliers were to experience financial difficulties or go out of business or if there were any damage to or a breakdown of our manufacturing equipment and we could not obtain replacement equipment in a timely manner, our business would suffer. In addition, a supplier’s failure to supply this equipment in a timely manner with adequate quality and on terms acceptable to us could disrupt our production schedule or increase our costs of production and service.
Possible new trade tariffs could have a material adverse effect on our business.
Our business is dependent on the availability of raw materials and components for our Energy Servers, particularly electrical components common in the semiconductor industry, specialty steel products / processing and raw materials. For example, prior tariffs imposed on steel and aluminum imports increased the cost of raw materials for our Energy Servers and decreased the available supply. Additional new trade tariffs or other trade protection measures that are proposed or threatened and the potential escalation of a trade war and retaliation measures could have a material adverse effect on our business, results of operations and financial condition. Consequently, the imposition of tariffs on items imported by us from China or other countries could increase our costs and could have a material adverse effect on our business and our results of operations.
A failure to properly comply with foreign trade zone laws and regulations could increase the cost of our duties and tariffs.
We have established two foreign trade zones, one in California and one in Delaware, through qualification with U.S. Customs and Border Protection, and are approved for "zone to zone" transfers between our California and Delaware facilities. Materials received in a foreign trade zone are not subject to certain U.S. duties or tariffs until the material enters U.S. commerce. We benefit from the adoption of foreign trade zones by reduced duties, deferral of certain duties and tariffs, and reduced processing fees, which help us realize a reduction in duty and tariff costs. However, the operation of our foreign trade zones requires compliance with applicable regulations and continued support of U.S. Customs and Border Protection with respect to the foreign trade zone program. If we are unable to maintain the qualification of our foreign trade zones, or if foreign trade zones are limited or unavailable to us in the future, our duty and tariff costs would increase, which could have an adverse effect on our business and results of operations.
Any significant disruption in the operations at our headquarters or manufacturing facilities could delay the production of our Energy Servers, which would harm our business and results of operations.
We manufacture our Energy Servers in a limited number of manufacturing facilities, any of which could become unavailable either temporarily or permanently for any number of reasons, including equipment failure, material supply, public health emergencies or catastrophic weather, including extreme weather events or flooding resulting from the effects of climate change, or geologic events. For example, our headquarters and several of our manufacturing facilities are located in the San Francisco Bay Area, an area that is susceptible to earthquakes, floods and other natural disasters. The occurrence of a natural disaster such as an earthquake, drought, extreme heat, flood, fire, localized extended outages of critical utilities (such as California's public safety power shut-offs) or transportation systems, or any critical resource shortages could cause a significant interruption in our business, damage or destroy our facilities, our manufacturing equipment, or our inventory, and cause us to incur significant costs, any of which could harm our business, our financial condition and our results of operations. The
insurance we maintain against fires, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.
Risks Related to Government Incentive Programs
Our business currently benefits from the availability of rebates, tax credits and other financial programs and incentives, and the reduction, modification, or elimination of such benefits could cause our revenue to decline and harm our financial results.
The U.S. federal government and some state and local governments provide incentives to current and future end users and purchasers of our Energy Servers in the form of rebates, tax credits and other financial incentives, such as system performance payments and payments for renewable energy credits associated with renewable energy generation. In addition, some countries outside the United States also provide incentives to current and future end users and purchasers of our Energy Servers. We currently have operations and sell our products in Japan, India and the Republic of Korea (collectively, our "Asia Pacific region"), where in some locations such as the Republic of Korea, Renewables Portfolio Standard ("RP Standards") or Clean Energy Standards ("CE Standards") are in place to promote the adoption of renewable, low- or zero-carbon power generation, including, in some circumstances, fuel cells. Our Energy Servers have qualified for tax exemptions, incentives, or other customer incentives in many states including the states of California, Connecticut, Massachusetts, New Jersey and New York. Some states have utility procurement programs and/or RP Standards or CE Standards for which our technologies are eligible. Our Energy Servers are currently installed in eleven U.S. states, each of which may have its own enabling policy framework. We utilize governmental rebates, tax credits, and other financial incentives to lower the effective price of our products to our customers in the United States and the Asia Pacific region. Financiers and Equity Investors may also take advantage of these financial incentives, lowering the cost of capital and energy to our customers. However, these incentives and procurement programs or obligations may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.
For example, the Korean RP Standards are scheduled to be replaced in 2022 with the Hydrogen Portfolio Standard (“HPS”). This may impact the demand for our Energy Servers in the Republic of Korea. Initially, we do not expect the HPS to require 100% hydrogen as a feedstock for fuel cell projects. The Ministry of Trade, Industry, and Economy is running a stakeholder process, which will determine the specifics of the HPS incentive mechanism. For the years ended December 31, 2021 and 2020, our revenue in the Republic of Korea accounted for 38% and 34% of our total revenue, respectively. Therefore, if sales of our Energy Servers to this market decline in the future, this may have a material adverse effect on our financial condition and results of operations.
As another example, in the United States, commercial purchasers of fuel cells are eligible to claim the federal bonus depreciation benefit. Unless legislation extends the bonus depreciation deadlines, under current rules it will be phased down beginning in 2023, and will expire at the end of 2026. Similarly, commercial fuel cell purchasers can claim the ITC. While legislation under active consideration would extend the ITC for up to five years, under current law the ITC will end on December 31, 2023.
The ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction in incentives. In the case of a Portfolio Financing, the owner of the portfolio bears the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future.
As another example, many of our installations in California interconnect with investor-owned utilities on Fuel Cell Net Energy Metering (“FC NEM”) tariffs. FC NEM tariffs will be available for new California installations until December 31, 2023. However, to remain eligible for those FC NEM tariffs, at least some installations currently on those tariffs are likely to be required to meet greenhouse gas emissions standards. We are working through the appropriate regulatory channels to establish alternative tariffs for California customers utilizing fuel cells. If our customers are unable to interconnect under FC NEM tariffs or suitable alternatives, interconnection and tariff costs may increase and such an increase may negatively impact demand for our products. Additionally, the uncertainty regarding requirements for service under any of these tariffs could negatively impact the perceived value of or risks associated with our products, which could also negatively impact demand.
Changes in the availability of rebates, tax credits and other financial programs and incentives could reduce demand for our Energy Servers or future products, impair sales financing, and adversely impact our business results. The continuation of these programs and incentives depends upon political support which to date has been bipartisan and durable.
We rely on tax equity financing arrangements to realize the benefits provided by ITCs and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed.
We expect that Energy Server deployments through certain of our financed transactions will receive capital from Equity Investors who derive a significant portion of their economic returns through tax benefits. Equity Investors are generally entitled to substantially all of the project’s tax benefits, such as those provided by the ITC and Modified Accelerated Cost Recovery System ("MACRS") or bonus depreciation, until the Equity Investors achieve their respective agreed rates of return. The number of and available capital from potential Equity Investors is limited, we compete with other energy companies eligible for these tax benefits to access such investors, and the availability of capital from Equity Investors is subject to fluctuations based on factors outside of our control such as macroeconomic trends and changes in applicable taxation regimes. Concerns regarding our limited operating history, lack of profitability and that we are the only party who can perform operations and maintenance on our Energy Servers have made it difficult to attract investors in the past. Our ability to obtain additional financing in the future depends on the continued confidence of banks and other financing sources in our business model, the market for our Energy Servers, and the continued availability of tax benefits applicable to our Energy Servers. In addition, conditions in the general economy and financial and credit markets may result in the contraction of available tax equity financing. If we are unable to enter into tax equity financing agreements with attractive pricing terms, or at all, we may not be able to obtain the capital needed to fund our financing programs or use the tax benefits provided by the ITC and MACRS depreciation, which could make it more difficult for customers to finance the purchase of our Energy Servers. Such circumstances could also require us to reduce the price at which we are able to sell our Energy Servers and therefore harm our business, our financial condition, and our results of operations.
Risks Related to Legal Matters and Regulations
We are subject to various national, state and local environmental laws and regulations that could impose substantial costs upon us and cause delays in the delivery and installation of our Energy Servers or future products.
The construction, installation, and operation of our Energy Servers or future products at a particular site is also generally subject to oversight and regulation in accordance with national, state, and local laws and ordinances relating to building codes, safety, environmental and climate protection, and related matters, as well as national, regional and/or local energy market rules, regulations and tariffs, and typically require various local and other governmental approvals and permits, including environmental laws in those foreign jurisdictions in which we operate. Environmentalapprovals and permits, that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal. These laws and regulations can be complexaffect the markets for our products and the costs and time required for their installation, and may often change. These laws can give rise to liability for administrative oversight costs, cleanupcompliance costs, clean-up costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with environmentalthe various laws and regulations can be significant, and violations may result in substantial fines and penalties or third-party damages.
It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations, to design our Energy Servers to comply with these varying standards, and to obtain all applicable approvals and permits. We cannot predict whether or when all approvals or permits required for a given project will be granted or whether the conditions associated with the approvals or permits will be achievable. The denial of a permit or utility connection essential to a project or the imposition of impractical conditions would impair our ability to develop the project. In addition, ensuring we cannot predict whether the approval or permitting process will be lengthened due to complexities and appeals. Delay in the review and approval or permitting process for a project can impair or delay our and our customers’ abilities to develop that project or may increase the cost so substantially that the project is no longer attractive to us or our customers. Furthermore, unforeseen delays in the review and permitting process could delay the timing of the installation of our Energy Servers and could therefore adversely affect the timing of the recognition of revenue related to the installation, which could harm our operating results in a particular period. Additionally, in many cases we contractually commit to performing all necessary installation work on a fixed-price basis, and unanticipated costs associated with approval, permitting and/or compliance expenses may cause the cost of performing such work to exceed our revenue. The costs of complying with all the various laws, regulations and customer requirements, and any claims concerning non-compliance, could have a material adverse effect on our financial condition or our operating results.
The installation and operation of our Energy Servers are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our Energy Servers, especially as these regulations evolve over time.
We are committed to compliance with applicable environmental laws requires significant time and management resourcesregulations including health and could cause delayssafety standards, and we continuously review the operation of our Energy Servers for health, safety, and environmental compliance. Our Energy Servers, like other fuel cell technology-based products of which we are aware, produce small amounts of hazardous wastes and air pollutants, and we seek to address these in our ability to build out, equip and operate our facilities as well as service our fleet, which would adversely impact our business, our prospects, our financial condition, and our operating results.accordance with applicable regulatory standards. In addition,
environmental laws and regulations such as the Comprehensive Environmental Response, Compensation and Liability Act in the United States impose liability on several grounds including for the investigation and cleanupclean-up of contaminated soil and ground water, for building contamination, for impacts to human health and for damages to natural resources. If contamination is discovered in the future at properties formerly owned or operated by us or currently owned or operated by us, or properties to which hazardous substances were sent by us, it could result in our liability under environmental laws and regulations. Many of our customers who purchase our Energy Servers have high sustainability standards, and any environmental noncompliancenon-compliance by us could harm our reputation and impact a current or potential customer’s buying decision. Additionally, in many cases we contractually commit to performing all necessary installation work on a fixed-price basis, and unanticipated costs associated with environmental remediation and/or compliance expenses may cause the cost of performing such work to exceed our revenue. The costs of complying with environmental laws, regulations, and customer requirements, and any claims concerning noncompliance or liability with respect to contamination in the future, could have a material adverse effect on our financial condition or our operating results.
The installation and operation of our Energy Servers are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our Energy Servers, especially as these regulations evolve over time.
Bloom is committed to compliance with applicable environmental laws and regulations including health and safety standards, and we continually review the operation of our Energy Servers for health, safety, and environmental compliance. Our Energy Servers, like other fuel cell technology-based products of which we are aware, produce small amounts of hazardous wastes and air pollutants, and we seek to ensure that these are handled in accordance with applicable regulatory standards.
Maintaining environmental compliance with laws and regulations can be challenging given the changing patchwork of environmental laws and regulations that prevail at the federal, state, regional, and local level. Most existing environmental laws and regulations preceded the introduction of our innovative fuel cell technology and were adopted to apply to technologies existing at the time (i.e., large coal, oil, or gas-fired power plants). Currently, there is generally little guidanceGuidance from these agencies on how certain environmental laws and regulations may or may not be applied to our technology.technology can be inconsistent.
For example, natural gas, which is the primary fuel used in our Energy Servers, contains benzene, which is classified as a hazardous waste if it exceeds 0.5 milligrams per liter. A small amount of benzene found in the public natural gas supply (equivalent to what is present in one gallon of gasoline in an automobile fuel tank, which are exempt from federal regulation) is collected by the gas cleaning units contained in our Energy Servers whichServers; these gas cleaning units are typically replaced at customers' sites once every 1815 to 24 months by us from customers’ sites.36 months. From 2010 to late 2016 and in the regular course of maintenance of the Energy Servers, we periodically replaced the units in our servers relying upon a federal environmental exemption that permitted the handling of such units without manifesting the contents as containing a hazardous waste. Although over the years and with the approval of two states, we believed that we operated appropriately under the exemption, the U.S. Environmental Protection Agency ("EPA") issued guidance for the first time in late 2016 that differed from our belief and conflicted with the state approvals we had obtained. We have complied with the new guidance and, given the comparatively small quantities of benzene produced, we do not anticipate significant additional costs or risks from our compliance with the revised 2016 guidance. However,In order to put this matter behind us and with no admission of law or fact, we agreed to a consent agreement that was ratified and incorporated by reference into a final order that was entered by an Environmental Appeals Judge for EPA’s Environmental Appeals Board in May of 2020. Consistent with the consent agreement and final order, a final payment of approximately $1.2 million was made in the fourth quarter of 2020 and EPA has asked us to show cause why it should not collect approximately $1.0 million in fines from us forconfirmed the prior period, which we are contesting.matter is formally resolved. Additionally, we paid a nominal finepenalty was paid to ana state agency in a different state under that state’s environmental laws relating to the operation of our Energy Server under the exemption prior to the issuance of the revised EPA guidance.same issue.
Another example relates to the very small amounts of chromium in hexavalent form ("CR+6") which our Energy Servers emit at nanometer scale. This occurs any time a steel super alloy is exposed to high temperatures. CR+6 is found in small concentrations in the air generally. However, exposure to high or significant concentrations over prolonged periods of time can be carcinogenic. While the small amount of chromium emitted by our Energy Servers is initially in the hexavalent form, it converts to a non-toxic trivalent form, or CR+3, rapidly after it leaves the Energy Server. In tests we have conducted, air measurements taken 10 meters from an Energy Server show that the CR+6 is largely converted.
Our Energy Servers do not present any significant health hazard based on our modeling, testing methodology, and measurements. There are several supporting elements to this position including that the emissions from our Energy Servers are in very low concentrations, are emitted as nano-particles that convert to the non-hazardous form CR+3 rapidly, are quickly dispersed into the air, and are not emitted in close proximity to locations where people would be expected to have a prolonged exposure. Nevertheless, we have engineered a technology solution that we are deploying.
Several states in which we currently operate, including California, require permits for emissions of hazardous air pollutants based on the quantity of emissions, most of which require permits only for quantities of emissions that are higher than those observed from our Energy Servers. OtherSome states in which we operate, including New York, New Jersey and North Carolina, have specific permitting or environmental exemptions for fuel cells. SomeOther states in which we currently operate, including California, have CR+6 limitsemissions-based requirements, most of which require permits or other notifications for quantities of emissions that are an order of magnitude overhigher than those observed from our operating range. Within California,Energy Servers. For example, the Bay Area Air Quality Management District ("BAAQMD") requires ain California has an air permit and risk assessment exemption for emissions of chromium in the hexavalent form (“CR+6”) that are moreless than 0.00051 lbs/year. Other California regulations require that levels of CR+6 be below 0.00005 µg/m³, which isEmissions above this level may trigger the level required byneed for a permit. Also, California's Proposition 65 and which requires notification of the presence of CR+6 unless it can be shownpublic exposure is below 0.001 µg/day, the level determined to be at levels that do not pose arepresent no significant health risk. We have determined thatSince the standards applicable in California in this regardstandards are more stringent than those in any other state or foreign location in which we have installed Energy Servers to date, therefore, deployment of our solution has beenwe are focused on California's standards.
There If stricter standards are generally no relevant environmental testing methodology guidelines for a technology such as ours. The standard test method for analyzing emissions cannot be readily applied to our Energy Servers because it would require inserting a probe into an emission stack. Our servers do not have emission stacks; therefore, we have to construct an artificial stack on top of our server in order to conduct a test. If we used the testing methodology similar to what the air districts have usedadopted in other large scale industrial products,states or jurisdictions or our servers can’t meet applicable standards, it would show that we would needcould impact our ability to reduce the emissions of CR+6 from our Energy Servers to meet the most stringent requirements. However, we employed a modified test method that is designed to capture the actual operating conditions of our Energy Servers and its distinctly different design from legacy power plants and industrial equipment. Based on our modeling, measured results and analysis, we believe we are in compliance with State of California air regulations. However, it is possible that the California Air Districts will require us to abate or shut down the operations of certain of our existing Energy Servers on a temporary basis or will seek the imposition of monetary penalties.
While we seek to comply with air quality and emission standards in every region in which we operate, it is possible that certain customers in other regions may request that we provide the new technology solution for their Energy Servers to comply with the stricter standards imposed by California even though they are not applicable and even though we are under no contractual obligation to do so. We plan to satisfy these requests from customers. Failure or delay in attainingobtain regulatory approval and/or could result in ourus not being able to operate in a particular local jurisdiction.
These examples illustrate that our technology is moving faster than the regulatory process in many instances.instances and that there are inconsistencies between how we are regulated in different jurisdictions. It is possible that regulators could delay or prevent us from conducting our business in some way pending agreement on, and compliance with, shifting regulatory requirements. Such actions could delay the installation of Energy Servers or future products, could result in penalties, could require modification or replacement or could trigger claims of performance warranties and defaults under customer contracts that could require us to repurchase their Energy Servers,equipment, any of which could adversely affect our business, our financial performance, and our reputation. In addition, new energy or environmental laws or regulations or new interpretations of existing laws or regulations could present marketing, political or regulatory challenges and could require us to upgrade or retrofit existing equipment, which could result in materially increased capital and operating expenses.
Furthermore, we have not yet determined whetherWith respect to our Energy Servers will satisfy regulatory requirementsproducts that run, in the other states in the U.S. and in international locations in which we do not currently sell Energy Servers but may pursue in the future.
As apart, on fossil fuel-based technology,fuel, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in our customers’ energy procurement policies.
Although the
The current generation of our Energy Servers runningthat run on natural gas produceproduces nearly 50% less23% fewer carbon emissions compared tothan the average of U.S. combustionmarginal power generation sources that our projects displace. However, the operation of our current Energy
Servers does produce carbon dioxide ("CO2"), which has been shown to be a contributing factorcontributes to global climate change. As such, we may be negatively impacted by CO2-related changes in applicable laws, regulations, ordinances, rules, or the requirements of the incentive programs on which we and our customers currently rely. Changes (or a lack of change to comprehensivelysufficiently recognize both the risks
of climate change and recognize the benefit of our technology as one means to maintain reliable and resilient electric service with a lower greenhouse gas emission profile) in any of the laws, regulations, ordinances, or rules that apply to our installations and new technology could make it illegalmore difficult or more costly for us or our customers to install and operate our Energy Servers on particular sites, thereby negatively affecting our ability to deliver cost savings to customers, or we could be prohibited from completing new installations or continuing to operate existing projects.customers. Certain municipalities in California have already banned or are considering banning new interconnections with gas utilities, while others have adopted bans that allow new interconnections for non-combustion resources, such as our Energy Servers. Some local municipalities have also banned or are considering banning the use of distributed generation products that utilize fossil fuel. Additionally, our customers’ and potential customers’ energy procurement policies may prohibit or limit their willingness to procure our natural gas-fueled Energy Servers. Our business prospects may be negatively impacted if we are prevented from completing new installations or our installations become more costly as a result of laws, regulations, ordinances, or rules applicable to our Energy Servers, or by our customers’ and potential customers’ energy procurement policies.
Existing regulations and changes to such regulations impacting the electric power industry may create technical, regulatory, and economic barriers, which could significantly reduce demand for our Energy Servers or affect the financial performance of current sites.
The market for electricity generation products is heavily influenced by U.S. federal, state, local, and foreign government laws, regulations and policies as well as by tariffs, internal policies and regulationspractices of electric utility providers. These regulations, tariffs and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. These regulations, tariffs and policies are often modified and could continue to change, which could result in a significant reduction in demand for our Energy Servers. For example, utility companies commonly charge fees to larger industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes.grid. These fees could change, thereby increasing the cost to our customers of using our Energy Servers and making them less economically attractive.
In addition, our project with Delmarva Power & Light Company ("the Delaware(the "Delaware Project") is subject to laws and regulations relating to electricity generation, transmission, and sale in Delaware and at the regional and federal level.
A law governing the sale of electricity from the Delaware Project was necessary to implement part of several incentives that Delaware offered to Bloomus to build our major manufacturing facility ("Manufacturing Center") in Delaware. Those incentives have proven controversial in Delaware, in part because our Manufacturing Center, while a significant source of continuing manufacturing employment, has not expanded as quickly as projected. A citizen-antagonist continues to oppose the Delaware Project and seeks support from Delaware officials and others. In 2018, he unsuccessfully petitioned the Delaware Public Service Commission. Most recently, he unsuccessfully appealed a favorable Order of the Secretary of Delaware’s Department of Natural Resources and Environmental Control to Delaware’s Environmental Appeals Board (EAB), an administrative entity with authority to review the Secretary’s Orders. The Secretary’s Order at issue approved permits that enable the upgrade of the Delaware Project. As we expected, the EAB upheld the Secretary’s Order as the appeal was without merit and raised issues that were outside the scope of the permits and beyond the jurisdiction of the EAB. The Appeal and the opposition to the Delaware Project are examplesis an example of potentially material risks associated with electric power regulation.
At the federal level, FERC has authority to regulate under various federal energy regulatory laws, wholesale sales of electric energy, capacity, and ancillary services, and the delivery of natural gas in interstate commerce. Also, several of our PPA Entitiesthe tax equity partnerships in which we have an interest are subject to regulation under FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with FERC, which increases our costs and subjects us to additional regulatory oversight.
Although we generally are not regulated as a utility, federal, state and local government statutes and regulations concerning electricity and natural gas, as well as organized market rules such as the PJM tariffs affecting the Delaware Project, heavily influence the market for our product and services. These statutes, regulations, tariffs and regulationsmarket rules often relate to electricity and natural gas pricing, fuel cell net metering, incentives, taxation, and the rules surrounding the interconnection of customer-owned electricity generation for specific technologies. In the United States, governments and market operators frequently modify these statutes, regulations, tariffs and regulations.market rules. Governments, often acting through state utility or public service commissions, as well as market operators, change, and adopt or approve different utility requirements for utilities and rates for commercial and industrial customers on a regular basis. Changes, or in some cases a lack of change, in any of the laws, regulations, tariffs ordinances, or other rules that apply to our installations and new technology could make it more costly for us or our customers to install and operate our Energy Servers or future products on particular sites and, in turn, could negatively affect our ability to deliver cost savings to customers for the purchase of electricity.customers.
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may in the future become subject to product liability claims. Our Energy Servers are considered high energy systems because they use flammable fuels and may operate at 480 volts. High-voltage electricity poses potential shock hazards, and natural gas and hydrogen are flammable gases and therefore a potentially dangerous fuel. Although our Energy Servers are
certified to meet ANSI, IEEE, ASME, and NFPA design and safety standards, if an Energy Serverour equipment is not properly handled in accordance with our servicing and handling standards and protocols, there could be a system failure and resulting liability. These claims could require us to
incur significant costs to defend. Furthermore, any successful product liability claim could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our Companyus and could materially impede widespread market acceptance and demand for our Energy Servers or future products, which could harm our brand, our business prospects, and our operating results. While we maintainOur product liability insurance, our insurance may not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage or outside of our coverage may have a material adverse effect on our business and our financial condition.
Current or future litigation or administrative proceedings could have a material adverse effect on our business, our financial condition and our results of operations.
We have been and continue to be involved in legal proceedings, administrative proceedings, claims, and other litigation that arise in the ordinary course of business. Purchases of our products have also been the subject of litigation. For information regarding pending legal proceedings, please see Part I, Item 3, Legal Proceedings and Note 13 - Commitments and Contingenciesin this Annual Report on Form 10-K captioned "Legal Proceedings"Part II, Item 8, Financial Statements and footnote 14 to our consolidated financial statements entitled "Commitments and Contingencies."Supplementary Data. In addition, since our Energy Server is aand Electrolyzer are new typetypes of product in a nascent market, we have in the past needed and may in the future need to seek the amendment of existing regulations, or in some cases the development of new regulations, in order to operate our business in some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could expose us to subsequent litigation.
Unfavorable outcomes or developments relating to proceedings to which we are a party or transactions involving our products such as judgments for monetary damages, injunctions, or denial or revocation of permits, could have a material adverse effect on our business, our financial condition, and our results of operations. In addition, settlement of claims could adversely affect our financial condition and our results of operations.
Risks RelatingRelated to Our Intellectual Property
Our failure to effectively protect and enforce our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.
Although we have taken many protective measures to protect our trade secrets including agreements, limited access, segregation of knowledge, password protections, and other measures, policingPolicing unauthorized use of proprietary technology can be difficult and expensive.expensive, and the protective measures we have taken to protect our trade secrets may not be sufficient to prevent such use. For example, many of our engineers reside in California where it is not legally permissible to prevent them from working for a competitor if and when one should exist.competitor. Also, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation may result in our intellectual property rights being challenged, limited in scope, or declared invalid or unenforceable. We cannot be certain that the outcome of any litigation will be in our favor, and an adverse determination in any such litigation could impair our intellectual property rights, our business, our prospects, and our reputation.
We rely primarily on patent, trade secret, and trademark laws and non-disclosure, confidentiality, and other types of contractual restrictions to establish, maintain, and enforce our intellectual property and proprietary rights. However, our rights under these laws and agreements afford us only limited protection and the actions we take to establish, maintain, and enforce our intellectual property rights may not be adequate. For example, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed, or misappropriated or our intellectual property rights may not be sufficient to provide us with a competitive advantage, any of which could have a material adverse effect on our business, financial condition, or operating results. In addition, the laws of some countries do not protect proprietary rights as fully as do the laws of the United States. As a result, we may not be able to protect our proprietary rights adequately abroad.
In connection with our expansion into new markets, we may need to develop relationships with new partners, including project developers and/or financiers who may require access to certain of our intellectual property in order to mitigate perceived risks regarding our ability to service their projects over the contracted project duration. If we are unable to come to agreement regarding the terms of such access or find alternative means to address this perceived risk, such failure may negatively impact our ability to expand into new markets. Alternatively, we may be required to develop new strategies for the protection of our intellectual property, which may be less protective than our current strategies and could therefore erode our competitive position.
Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection, either of which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. The status of patents involves complex legal and factual questions, and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued or that our patents and any patents that may be issued to us in the future will afford protection against competitors with similar technology. In addition, patent applications filed in foreign countries are subject to laws, rules, and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued in other regions. Furthermore, even if these patent applications are accepted and the associated patents issued, some foreign countries provide significantly less effective patent enforcement than in the United States.
In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, our prospects, and our operating results.
We may need to defend ourselves against claims that we infringed, misappropriated, or otherwise violated the intellectual property rights of others, which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations, or individuals, including our competitors, may hold or obtain patents, trademarks, or other proprietary rights that they may in the future believe are infringed by our products or services. Although we are not currently subject to any claims related to intellectual property, theseThese companies holding patents or other intellectual property rights allegedly relating to our technologies could, in the future, make claims or bring suits alleging infringement, misappropriation, or other violations of such rights, or otherwise assert their rights and by seeking licenses or injunctions. Several of the proprietary components used in our Energy Servers have been subjected to infringement challenges in the past. We also generally indemnify our customers against claims that the products we supply don't infringe, misappropriate, or otherwise violate third party intellectual property rights, and we therefore may be required to defend our customers against such claims. If a claim is successfully brought in the future and we or our products are determined to have infringed, misappropriated, or otherwise violated a third party’s intellectual property rights, we may be required to do one or more of the following:
•cease selling or using our products that incorporate the challenged intellectual property;
•pay substantial damages (including treble damages and attorneys’ fees if our infringement is determined to be willful);
•obtain a license from the holder of the intellectual property right, which may not be available on reasonable terms or at all; or
•redesign our products or means of production, which may not be possible or cost-effective.
Any of the foregoing could adversely affect our business, prospects, operating results, and financial condition. In addition, any litigation or claims, whether or not valid, could harm our reputation, result in substantial costs and divert resources and management attention.
We also license technology from third parties and incorporate components supplied by third parties into our products. We may face claims that our use of such technology or components infringes or otherwise violates the rights of others, which would subject us to the risks described above. We may seek indemnification from our licensors or suppliers under our contracts with them, but our rights to indemnification or our suppliers’ resources may be unavailable or insufficient to cover our costs and losses.
Risks RelatingRelated to Our Financial Condition and Operating Results
We have incurred significant losses in the past and we may not be profitable for the foreseeable future.
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2019,2021, we had an accumulated deficit of $2.9$3.3 billion. We expect to continue to expand our operations, including by investing in manufacturing, sales and marketing, research and development, staffing systems, and infrastructure to support our growth.growth, as well as internationally. We anticipate that we willmay continue to incur net losses for the foreseeable future. Our ability to achieve profitability in the future will depend on a number of factors, including:
•growing our sales volume;
•increasing sales to existing customers and attracting new customers;
•expanding into new geographical markets and industry market sectors;
•attracting and retaining financing partners who are willing to provide financing for sales on a timely basis and with attractive terms;
•continuing to improve the useful life of our fuel cell technology and reducing our warranty servicing costs;
•reducing the cost of producing our Energy Servers;
•improving the efficiency and predictability of our installation process;
•introducing new products, including products for the hydrogen market;
•improving the effectiveness of our sales and marketing activities; and
•attracting and retaining key talent in a competitive marketplace; and
the amount of stock-based compensation recognized in the period.
marketplace.
Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.
Our financial condition and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our Class A common stock.
Our financial condition and results of operations and other key metrics have fluctuated significantly in the past and may continue to fluctuate in the future due to a variety of factors, many of which are beyond our control. For example, the amount of product revenue we recognize in a given period is materially dependent on the volume of installations of our Energy Servers in that period and the type of financing used by the customer.
In addition to the other risks described herein, the following factors could also cause our financial condition and results of operations to fluctuate on a quarterly basis:
•the timing of installations, which may depend on many factors such as availability of inventory, product quality or performance issues, or local permitting requirements, utility requirements, environmental, health, and safety requirements, weather, the COVID-19 pandemic or such other health emergency, and customer facility construction schedules;
•size of particular installations and number of sites involved in any particular quarter;
•the mix in the type of purchase or financing options used by customers in a period, the geographical mix of customer sales, and the rates of return required by financing parties in such period;
•disruptions in our supply chain;
•whether we are able to structure our sales agreements in a manner that would allow for the product and installation revenue to be recognized upfront at acceptance;upfront;
•delays or cancellations of Energy Server installations;
•fluctuations in our service costs, particularly due to unexpected costs of servicing and maintaining Energy Servers;
weaker than anticipated demand for our Energy Servers due to changes in government incentives and policies or due to other conditions;
•fluctuations in our research and development expense, including periodic increases associated with the pre-production qualification of additional tools as we expand our production capacity;
interruptions in our supply chain;
•the length of the sales and installation cycle for a particular customer;
•the timing and level of additional purchases by new and existing customers;
•the timing of the development of the market for hydrogen fuel cell products, including our Bloom Electrolyzer;
•unanticipated expenses or installation delays associated with changes in governmental regulations, permitting requirements by local authorities at particular sites, utility requirements and environmental, health and safety requirements;
•disruptions in our sales, production, service or other business activities resulting from disagreements with our labor force or our inability to attract and retain qualified personnel; and
•unanticipated changes in federal, state, local, or foreign government incentive programs available for us, our customers, and tax equity financing parties.
Fluctuations in our operating results and cash flow could, among other things, give rise to short-term liquidity issues. In addition, our revenue, key operating metrics, and other operating results in future quarters may fall short of our projections or the expectations of investors and financial analysts, which could have an adverse effect on the price of our Class A common stock.
If we fail to manage our growth effectively, our business and operating results may suffer.
Our current growth and future growth plans may make it difficult for us to efficiently operate our business, challenging us to effectively manage our capital expenditures and control our costs while we expand our operations to increase our revenue. If we experience a significant growth in orders without improvements in automation and efficiency, we may need additional manufacturing capacity and we and some of our suppliers may need additional and capital intensivecapital-intensive equipment. Any growth in manufacturing must include a scaling of quality control as the increase in production increases the possible impact of manufacturing defects. In addition, any growth in the volume of sales of our Energy Servers may outpace our ability to engage sufficient and experienced personnel to manage the higher number of installations and to engage contractors to complete installations on a timely basis and in accordance with our expectations and standards. Any failure to manage our growth
effectively could materially and adversely affect our business, our prospects, our operating results, and our financial condition. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully.
If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"). The accounting treatment relatedprovisions of the act require, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our revenue-generating transactions is complex,processes and enhance our review and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future many of our processes will remain manually intensive and thus subject to human error if we are unable to attractimplement key operation controls around pricing, spending and retain highly qualified accounting personnelother financial processes. For example, prior to evaluate the accounting implicationsour adoption of our complex or non-routine transactions, our ability to accurately report our financial results may be harmed.
Our revenue-generating transactions include traditional leases, Managed Services Agreements, sales to international channel partners and PPA transactions, all of which are accounted for differently in our financial statements. ManySection 404B of the accounting rules related to our financing transactions are complex and require experienced and highly skilled personnel to review and interpret the proper accounting treatment with respect thereto. Competition for senior finance and accounting personnel in the San Francisco Bay Area who have public company reporting experience is intense, and ifSarbanes-Oxley Act, we are unable to recruit and retain personnel with the required level of expertise to evaluate and accurately classify our revenue-producing transactions, our ability to accurately report our financial results may be harmed.
We reached a determination to restate certain of our previously issued consolidated financial statements as a result of the identification of material misstatements in previously issued financial statements, which resulted in unanticipated costs and may affect investor confidence and raise reputational issues.
As discussed in the Explanatory Note, in Note 2, Restatement and Revision of Previously Issued Financial Statements, and in Note 18, Unaudited Selected Quarterly Financial Data, in this Annual Report on Form 10-K for the year ended December 31, 2019, we reached a determination to restate our consolidated financial statements and related disclosures for the periods disclosed in those notes after misstatements in our accounting treatment of some of our complex or non-routine transactions were identified. The restatement also included corrections for previously identified immaterial uncorrected misstatements in the impacted periods. As a result, we have incurred unanticipated costs for accounting and legal fees in connection with or related to the restatement, and have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational risks for our business, both of which could harm our business and financial results.
We recently identified a material weakness in our internal control over financial reporting at December 31, 2019 related to the accounting for and disclosure of complex or non-routine transactions.transactions, which has been remediated. If we do not effectively remediate the material weakness or if we otherwise failare unable to successfully maintain effective internal control over financial reporting, our abilitywe may fail to reportprevent or detect material misstatements in our financial results on a timelystatements, in which case investors may lose confidence in the accuracy and an accurate basis may adversely affect the market pricecompleteness of our Class A common stock.
The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") requires, among other things, that public companies evaluate the effectiveness of their internal control over financial reporting and disclosure controls and procedures. As a recently public company and as an emerging growth company, we elected to delay adopting the requirements of the Sarbanes-Oxley Act as is our option under the Sarbanes-Oxley Act. While we have not yet adopted the requirements under Section 404B of the Sarbanes-Oxley Act, we did identify a material weakness in internal control over financial reporting at December 31, 2019, as we did not design and maintain an effective control environment with a sufficient complement of resources with an appropriate level of accounting knowledge, expertise and training to evaluate the accounting implications of complex or non-routine transactions commensurate with our financial reporting requirements. Please see Item 9A, Controls and Procedures, in this Annual Report on Form 10-K for additional information regarding the identified material weakness and our actions to date to remediate the material weakness. Subsequent testing by us or our independent registered public accounting firm, which has not yet performed an audit of our internal control over financial reporting, may reveal additional deficiencies in our internal control over financial reporting that are deemed to be material weaknesses.
To comply with Section 404B, we may incur substantial costs, expend significant management time on compliance-related issues, and hire additional accounting, financial, and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404B in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.reports. Any failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have a material adverse effect on our business and operating results and cause a decline in the price of our Class A common stock. For further discussion on Section 404 compliance, see our Risk Factor: "We are an 'emerging growth company' and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors and may make it more difficult to compare our performance with other public companies."
Our ability to use our deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.
We may be limited in the portion of net operating loss carryforwards ("NOLs") that we can use in the future to offset taxable income for U.S. federal and state income tax purposes. Our net operating loss carryforwards ("NOLs")NOLs will expire, if unused, beginning in 2022 and 2028, respectively.through 2028. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Changes in our stock ownership as well as other changes that may be outside of our control could result in ownership changes under Section 382 of the Code, which could cause our NOLs to be subject to certain limitations. Our NOLs may also be impaired under similar provisions of state law. Our
deferred tax assets, which are currently fully reserved with a valuation allowance, may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
Risks RelatingRelated to Our Liquidity
We must maintain customerthe confidence of our customers in our liquidity, including in our ability to timely service our debt obligations and long-term business prospects in orderour ability to grow our business.business over the long-term.
Currently, we are the only provider able to fully support and maintain our Energy Servers. If potential customers believe we do not have sufficient capital or liquidity to operate our business over the long-term or that we will be unable to maintain their Energy Servers and provide satisfactory support, customers may be less likely to purchase or lease our products, particularly in light of the significant financial commitment required. In addition, financing sources may be unwilling to provide financing on reasonable terms. Similarly, suppliers, financing partners, and other third parties may be less likely to invest time and resources in developing business relationships with us if they have concerns about the success of our business.
Accordingly, in order to grow our business, we must maintain confidence in our liquidity and long-term business prospects among customers, suppliers, financing partners and other parties. This may be particularly complicated by factors such as:
•our limited operating history at a large scale;
•the size of our debt obligations;
•our lack of profitability;
•unfamiliarity with or uncertainty about our Energy Servers and the overall perception of the distributed generation market;
•prices for electricity or natural gas in particular markets;
•competition from alternate sources of energy;
•warranty or unanticipated service issues we may experience;
•the environmental consciousness and perceived value of environmental programs to our customers;
•the size of our expansion plans in comparison to our existing capital base and the scope and history of operations;
•the availability and amount of tax incentives, credits, subsidies or other incentive programs; and
•the other factors set forth in this “Risk Factors”“Risk Factors” section.
Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects, even if unfounded, would likely harm our business.
Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities’ outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
As of December 31, 2019,2021, we and our subsidiaries had approximately $636.8$526.7 million of total consolidated indebtedness, of which an aggregate of $401.4$291.8 million represented indebtedness that is recourse to us, all of which $325.4 million is classified as current and $76.0 million is classified as non-current. Of this $401.4$291.8 million in debt, $273.4$69.0 million represented debt under our 6%10.25% Senior Secured Notes $90.0due March 2027, and $222.9 million represented debt under the $230.0 million aggregate principal amount of our 10%2.50% Green Convertible Senior Notes and $36.5 million represented debt under our 5% Notes.due August 2025 (the "Green Notes"). In addition, our PPA Entities’ (defined herein) outstanding indebtedness of $235.4$234.9 million represented indebtedness that is non-recourse to us. For a description and definition of PPA Entities, please see Part II, Item 7, Management’s Discussion and Analysis – Purchase and Financing Options – Portfolio Financings. As of December 31, 2021, we had $25.8 million in short-term debt and $500.9 million in long-term debt. Given our substantial level of indebtedness, it may be difficult for us to secure additional debt financing at an attractive cost, which may in turn impact our ability to expand our operations and our product development activities and to remain competitive in the market. Our liquidity needs could vary significantly and may be affected by general economic conditions, industry trends, performance, and many other factors not within our control.
The agreements governing our and our PPA Entities’ outstanding indebtedness contain, and other future debt agreements may contain, covenants imposing operating and financial restrictions on our business that limit our flexibility including, among other things:
•borrow money;
•pay dividends or make other distributions;
•incur liens;
•make asset dispositions;
•make loans or investments;
•issue or sell share capital of our subsidiaries;
•issue guaranties;
•enter into transactions with affiliates;
•merge, consolidate or sell, lease or transfer all or substantially all of our assets;
•require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on indebtedness, thereby reducing the funds available for other purposes such as working capital and capital expenditures;
•make it more difficult for us to satisfy and comply with our obligations with respect to our indebtedness;
•subject us to increased sensitivity to interest rate increases;
•make us more vulnerable to economic downturns, adverse industry conditions, or catastrophic external events;
•limit our ability to withstand competitive pressures;
•limit our ability to invest in new business subsidiaries that are not PPA Entity-related;
•reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or
•place us at a competitive disadvantage to competitors that have relatively less debt than we have.
Our debt agreements and our PPA Entities’ debt agreements require the maintenance of financial ratios or the satisfaction of financial tests such as debt service coverage ratios and consolidated leverage ratios. Our and our PPA Entities’ ability to meet these financial ratios and tests may be affected by events beyond our control and, as a result, we cannot assure you that we will be able to meet these ratios and tests.
Upon the occurrence of certain events such asto us, including a change in control, of our Company,a significant asset salessale or mergersmerger or similar transactions, thetransaction, our liquidation or dissolution of our Company or the cessation of our stock exchange listing, each of which may constitute a fundamental change under the outstanding notes, holders of our 6% Notescertain of the notes have the right to cause us to repurchase for cash any or all of such outstanding notes at a repurchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon.notes. We cannot provide assurance that we would have sufficient liquidity to repurchase such notes. Furthermore, our financing and debt agreements such as our 6% Notes and our 10% Notes, contain events of default. If an event of default were to occur, the trustee or the lenders could, among other things, terminate their commitments and declare outstanding amounts due and payable and our cash may become restricted. We cannot provide assurance that we would have sufficient liquidity to repay or refinance our indebtedness if such amounts were accelerated upon an event of default. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may, as a result, be accelerated and become due and payable as a consequence. We may be unable to pay these debts in such circumstances. If we were unable to repay those amounts, lenders could proceed against the collateral granted to them to secure repayment of those amounts. We cannot assure you that the collateral will be sufficient to repay in full those amounts. We cannot provide assurance that the operating and financial restrictions and covenants in these agreements will not adversely affect our ability to finance our future operations or capital needs, or our ability to engage in other business activities that may be in our interest or our ability to react to adverse market developments.
As of December 31, 2019, we and our subsidiaries have approximately $636.8 million of total consolidated indebtedness, including $337.6 million in short-term debt and $299.2 million in long-term debt. In addition, our 10% Notes contain restrictions on our ability to issue additional debt and both the 6% Notes and 10% Notes limit our ability to provide collateral for any additional debt. Given our current level of indebtedness, the restrictions on additional indebtedness contained in the 10% Notes and the fact that most of our assets serve as collateral to secure existing debt, it may be difficult for us to secure additional debt financing at an attractive cost, which may in turn impact our ability to expand our operations and our product development activities and to remain competitive in the market.
In addition, our substantial level of indebtedness could limit our ability to obtain required additional financing on acceptable terms or at all for working capital, capital expenditures, and general corporate purposes. Any of these risks could impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, our financial condition, our liquidity, and our results of operations. Our liquidity needs could vary significantly and may be affected by general economic conditions, industry trends, performance, and many other factors not within our control.
We may not be able to generate sufficient cash to meet our debt service obligations.
Our ability to generate sufficient cash to make scheduled payments on our debt obligations will depend on our future financial performance and on our future cash flow performance, which will be affected by a range of economic, competitive, and business factors, many of which are outside of our control.
We finance a significant volume of Energy Servers and receive equity distributions from certain of the PPA Entities that purchase the Energy Servers and other project intangibles through a series of milestone payments. The milestone payments and equity distributions contribute to our cash flow. These PPA Entities are separate and distinct legal entities, do not guarantee our debt obligations, and have no obligation, contingent or otherwise, to pay amounts due under our debt obligations or to make any funds available to pay those amounts, whether by dividend, distribution, loan, or other payments. It is possible that the PPA Entities may not contribute significant cash to us.
If we do not generate sufficient cash to satisfy our debt obligations, including interest payments, or if we are unable to satisfy the requirement for the payment of principal at maturity or other payments that may be required from time to time under
the terms of our debt instruments, we may have to undertake alternative financing plans such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments, or seeking to raise additional capital. We cannot provide assurance that any refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be available or permitted under the terms of our various debt instruments then in effect. Furthermore, the ability to refinance indebtedness would depend upon the condition of the finance and credit markets at the time which have in the past been, and may in the future be, volatile. Our inability to generate sufficient cash to satisfy our debt obligations or to refinance our obligations on commercially reasonable terms or on a timely basis would have an adverse effect on our business, our results of operations and our financial condition.
Certain of our outstanding convertible debt securities may be required to be settled in cash, which could have a material effect on our financial position.
Certain listing standards of The New York Stock Exchange limit the number of shares we may deliver upon conversion of our outstanding convertible notes that we amended in March of 2020 unless we first obtain the approval of our stockholders to issue shares in excess of that amount. We may never obtain such stockholder approval. To comply with these listing standards, the number of shares that we may issue upon conversion of our outstanding convertible notes will be limited to an amount that does not exceed these limitations, until we have obtained stockholder approval to issue additional shares. Any shares that would otherwise have been deliverable upon conversion in the absence of this limitation will instead be settled in cash based on the applicable daily conversion values during the relevant period. We may not have the funds available to settle such conversions in cash. Our inability to settle such conversions in cash by the required conversion date would be a default under the agreements that govern our convertible notes.
Under some circumstances, we may be required to or elect to make additional payments to our PPA Entities or the Power Purchase Agreement Program Equity Investors.
Three of our PPA Entities are structured in a manner such that, other than the amount of any equity investment we have made, we do not have any further primary liability for the debts or other obligations of the PPA Entities. All of our PPA Entities that operate Energy Servers for end customers have significant restrictions on their ability to incur increased operating costs, or could face events of default under debt or other investment agreements if end customers are not able to meet their payment
obligations under PPAs or if Energy Servers are not deployed in accordance with the project’s schedule. In three cases, if our PPA Entities experience unexpected, increased costs such as insurance costs, interest expense or taxes or as a result of the acceleration of repayment of outstanding indebtedness, or if end customers are unable or unwilling to continue to purchase power under their PPAs, there could be insufficient cash generated from the project to meet the debt service obligations of the PPA Entity or to meet any targeted rates of return of Equity Investors. If a PPA Entity fails to make required debt service payments, this could constitute an event of default and entitle the lender to foreclose on the collateral securing the debt or could trigger other payment obligations of the PPA Entity. To avoid this, we could choose to contribute additional capital to the applicable PPA Entity to enable such PPA Entity to make payments to avoid an event of default, which could adversely affect our business or our financial condition. Under PPA Company IV’s note purchase agreement, PPA Company IV is obligated
Risks Related to Our Operations
Expanding operations internationally could expose us to additional risks.
Although we currently primarily operate in the United States, we continue to expand our business internationally. We currently have operations in the Asia Pacific region and more recently Dubai, United Arab Emirates to oversee operations in Europe and the Middle East. Managing any international expansion will require additional resources and controls including additional manufacturing and assembly facilities. Any expansion internationally could subject our business to risks associated with international operations, including:
•conformity with applicable business customs, including translation into foreign languages and associated expenses;
•lack of availability of government incentives and subsidies;
•challenges in arranging, and availability of, financing for our customers;
•potential changes to our established business model, including installation challenges that we may have not encountered before;
•cost of alternative power sources, which could be meaningfully lower outside the United States;
•availability and cost of natural gas;
•effects of adverse changes in currency exchange rates and rising interest rates;
•difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customers, and the increased travel, infrastructure, and legal and compliance costs associated with international operations;
•greater difficulties in securing or enforcing our intellectual property rights in certain jurisdictions;
•difficulties in collecting payments in foreign currencies and associated foreign currency exposure;
•restrictions on repatriation of earnings;
•natural disasters (including as a result of climate change), acts of war or terrorism, and public health emergencies, including the COVID-19 pandemic; and
•adverse social, political and economic conditions.
We utilize a sourcing strategy that emphasizes global procurement of materials that has direct or indirect dependencies upon a number of vendors with operations in the Asia Pacific region. Physical, regulatory, technological, market, reputational, and legal risks related to climate change in these regions and globally are increasing in impact and diversity and the magnitude of any short-term or long-term adverse impact on our business or results of operations remains unknown. The physical impacts of climate change, including as a result of certain types of natural disasters occurring more frequently or with more intensity or changing weather patterns, could disrupt our supply chain, result in damage to or closures of our facilities, and could otherwise have an adverse impact on our business, operating results and financial condition. In addition, the outbreak of hostilities in Ukraine could result in increased sanctions that may affect the price of raw materials used in our products, which could have an adverse impact on our operating results.
Our international operations are subject to complex foreign and U.S. laws and regulations, including anti-bribery and corruption laws, antitrust or competition laws, data privacy laws, such as the GDPR, and environmental regulations, among others. In particular, recent years have seen a substantial increase in anti-bribery law enforcement activity by U.S. regulators, and we currently operate and seek to operate in many parts of the world that are recognized as having greater potential for corruption. Violations of any of these laws and regulations could result in fines and penalties, criminal sanctions against us or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in certain geographies, and significant harm to repayour business reputation. Our policies and procedures to promote compliance with these laws and regulations and to mitigate these risks may not protect us from all outstanding debtacts committed by our employees or third-party vendors, including contractors, agents and services partners. Additionally, the costs of complying with these laws (including the costs of investigations, auditing and monitoring) could adversely affect our current or future business.
The success of our international sales and operations will depend, in the eventlarge part, on our ability to anticipate and manage these risks effectively. Our failure to manage any of these risks could harm our international operations, reduce our international sales, and could give rise to liabilities, costs or other business difficulties that at any time we fail to own (directly or indirectly) at least 50.1% of the equity interest of PPA Company IV not owned by the Equity Investor(s). Upon receipt of such offer, the lenders may waive that obligation or elect to require PPA Company IV to prepay all remaining amounts owed under PPA Company IV’s project debt. The obligations under PPA Company IV have not been triggered as of December 31, 2019.
Risks Relating to Our Operationscould adversely affect our operations and financial results.
We may have conflicts of interest with our PPA Entities.
In most of our PPA Entities, we act as the managing member and are responsible for the day-to-day administration of the project. However, we are also a major service provider for each PPA Entity in our capacity as the operator of the Energy Servers under an operations and maintenanceO&M agreement. Because we are both the administrator and the manager of our PPA Entities, as well as a major service provider, we face a potential conflict of interest in that we may be obligated to enforce contractual rights that a PPA Entity has against us in our capacity as a service provider. By way of example, thea PPA Entity may have a right to payment from us under a warranty provided under the applicable operations and maintenance agreement, and we may be financially motivated to avoid or delay this liability by failing to promptly enforce this right on behalf of the PPA Entity. While we do not believe that we had any conflicts of interest with our PPA Entities as of December 31, 2019,2021, conflicts of interest may arise in the future whichthat cannot be foreseen at this time. In the event that prospective future Equity Investors and debt financing partners perceive there to exist any such conflicts, it could harm our ability to procure financing for our PPA Entities in the future, which could have a material adverse effect on our business.
Data security breaches and cyberattacks could compromise our intellectual property or other confidential information and cause significant damage to our business and reputation.
We maintain information that is confidential, proprietary or otherwise sensitive in nature on our information technology systems, and on the systems of our third-party providers. This information includes intellectual property, financial information and other confidential information related to us and our employees, prospects, customers, suppliers and other business partners. For example, our Energy Servers are connected to and controlled and monitored by our centralized remote monitoring service, and we rely on our internal software applications for many of the functions we use to operate our business generally. Cyberattacks are increasing in frequency and evolving in nature. We and our third-party providers are at risk of attack through use of increasingly sophisticated methods, including malware, phishing and the deployment of artificial intelligence to find and exploit vulnerabilities.
Our information technology systems, and those maintained by our third-party providers, have been in the past, and may be in the future, subjected to attempts to gain unauthorized access, disable, destroy, maliciously control or cause other system disruptions. In some cases, it is difficult to anticipate or to detect immediately such incidents and the damage they caused. While these types of incidents have not had a material effect on our business to date, future incidents involving access to our
network or improper use of our systems, or those of our third-parties, could compromise confidential, proprietary or otherwise sensitive information.
While we maintain reasonable and appropriate administrative, technical, and physical safeguards and take preventive and proactive measures to combat known and unknown cybersecurity risks, there is no assurance that such actions will be sufficient to prevent future security breaches and cyberattacks. The security of our infrastructure, including the network that connects our Energy Servers to our remote monitoring service, may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyberattacks that could have a material adverse impact on our business and our Energy Servers in the field, and the protective measures we have taken may be insufficient to prevent such events. A breach or failure of our networks or computer or data management systems due to intentional actions such as cyberattacks, including but not limited to ransomware attacks, phishing or denial-of-service attacks, negligence, or other reasons, whether as a result of actions by third-parties or our employees, could seriously disrupt our operations or could affect our ability to control or to assess the performance in the field of our Energy Servers and could result in disruption to our business and potentially legal liability.
In addition, security breaches and cyberattacks could negatively impact our reputation and our competitive position and could result in litigation with third parties, regulatory action and increased remediation costs, any of which could adversely impact our business, our financial condition, and our operating results. Although we maintain insurance coverage that may cover certain liabilities in connection with some security breaches and cyberattacks, we cannot be certain it will be adequate for liabilities actually incurred or that any insurer will not deny coverage of future claims.
If we are unable to attract and retain key employees and hire qualified management, technical, engineering, finance and sales personnel, our ability to compete and successfully grow our business could be harmed.
We believe that our success and our ability to reach our strategic objectives are highly dependent on the contributions of our key management, technical, engineering, finance and sales personnel. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our products and services and negatively impact our business, prospects and operating results. In particular, we are highly dependent on the services of Dr. Sridhar, our Chairman andFounder, President, and Chief Executive Officer and Director, and other certain key employees. None of our key employees is bound by an employment agreement for any specific term. In addition, Randy Furr, our Chief Financial Officer, has announced his intention to retire effective March 31, 2020term and we have identified his successor who is expected to join us on April 1, 2020. We cannot assure you that we will be able to successfully attract and retain senior leadership necessary to grow our business. Furthermore, thereIn addition, many of the accounting rules related to our financing transactions are complex and require experienced and highly skilled personnel to review and interpret the proper accounting treatment with respect these transactions, and if we are unable to recruit and retain personnel with the required level of expertise to evaluate and accurately classify our revenue-producing transactions, our ability to accurately report our financial results may be harmed. There is increasing competition for talented individuals in our field,industry, and competition for qualified personnel is especially intense in the San Francisco Bay Area where our principal offices are located. Our failure to attract and retain our executive officers and other key management, technical, engineering and sales personnel, could adversely impact our business, our prospects, our financial condition and our operating results. In addition, we do not have “key person” life insurance policies covering any of our officers or other key employees.
A breach or failure of our networks or computer or data management systems could damage our operations and our reputation.
Our business is dependent on the security and efficacy of our networks and computer and data management systems. For example, all of our Energy Servers are connected to and controlled and monitored by our centralized remote monitoring service, and we rely on our internal computer networks for many of the systems we use to operate our business generally. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our infrastructure, including the network that connects our Energy Servers to our remote monitoring service, may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have a material adverse impact on our business and our Energy Servers in the field. A breach or failure of our networks or computer or data management systems due to intentional actions such as cyber-attacks, negligence, or other reasons could seriously disrupt our operations or could affect our ability to control or to assess the performance in the field of our Energy Servers and could result in disruption to our business and potentially legal liability.In addition, if certain of our IT systems failed, our production line might be affected,
which could impact our business and operating results. These events, in addition to impacting our financial results, could result in significant costs or reputational consequences.
Our headquarters and other facilities are located in an active earthquake zone, and an earthquake or other types of natural disasters or resource shortages, including public safety power shut-offs that have occurred and will continue to occur in California, could disrupt and harm our results of operations.
We conduct a majority of our operations in the San Francisco Bay area in an active earthquake zone, and certain of our facilities are located within known flood plains. The occurrence of a natural disaster such as an earthquake, drought, flood, fire, localized extended outages of critical utilities (such as California's public safety power shut-offs) or transportation systems, or any critical resource shortages could cause a significant interruption in our business, damage or destroy our facilities, our manufacturing equipment, or our inventory, and cause us to incur significant costs, any of which could harm our business, our financial condition, and our results of operations. The insurance we maintain against fires, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.
Expanding operations internationally could expose us to additional risks.
Although we currently primarily operate in the United States, we will seek to expand our business internationally. We currently have operations in Japan, China, India, and the Republic of Korea (collectively, our "Asia Pacific region"). Managing any international expansion will require additional resources and controls including additional manufacturing and assembly facilities. Any expansion internationally could subject our business to risks associated with international operations, including:
conformity with applicable business customs, including translation into foreign languages and associated expenses;
lack of availability of government incentives and subsidies;
challenges in arranging, and availability of, financing for our customers;
potential changes to our established business model;
cost of alternative power sources, which could be meaningfully lower outside the United States;
availability and cost of natural gas;
difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customers, and the increased travel, infrastructure, and legal and compliance costs associated with international operations;
installation challenges which we have not encountered before which may require the development of a unique model for each country;
compliance with multiple, potentially conflicting and changing governmental laws, regulations, and permitting processes including environmental, banking, employment, tax, privacy, and data protection laws and regulations such as the EU Data Privacy Directive;
compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act;
difficulties in collecting payments in foreign currencies and associated foreign currency exposure;
restrictions on repatriation of earnings;
compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and compliance with applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; and
regional economic and political conditions.
As a result of these risks, any potential future international expansion efforts that we may undertake may not be successful.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an emerging growth company ("EGC") as defined in the U.S. legislation Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGC, including not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions for so long as we are an EGC, which could be until December 31, 2023, the last day of the fiscal year following the fifth anniversary of our IPO. We cannot predict if investors will find our Class A common stock less attractive because we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock, and our stock price may be more volatile.
An EGC may elect to provide financial statements in conformance with the U.S. GAAP requirement for transition periods to comply with new or revised accounting standards. With our not making this election, Section 102(b)(2) of the JOBS Act allows us to delay our adoption of new or revised accounting standards until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company revised accounting standards effective dates.
Risks RelatingRelated to Ownership of Our Common Stock
The stock price of our Class A common stock has been and may continue to be volatile.
The market price of our Class A common stock has been and may continue to be volatile. In addition to factors discussed in this Risk Factors section, the market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•overall performance of the equity markets;
•actual or anticipated fluctuations in our revenue and other operating results;
•changes in the financial projections we may provide to the public or our failure to meet these projections;
•changing market and economic conditions, including rising interest rates and inflationary pressures, such as those pressures the market is currently experiencing, which could make our products more expensive or could increase our costs for materials, supplies, and labor;
•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Companyus or our failure to meet these estimates or the expectations of investors;
•the issuance of negative reports from short sellers that may negatively impact the trading price of our Class A common stock;sellers;
•recruitment or departure of key personnel;
the economy as a whole and market conditions in our industry;
•new laws, regulations, subsidies or credits, or new interpretations of them, applicable to our business;
•negative publicity related to problems in our manufacturing or the real or perceived quality of our products;
•rumors and market speculation involving us or other companies in our industry;
•announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships or capital commitments;
•lawsuits threatened or filed against us; and
•other events or factors including those resulting from war, natural disasters (including as result of climate change), incidents of terrorism or responses to these events;
the expiration of contractual lock-up or market standoff agreements; and
sales or anticipated sales of shares of our Class A common stock by us or our stockholders.events.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. We are currently involved in securities litigation, which may subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
Sales of substantial amountsWe may issue additional shares of our Class A common stock in connection with any future conversion of the public markets,Green Notes or the perception that they might occur, could causein connection with our transaction with SK ecoplant, which may dilute our existing stockholders and potentially adversely affect the market price of our Class A common stock.
In the event that some or all of the Green Notes are converted and we elect to deliver shares of common stock, to decline.
Thethe ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our Class A common stock issuable upon such conversion could adversely affect the prevailing market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock in the public market as and when our Class B common stock convertsstock. If we were not able to Class A common stock. The perception that these sales might occur may also cause the market price of our common stock to decline. We had a total of 84,549,511 shares of our Class A common stock and 36,486,778 shares of our Class B common stock outstanding as of
December 31, 2019. The lock up for our Class B shares expired on January 21, 2019 and these shares are now freely tradeable once converted into Class A shares, except for any shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act of 1933, as amended ("Securities Act").
Further, as of December 31, 2019, we had an aggregate of $289.3 million in convertible debt, our 6% Notes, under which the outstanding principal and interest may be converted, at the optionpay cash upon conversion of the holders, into an aggregate of 25,715,496 shares of Class B common stock. Upon conversion into Class A common stock, these shares are freely tradeable, except to the extent these shares are held by our “affiliates” as defined in Rule 144 under the Securities Act.
In addition, as of December 31, 2019, we had options and RSUs outstanding that, if fully exercised or settled, would result inGreen Notes, the issuance of 9,454,578 shares of Class A common stock and 18,495,004upon conversion of the Green Notes could depress the market price of our Class A common stock.
In addition, we entered into a Securities Purchase Agreement (the “SPA”) with SK ecoplant in October 2021 that allows SK ecoplant to purchase additional shares of Class BA common stock. We have filed a registration statementFor additional details on Form S-8 to register shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of applicable vesting requirements, the shares issued uponthis transaction, see Note 18 - SK ecoplant Strategic Investment. The exercise of outstanding stock options or settlement of outstanding RSUs will be available for immediate resale inthis option to purchase additional shares may dilute our existing stockholders and potentially adversely affect the United States in the open market.
Moreover, certain holdersmarket price of our Class A common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders.stock.
The dual class structure of our common stock and the voting agreements among certain stockholders have the effect of concentrating voting control of our Company with KR Sridhar, our Chairman and Chief Executive Officer, and also with those stockholders who held our capital stock prior to the completion of our IPO including our directors, executive officers and significant stockholders,initial public offering, which limits or precludes your ability to influence corporate matters including the election of directors and the approval of any change of control transaction, and may adversely affect the trading price of our Class A common stock.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of December 31, 2019,2021, and after giving effect to the voting agreements between KR Sridhar, our Chairman and Chief Executive Officer, and certain holders of Class B common stock, our directors, executive officers, significant stockholders of our common stock, and their respective affiliates collectively held a substantial majorityapproximately 45% of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority ofhave the combined voting power of our common stock and therefore are ableability to controlsignificantly influence the vote on all matters submitted to our stockholders for approval until the earliest to occur of (i) immediately prior to the close of business on July 27, 2023, (ii) immediately prior to the close of business on the date on which the outstanding shares of Class B common stock represent less than five percent (5%) of the aggregate number of shares of Class A common stock and Class B common stock then outstanding, (iii) the date and time or the occurrence of an event specified in a written conversion election delivered by KR Sridhar to our Secretary or Chairman of the Board to so convert all shares of Class B common stock, or (iv) immediately following the date of the death of KR Sridhar. This concentrated control limits or precludes Class A stockholders’ ability to influence corporate matters while the dual class structure remains in effect, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that Class A stockholders may feel are in their best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions such as certain transfers effected for estate planning purposes. The conversion of Class B
common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those remaining holders of Class B common stock who retain their shares in the long-term.
The conversion ofIn addition, the 6% Convertible Promissory Note could result in a significant stockholder with substantial voting control.
The holders of the 6% Convertible Promissory Notes have the option to convert the outstanding principal and interest under the 6% Convertible Promissory Note to Class B common stock at a conversion price of $11.25 per share at any time after the IPO and prior to maturity of the 6% Convertible Promissory Note in December 2020. As of December 31, 2019, an aggregate of 21,321,100 shares of Class B common stock is issuable to the Canada Pension Plan Investment Board (“CPPIB”) upon the conversion of the outstanding principal and interest under the 6% Convertible Promissory Note. This, along with 312,575 shares of Class B common stock which CPPIB acquired from the exercise of a warrant at IPO, would result, as of December 31, 2019, in CPPIB having approximately 32.50% of the total voting power with respect to all shares of our Class A common stock (which has one vote per share) and Class B common stock (which has ten votes per share), voting as a single
class, and would provide CPPIB significant influence over matters presented to the stockholders for approval and may result in voting decisions by CPPIB that are not in the best interests of our stockholders generally.
The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
S&P Dow Jones and FTSE Russell have implemented changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, namely, to exclude companies with multiple classes of shares of common stock from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices and may causehas caused shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price of our Class A common stock and trading volume could decline.
The market price for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. In addition, if one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline. In addition, certain short sellers of our Class A common stock have published reports that we believe have negatively impacted the trading price of our Class A common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions in our charter documents and under Delaware law could make an acquisition of our Companyus more difficult, may limit attempts by our stockholders to replace or remove our current management, may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and may limit the market price of our Class A common stock.
Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and amended and restated bylaws include provisions that:
•require that our board of directors is classified into three classes of directors with staggered three year terms;
•permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
•require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;
•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
•only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors are authorized to call a special meeting of stockholders;
•prohibit stockholder action by written consent, which thereby requires all stockholder actions be taken at a meeting of our stockholders;
•establish a dual class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval even if they own significantly less than a majority of the outstanding shares of our common stock, including the election of directors and significant corporate transactions such
as a merger or other sale of our Company or substantially all of our assets;
•expressly authorize the board of directors to make, alter, or repeal our bylaws; and
•establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, our restated certificate of incorporation and our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Our restated certificate of incorporation and our amended and restated bylaws provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of
the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which thereby may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation and our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, our operating results, and our financial condition.
Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our Company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
The table below presents details for each of our principal properties3:properties:
| | | | | | | | | | | | | | |
| Facility | Location | Approximate Square Footage | Held | Lease Term |
| | | | |
Corporate headquarters1 | San Jose, CA | 183,000 | | Leased | 2031 |
| Manufacturing, research and development | Sunnyvale, CA | 193,000 | | Leased | * |
| Manufacturing, research and development | Mountain View, CA | 53,000 | | Leased | 2022 |
| Manufacturing, research and development | Fremont, CA | 254,000 | | Leased | ** |
| Manufacturing | Newark, DE | 191,000 | | Leased | *** |
Manufacturing2 | Newark, DE | 76,000 | | Owned | n/a |
| | | | |
|
| | | | | |
| Facility | Location | Approximate Square Footage | Held | Lease Term |
| | | | | |
Corporate headquarters1 | San Jose, CA | 181,000 |
| Leased | 2028 |
| Manufacturing | Sunnyvale, CA | 192.975 |
| Leased | 2020 |
| Manufacturing | Mountain View, CA | 88,290 |
| Leased | * |
| Manufacturing | Newark, DE | 148,809 |
| Leased | ** |
Manufacturing2 | Newark, DE | 75,609 |
| Owned | n/a |
* Month to month arrangement.
**Lease terms expire over the period December 2021 through December 2026.2023.
** Lease terms expire in December 2027 and February 2036.
*** Lease terms expire in February 2026 and April 2027.
1 Our corporate headquarters is used for administration, research and development, and sales and marketing.
2 Our first purpose-built Bloom Energy manufacturing center for the fuel cells and Energy Servers assembly, and was designed specifically for copy-exact duplication as we expand, which we believe will help us scale more efficiently.
3We lease additional office space as field offices in the United States and office and manufacturing space around the world including in China, India, the Republic of Korea, ChinaTaiwan and Taiwan.
We believe our office space and our manufacturing facilities are adequate tothe United Arab Emirates. To support our businessgrowth expectations, we have invested in additional manufacturing capacity at a new facility in Fremont, California. This facility will help us address current capacity constraints and provide for at least the next twelve months.additional capacity necessary for future growth.
ITEM 3 - LEGAL PROCEEDINGS
For a discussion of legal proceedings, see "Legal Matters" under Note 14 - Commitments and Contingencies, in the notes to our consolidated financial statements. We are, and from time to time we may become, involved in legal proceedings or be subject to claims arising in the ordinary course of our business. For a discussion of legal proceedings, see Note 13 - Commitments and Contingencies in Part II, Item 8, Financial Statements and Supplementary Data. We are not presently a party to any other legal proceedings that in the opinion of our management and if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
Part II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERSTOCKHOLDERS MATTERS AND ISSUER PURCHASEPURCHASES OF EQUITY SECURITIES
Our Class A common stock is listed on The New York Stock Exchange ("NYSE") under the symbol “BE”.“BE." There is no public trading market for our Class B common stock. On March 16, 2020,February 15, 2022, there were 637451 registered holders of record of our Class A common stock, and 363210 registered holders of record of our Class B common stock and the closing priceone registered holder of our Classrecord of Series A common stock was $5.31 per share as reported on the NYSE.Preferred Stock.
We have not declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future.
For information aboutSTOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return since our
stock-based compensation plans, see Note 12 - Stock-Based Compensation and Employee Benefit Plansinitial public offering provided stockholders on our common stock relative to the cumulative total returns of the financial statements containedNYSE Composite Index and the Nasdaq Clean Edge Green Energy Total Return Index. An investment of $100 (with reinvestment of all dividends, if any) is assumed to have been made in this Annual Reportour common stock and in each of the indexes on Form 10-K.July 25, 2018 (the date our Class A common stock began trading on the NYSE) and its relative performance is tracked through December 31, 2021.
This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act. Note that past stock price performance is not necessarily indicative of future stock price performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in cumulative $) | July 25, 2018 | September 30, 2018 | December 31, 2018 | March 31, 2019 | June 30, 2019 | September 30, 2019 | December 31, 2019 | March 31, 2020 | June 30, 2020 | September 30, 2020 | December 31, 2020 | March 31, 2021 | June 30, 2021 | September 30, 2021 | December 31, 2021 |
| Bloom Energy Corporation | $100.00 | $136.32 | $39.92 | $51.68 | $49.08 | $13.00 | $29.88 | $20.92 | $43.52 | $71.88 | $114.64 | $108.20 | $107.48 | $74.88 | $87.72 |
| NYSE Composite Index | $100.00 | $101.64 | $88.91 | $99.90 | $103.40 | $103.70 | $111.59 | $83.19 | $96.68 | $103.84 | $119.39 | $129.00 | $137.52 | $134.88 | $144.07 |
| NASDAQ Clean Edge Green Energy Total Return Index | $100.00 | $98.59 | $88.81 | $101.33 | $107.02 | $108.65 | $126.69 | $102.62 | $151.76 | $227.03 | $360.87 | $352.89 | $356.75 | $323.02 | $351.33 |
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA[RESERVED]
We derived the selected consolidated statements of operations data for 2019, 2018 and 2017 and the selected consolidated balance sheet data as of December 31, 2019 and 2018 from our audited consolidated financial statements included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read this data together with Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statements and Supplementary Data included in this Annual Report on Form 10-K. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included in this Annual Report on Form 10-K.The Selected Consolidated Financial Statements Data as of and for the year ended December 31, 2018 have been restated, and as of and for the years ended December 31, 2017 and 2016 have been revised for the correction of misstatements described in Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data. This information should be read in conjunction with the “Explanatory Note” immediately preceding Item 1 of this Annual Report on Form 10-K, and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Selected data from our consolidated statements of operations1 for the years ended December 31, 2019, 2018, 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 1 | | 2018 | | 2017 | | 2016 |
| | | | | As Restated2 | | As Revised2 |
| | | (in thousands, except per share amounts) |
| Total revenue | | $ | 785,177 |
| | $ | 632,648 |
| | $ | 365,623 |
| | $ | 206,391 |
|
| Total cost of revenue | | 687,590 |
| | 526,898 |
| | 381,934 |
| | 309,025 |
|
| Gross profit (loss) | | 97,587 |
| | 105,750 |
| | (16,311 | ) | | (102,634 | ) |
| Operating expenses: | | | | | | | | |
| Research and development | | 104,168 |
| | 89,135 |
| | 51,146 |
| | 46,849 |
|
| Sales and marketing | | 73,573 |
| | 62,807 |
| | 31,926 |
| | 28,547 |
|
| General and administrative | | 152,650 |
| | 118,817 |
| | 55,689 |
| | 61,544 |
|
| Total operating expenses | | 330,391 |
| | 270,759 |
| | 138,761 |
| | 136,940 |
|
| Loss from operations | | $ | (232,804 | ) | | $ | (165,009 | ) | | $ | (155,072 | ) | | $ | (239,574 | ) |
| | |
|
| |
|
| |
|
| | |
| Net loss attributable to Class A and Class B common stockholders | | $ | (304,414 | ) | | $ | (273,540 | ) | | $ | (276,362 | ) | | $ | (285,843 | ) |
| less: deemed dividend to noncontrolling interest | | (2,454 | ) | | — |
| | — |
| | — |
|
| Net loss available to Class A and Class B common stockholders | | $ | (306,868 | ) | | $ | (273,540 | ) | | $ | (276,362 | ) | | $ | (285,843 | ) |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | $ | (2.67 | ) | | $ | (5.14 | ) | | $ | (26.97 | ) | | $ | (28.45 | ) |
| | | | | | | | | |
1 We adopted ASC 606 in the year ended December 31, 2019 using the modified retrospective method. As a policy election, Topic ASC 606 was applied only to contracts that were not substantially completed as of the date of adoption. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the January 1, 2019 opening balance of accumulated deficit. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. See Note 1, Nature of Business, Liquidity, Basis of Presentation and Summary of Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data, for additional information.
2 We have restated previously disclosed consolidated financial data for the year ended December 31, 2018 and have revised previously disclosed consolidated financial data for the years ended December 31, 2017 and 2016 to correct misstatements principally related to managed services contracts with customers contracts and related arrangements, as well as other misstatements. See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.
Selected data from our consolidated balance sheets1 as of December 31, 2019, 2018, 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2019 1 | | 2018 | | 2017 | | 2016 |
| | | | | As Restated2 | | As Revised2 |
| | | (in thousands) |
| Cash and cash equivalents | | $ | 202,823 |
| | $ | 220,728 |
| | $ | 103,828 |
| | $ | 156,577 |
|
| Working capital (deficit) | | (101,256 | ) | | 406,632 |
| | 143,240 |
| | 111,824 |
|
| Total assets | | 1,322,591 |
| | 1,521,794 |
| | 1,248,813 |
| | 1,214,336 |
|
| Long-term portion of debt | | 299,229 |
| | 711,433 |
| | 921,205 |
| | 773,346 |
|
| Total liabilities | | 1,490,451 |
| | 1,482,033 |
| | 1,769,367 |
| | 1,479,602 |
|
Convertible redeemable preferred stock 3 | | — |
| | — |
| | 1,465,841 |
| | 1,465,841 |
|
| Redeemable noncontrolling interest and noncontrolling interest | | 91,734 |
| | 182,371 |
| | 213,526 |
| | 234,988 |
|
| Stockholders’ deficit | | (259,594 | ) | | (142,610 | ) | | (2,199,921 | ) | | (1,966,095 | ) |
| | | |
1 We adopted ASC 606 in the year ended December 31, 2019 using the modified retrospective method. As a policy election, Topic ASC 606 was applied only to contracts that were not substantially completed as of the date of adoption. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the January 1, 2019 opening balance of accumulated deficit. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. See Note 1, Nature of Business, Liquidity, Basis of Presentation and Summary of Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data, for additional information.
2 We have restated previously disclosed consolidated financial data as of December 31, 2018 and have revised previously disclosed consolidated financial data as of December 31, 2017 and 2016 to correct misstatements principally related to managed services contracts with customers contracts and related arrangements, as well as other misstatements. See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.
3 All convertible redeemable preferred stock was converted into Class B common stock at the time of our IPO.
Selected Key Operating Metrics
Please see “Key Operating Metrics” included in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for information regarding how we define our product accepted during the period, billings for product accepted in the period, billings for installation on product accepted in the period, billings for annual maintenance services agreements, product costs of product accepted, period costs of manufacturing related expenses not included in product costs and installation costs on product accepted in the period. |
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 | | 2016 |
| | | (in 100 kilowatt systems) |
| Product accepted during the period | | 1,194 |
| | 809 |
| | 622 |
| | 687 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | Dec. 31,
2019 | | Sept. 30,
2019 | | Jun. 30,
2019 | | Mar. 31,
2019 | | Dec. 31, 2018 | | Sept. 30,
2018 | | Jun. 30,
2018 | | Mar. 31,
2018 |
| | | (in thousands) |
| Product costs of product accepted in the period (per kilowatt) | | $ | 2,592 |
| | $ | 2,850 |
| | $ | 3,045 |
| | $ | 3,206 |
| | $ | 2,995 |
| | $ | 3,351 |
| | $ | 3,485 |
| | $ | 3,855 |
|
| Period costs of manufacturing related expenses not included in product costs | | 4,762 |
| | 1,969 |
| | 3,321 |
| | 6,937 |
| | 4,191 |
| | 6,300 |
| | 3,018 |
| | 10,785 |
|
| Installation costs on product accepted in the period (per kilowatt) | | 568 |
| | 733 |
| | 627 |
| | 676 |
| | 653 |
| | 1,713 |
| | 1,967 |
| | 526 |
|
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties as described under the heading Special Note Regarding Forward-Looking Statements following the Table of Contents of this Annual Report on Form 10-K. You should review the disclosure under Item 1A - Risk Factors in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8 Financial Statements and Supplementary Data.
Restatement and Revision of Previously Issued Consolidated Financial Statements
In this Annual Report on Form 10-K, we have restated our previously issued consolidated financial statements as of and for the year ended December 31, 2018 and revised our previously issued consolidated financial statements as of and for the year ended December 31, 2017. Refer to the “Explanatory Note” preceding Item 1, Business for background on the restatement and revision, the fiscal periods impacted, control considerations, and other information. As a result, we have also restated certain previously reported financial information as of and for the year ended December 31, 2018 and revised certain previously reported financial information as of and for the year ended December 31, 2017 in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within the Results of Operations and Liquidity and Capital Resources sections to conform the discussion with the appropriate restated and/or revised amounts. See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, in Item 8 Financial Statements and Supplementary Data, for additional information related to the restatement and revision, including descriptions of the misstatements and the impacts on our consolidated financial statements.
Description of Bloom Energy
Our solution,mission is to make clean, reliable energy affordable for everyone in the Bloom Energy Server, is a stationaryworld. We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform builtthat empowers businesses, essential services, critical infrastructure and communities to responsibly take charge of their energy.
Our technology, invented in the United States, is one of the most advanced electricity and hydrogen producing technologies on the market today. Our fuel-flexible Bloom Energy Servers can use biogas, hydrogen, natural gas, or a blend of fuels to create resilient, sustainable and cost-predictable power at significantly higher efficiencies than traditional, combustion-based resources. In addition, our same solid oxide platform that powers our fuel cells can be used to create hydrogen, which is increasingly recognized as a critically important tool necessary for the digital agefull decarbonization of the energy economy. Our enterprise customers include some of the largest multinational corporations in the world. We also have strong relationships with some of the largest utility companies in the United States and capablethe Republic of delivering highly reliable, uninterrupted, 24x7 constant power that is also clean and sustainable. TheKorea.
At Bloom Energy, Server converts standard low-pressure natural gas, biogas or hydrogen intowe look forward to a net-zero future. Our technology is designed to help enable this future in order to deliver reliable, low-carbon, 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 kilowattsa world facing unacceptable levels of power disruptions. Our resilient platform has kept electricity available for our customers through hurricanes, earthquakes, typhoons, forest fires, extreme heat and grid failures. Unlike traditional combustion power generation, our platform is community-friendly and designed to significantly reduce emissions of criteria air pollutants. We have made tremendous progress making renewable fuel production a reality through our biogas, hydrogen and electrolyzer programs, and we believe that we are well-positioned as a core platform and fixture in a footprint roughly equivalentthe new energy paradigm 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 our Energy Server systems can be clustered together in various configurations to form solutions from hundreds of kilowatts to many tens of megawatts. We currently primarily target commercialhelp organizations and industrial customers.communities achieve their net-zero objectives.
We market and sell our Energy Servers primarily through our direct sales organization in the United States, and also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a material financial commitment, we have developed a number of financing options to support sales of our Energy Servers to customers who lack
the financial capability to purchase our Energy Servers directly, who prefer to finance the acquisition using third partythird-party financing or who prefer to contract for our services on a pay-as-you-go model.
Our typical target commercial or industrial customer has historically been either an investment-grade entity or a customer with investment-grade attributes such as size, assets and revenue, liquidity, geographically diverse operations and general financial stability. We have recentlyalso expanded our product and financing options to the below-investment-grade customers and have also expanded internationally to target customers with deployments on a wholesale grid. Given that our customers are typically large institutions with multi-level decision making processes, we generally experience a lengthy sales process.
Strategic Investment
On October 23, 2021, we entered into the SPA with SK ecoplant in connection with a strategic partnership. Pursuant to the SPA, on December 29, 2021, we sold to SK ecoplant 10 million shares of zero coupon, non-voting redeemable convertible Series A preferred stock in us, par value $0.0001 per share ("RCPS"), at a purchase price of $25.50 per share for an aggregate purchase price of $255 million (the "Initial Investment").
Simultaneous with the execution of the SPA, we and SK ecoplant executed an amendment to the Joint Venture Agreement ("JVA"), an amendment and restatement to our Preferred Distribution Agreement ("PDA Restatement") and a new Commercial Cooperation Agreement regarding initiatives pertaining to the hydrogen market and general market expansion for the Bloom Energy Server and Bloom Energy Electrolyzer. For additional details about the transaction with SK ecoplant, please see Note 18 - SK ecoplant Strategic Investment, and for more information about our joint venture with SK ecoplant, please see Note 12 - Related Party Transactions in Part II, Item 8, Financial Statements and Supplementary Data.
COVID-19 Pandemic
General
We continue to monitor and adjust as appropriate our operations in response to the COVID-19 pandemic, including the Omicron variant. As a technology company that supplies resilient, reliable and clean energy, we have been able to conduct the majority of operations as an “essential business” in California and Delaware, where we manufacture and perform many of our
R&D activities, as well as in other states and countries where we are installing or maintaining our Energy Servers. Many of our employees continue to work from home as a result of the spread of the Omicron variant unless they are directly supporting essential manufacturing production operations, installation work, and service and maintenance activities as well as some R&D and general administrative functions. We maintain protocols to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning and masking if required by the local authorities, as well as providing testing for all employees. We will continue to follow CDC and local guidelines when notified of possible exposures. For more information regarding the risks posed to our company by the COVID-19 pandemic, refer to Part I, Item 1A, Risk Factors – Risks Related to Our Products and Manufacturing –Our business has been and continues to be adversely affected by the COVID-19 pandemic.
Liquidity and Capital Resources
COVID-19 created disruptions throughout various aspects of our business as noted herein, and impacted our results of operations in the year ended December 31, 2021. While we improved our liquidity in 2020, we increased our working capital spend in the first half of 2021. We have entered into new leases to maintain sufficient manufacturing facilities to meet anticipated demand in 2022, including new product line expansion. In addition, we also increased our working capital spend and resources to enhance our marketing efforts and to expand into new geographies both domestically and internationally.
We believe we have the sufficient capital to run our business over the next 12 months, including the completion of the build out of our manufacturing facilities. Our working capital was strengthened with the Initial Investment by SK ecoplant as described above. In addition, we may still enter the equity or debt market as need to support the expansion of our business. Please refer to Note 7 - Outstanding Loans and Security Agreements in Part II, Item 8, Financial Statements and Supplementary Data; and Part I, Item 1A, Risk Factors – Risks Related to Our Liquidity –Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities’ outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, and We may not be able to generate sufficient cash to meet our debt service obligations, for more information regarding the terms of and risks associated with our debt.
Sales
We did not experience a significant impact on our selling activity related to COVID-19 during the year ended December 31, 2021.
Customer Financing
The ongoing COVID-19 pandemic resulted in a significant drop in the ability of many financiers (particularly financing institutions) to monetize tax credits, primarily the result of a potential drop in taxable income stemming from the pandemic. However, during the last two quarters, we began to see this constraint improving. Our ability to obtain financing for our Energy Servers partly depends on the creditworthiness of our customers, and a few of our customers’ credit ratings have fallen during the pandemic, which can impact the financing for their use of an Energy Server. We continue to work on obtaining the financing required for our 2022 installations but if we are unable to secure such financing our revenue, cash flow and liquidity will be materially impacted.
Installations and Maintenance of Energy Servers
Our installation and maintenance operations were impacted by the COVID-19 pandemic in 2021. Our installation projects have experienced some delays relating to, among other things, shortages in available parts and labor for design, installation and other work; and the inability or delay in our ability to access customer facilities due to shutdowns or other restrictions. Despite the impact on installations during the year ended December 31, 2021 and given our mitigation strategies, we only had one instance of a significant delay in the installation of our Energy Servers as a result of supply chain issues that pushed an installation out a quarter.
As to maintenance, if we are delayed in or unable to perform scheduled or unscheduled maintenance, our previously-installed Energy Servers will likely experience adverse performance impacts including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may be subject to increased costs in the future. During the year ended December 31, 2021, we experienced no delays in servicing our Energy Servers due to COVID-19.
Supply Chain
During 2021, we experienced COVID-19 related delays from certain vendors and suppliers, although we were able to mitigate the impact so that we did not experience delays in the manufacture of our Energy Servers and experienced only one significant delay in the installation of our Energy Servers as mentioned above. We have a global supply chain and obtain components from Asia, Europe and India. In many cases, the components we obtain are jointly developed with our suppliers and unique to us, which makes it difficult to obtain and qualify alternative suppliers should our suppliers be impacted by the COVID-19 pandemic or related effects.
During the year ended December 31, 2021, we continued to experience supply chain disruptions due to direct and indirect COVID-19 impacts. There have been a number of disruptions throughout the global supply chain as the global economy opens up and drives demand for certain components that has outpaced the return of the global supply chain to full production. Although we were able to find alternatives for many component shortages, we experienced some delays and cost increases with respect to container shortages, ocean shipping and air freight. We have put actions in place to mitigate the disruptions by booking alternate sea routes, limiting our use of air shipments, creating virtual hubs and consolidating shipments coming from the same region. During the three months ended December 31, 2021, we continued to manage disruptions from an increase in lead times for most of our components due to a variety of factors, including supply shortages, shipping delays and labor shortages, and we expect this to continue through the first half of 2022. We expect raw material pricing pressures and component shortages especially for semiconductors and specialty metals to persist at least through this time period. In addition, the impact of inflation on the price of components, raw materials and labor may result in increased prices. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials, electronic components and freight, it could delay the manufacturing and installation of our Energy Servers and increase the cost of our Energy Server, which would adversely impact our cash flows and results of operations, including revenue and gross margin.
If spikes in COVID-19 occur in regions in which our supply chain operates, including as a result of the Delta or Omicron variant, we could experience a delay in components and incur further freight price increases, which could in turn impact production and installations and our cash flow and results of operations, including revenue and gross margin.
Manufacturing
Although we have experienced labor shortages due to COVID-19 absences and the relative shortage of labor, overall this has not impacted our production given the safety protocols we have put in place augmented by our ability to increase our shifts and obtain a contingent work force for some of the manufacturing activities. We have incurred additional labor expense due to enhanced safety protocols designed to minimize exposure and risk of COVID-19 transmission as well as increased wages in general. If COVID-19 materially impacts our supply chain or if we experience a significant COVID-19 outbreak that affects our manufacturing workforce, our production could be adversely impacted which could adversely impact our cash flow and results of operation, including revenue.
Purchase and LeaseFinancing Options
Initially,Overview
In order to appeal to the largest variety of customers, we only offeredmake available several options to our customers. Both in the United States and abroad, we sell Energy Servers directly to customers. In the United States, we also enable customers' use of the Energy Servers through a pay as you go offering, made possible through third-party ownership financing arrangements.
Often our offerings take advantage of local incentives. In the United States, our financing arrangements are structured to optimize both federal and local incentives, including the ITC and accelerated depreciation. Internationally, our sales are made primarily to distributors who on-sell to, and install for, customers; these deals are also structured to use local incentives applicable to our Energy Servers. Increasingly, we use trusted installers and other sourcing collaborations in the United States to generate transactions.
Whichever option is selected by a customer in the Unites States or internationally, the contract structure will include obligations on our part to operate and maintain the Energy Server (“O&M Obligations”). The O&M Obligations may either be (i) for a one-year period, subject to annual renewal at the customer’s option, which historically are almost always renewed year over year, or (ii) for a fixed term. In the United States, the contract structure often includes obligations on our part to install the Energy Servers (“Installation Obligations”). Consequently, our transactions may generate revenue from the sale of Energy Servers and electricity, performance of O&M Obligations, and performance of Installation Obligations.
In addition to customary workmanship and materials warranties, as part of the O&M Obligations we provide warranties and guaranties regarding the efficiency and output of our Energy Servers on a direct purchase basis, in whichto the customer purchases and, in certain financing structures, to
the product directly from us. In orderfinancing parties too. We refer to expand our offeringsa “performance warranty” as an obligation to repair or replace the Energy Servers as necessary to return performance of an Energy Server to the warranted performance level. We refer to a “performance guaranty” as an obligation to make a payment to compensate for the failure of the Energy Server to meet the guaranteed performance level. Our obligation to make payments under the performance guaranty is always contractually capped.
Energy Server Sales
There are customers who lack the financial capability to purchase our Energy Servers directly (includingfrom us pursuant to customary equipment sales contracts. In connection with the purchase of Energy Servers, the customers who are unablealso enter into a contract with us for the O&M Obligations. The customer may elect to monetizeengage us to provide the tax credits availableInstallation Obligations or engage a third-party provider. Internationally, sales often occur through distribution arrangements pursuant to purchaserswhich local construction services providers perform the Installation Obligations, as is the case in the Republic of Korea; we contract directly with the customer to provide O&M Obligations.
A customer may enter into a contract for the sale of our Energy Servers) and/or who preferServers and finance that acquisition through a sale-leaseback with a financial institution. In most cases, the financial institution completes its purchase from us immediately after commissioning. We both (i) facilitate this financing arrangement between the financial institution and the customer and (ii) provide ongoing operations and maintenance services for the Energy Servers (such arrangement, a “Traditional Lease”).
Customer Financing Options
With respect to lease the product orthird-party financing options in the United States, a customer may choose a contract for our servicesthe use Energy Servers in exchange for a capacity-based flat payment (a “Managed Services Agreement”) or one for the purchase of electricity generated by the Energy Servers in exchange for a scheduled dollars per kilowatt hour rate (a “Power Purchase Agreement” or “PPA”).
Certain customer payments in a Managed Services Agreement are required regardless of the level of performance of the Energy Server; in some cases it may also include a variable payment based on the Energy Server's performance or a performance-related set-off. Managed Services Agreements are then financed pursuant to a sale-leaseback with a financial institution (a “Managed Services Financing”).
PPAs are typically financed on a pay-as-you-go model, we subsequently developed the traditional lease ("Traditional Lease"), Managed Services,portfolio basis. We have financed portfolios through tax equity partnerships, acquisition financings and power purchase agreement programs ("PPA Programs"direct sales to investors (each, a “Portfolio Financing”).
OurIn the United States, our capacity to offer our Energy Servers through anyeither of these financed arrangements depends in large part on the ability of financing parties to optimize the financing partytax benefits associated with a fuel cell, such as the ITC or parties involved to monetize the related investment tax credits, accelerated tax depreciation and other incentives.depreciation. Interest rate fluctuations, and internationally, currency exchanges fluctuations, may also impact the attractiveness of any financing offerings for our customers, and currency exchange fluctuations may also impact the attractiveness of international offerings. The Traditional Lease,customers. Our ability to finance a Managed Services Agreement or a PPA is also related to, and PPA Program options aremay be limited by, the creditworthiness of the customer. Additionally, the Managed Services and Traditional Lease options, as with all leases, are alsoFinancing option is limited by thea customer’s willingness to commit to making fixed payments to a financing party regardless of the level of performance of the Energy Servers or our performance of our obligations under the customer agreement.Server.
In each of our purchasefinancing options, we typically perform the functions of a project developer, including identifying end customers and financiers, leading the negotiations of the customer agreements and financing agreements, securing all necessary permitting and interconnections approvals, and overseeing the design and construction of the project up to and including commissioning the Energy Servers.
Under each purchase option, Increasingly, however, we provide warranties and performance guaranties for the Energy Servers’ efficiency and output. We referare making sales to a “warranty” as a commitment where the failure of the Energy Servers to satisfy the stated performance level obligates us to repair or replace the Energy Servers as necessary to improve performance. If we fail to complete such repair or replacement, or if repair or replacement is impossible, we may be obligated to repurchase the Energy Servers from the customer or financier. We refer to a “guaranty” as a commitment where the failure of the Energy Servers to satisfy the stated performance level obligates us to make a payment to compensate the beneficiary of such guaranty for the resulting increased cost or diminution in benefits resulting from such failure. Our obligation to make payments under the guaranty is always contractually capped and represents a contingency linked to our services obligation with no economic incentive for us to default and force an exercise of the payment obligation.
Under direct purchase and Traditional Lease, the warranties and guaranties are typically included in the price of our Energy Server for the first year. The warranties and guaranties may be renewed annually at the customer’s option, as an operations and maintenance services agreement, at predetermined prices for a period of up to 30 years. Historically, our customers and financiers have almost always exercised their option to renew the warranties and guaranties under these operations and maintenance services agreements.
Under the Managed Services Program, the warranties and guaranties are included for the fixed period specified in the customer agreement. This period is typically 10 years, which may be extended at the option of the parties for additional years.
Under the PPA Programs, we typically provide warranties and guaranties regarding our Energy Servers’ efficiency to the customer (i.e., the end user of the electricity generated by our Energy Servers, who is also responsible for the purchase of the fuel required for our Energy Servers’ operations), and we provide warranties and guaranties regarding our Energy Servers’ output to the financier(s) that purchases our Energy Servers. The warranties and guaranties are typically included in the price of our Energy Server for the first year and may be renewed annually at the financier’s option, as an operations and maintenance services agreement, at predetermined prices for a period of up to 30 years. Historically, our financiers have almost always exercised their option to renew the warranties and guaranties under these operations and maintenance services agreements. We also provide a fixed schedule of prices for each year of the term of our agreements with our Customers and none of our Customers have failed to renew our operations and maintenance agreements.
The substantial majority of bookings made in recent periods are pursuant to the PPA and the Managed Services Programs.third-party developers.
Each of our financing transaction structures is described in further detail below.
Under the Traditional Lease arrangement, the customer enters into a lease directly with a financier, which pays us for our Energy Servers purchased pursuant to a sales agreement (see the description of the Financing Agreement below). We recognize product and installation revenue upon acceptance. After the standard one-year warranty period, our customers have almost always exercised the option to enter into operations and maintenance services agreements with us, under which we receive annual service payments from the customer. The price for the annual operations and maintenance services is set at the time we enter into the Financing Agreement. The term of a lease in a Traditional Lease ranges from 5 to 8 years.
Under a Financing Agreement, we are generally paid the full price of our Energy Servers as if sold as a purchase by the customer based on four milestones. The four payment milestones are typically as follows: (i) 15% upon execution of the financier's entry into the lease with a customer, (ii) 25% on the day that is 180 days prior to delivery of the Energy Servers, (iii) 40% upon shipment of the Energy Servers, and (iv) 20% upon acceptance of the Energy Servers. The financier receives title to the Energy Servers upon installation at the customer site and the financier has risk of loss while our Energy Server is in operation on the customer’s site.
The Financing Agreement provides for the installation of our Energy Servers and includes a standard one-year warranty, to the financier, which includes the performance guaranties described below, with the warranty offered on an annually renewing basis at the discretion of, and to, the customer. The customer must provide fuel for the Bloom Energy Servers to operate.
Our direct lease deployments typically provide for warranties and guaranties of both the efficiency and output of our Energy Servers, all of which are written in favor of the customer and contained in the operations and maintenance services agreement. These warranties and guaranties may be measured on a monthly, annual, cumulative or other basis. As of December 31, 2019, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these warranties. Our obligation to make payments for underperformance against the performance guaranties for Traditional Lease projects was capped contractually under the sales agreements between us and each customer at an aggregate total of approximately $6.0 million (including payments both for low output and for low efficiency), and, our aggregate remaining potential liability under this cap was approximately $4.8 million.
Remarketing at Termination of Lease
In the event the customer does not renew or purchase our Energy Servers to the end of any customer lease, we may remarket any such Energy Servers to a third party. Any proceeds of such sale would be allocated between us and the applicable financing partner as agreed between them at the time of such sale.
Managed Services Financing
In aUnder our Managed Services financing,Financing option, we enter into a Managed Services Agreement with a customer pursuant to which the customer is able to use the Energy Server for a certain term. Under the Managed Services Agreement, the customer makes a monthly payment for the use of the Energy Server. The customer payment typically has two components: (1) a fixed monthly capacity-based payment and (2) a performance-based payment based on the output of electricity that month from the Energy Server. The fixed capacity-based payments made by the customer under the Managed Services Agreement are applied toward our obligation to pay down our periodic rent liability under a sale-leaseback transaction with a financier. We assign all our rights to such fixed payments made by the master leasecustomer to the financier, as lessor.
Once we enter into a Managed Services Agreement with the financier. The performance payment is transferred to us as compensation for operationscustomer, and maintenance services and recorded as services revenue within the consolidated statements of operations. In some cases, the customer’s monthly payment consists solely of the first component, a fixed monthly capacity-based payment.
Once a financier is identified, and the Energy Server’s installation is complete, we sell the Energy Server contemplated by the Managed Services Agreement directly to a financier and the financier, as lessor, who then leases it back to us, as lessee, pursuant to a master lease in a sale-leaseback transaction. TheCertain of our sale-leaseback transactions failed to achieve all of the criteria for sale accounting. For such failed sale-and-leaseback transactions, the proceeds from the saletransaction are recordedrecognized as a financing obligation within theour consolidated balance sheets. Any ongoing operations and maintenance service payments are scheduled insheet. For successful sale-and-leaseback transactions, the financier of a Managed Services Agreement in the form of the performance-based payment described above. The financier typically pays the financing proceedspurchase price for an Energy Server at or around acceptance, and we recognize the fair value of the Energy Server contemplated byServers sold within product and install revenue and recognize a right-of-use ("ROU") asset and a lease liability on our consolidated balance sheet. Any proceeds in excess of the Managed Services Agreement on or shortly after acceptance.
The fixed capacity payments made byfair value of the customer under the Managed Services AgreementEnergy Servers are recognized as electricity revenue when billed and applied toward our obligation to pay thea financing obligation under the master lease. Our Managed Services financings have historically shifted customer credit risk to the financier, as lessor, by providing in the master lease agreement that we have no liability for payment of rent except in certain enumerated circumstances, including in the event we are in breach of the Managed Services Agreement between us and the customer.obligation.
The duration of the master lease in a Managed Services financing is typically 10 years. The term of the master lease is typically the same as the term of the relatedour current Managed Services Agreement but in some cases the term of the master leaseofferings is shorter than that of the Managed Services Agreement.between five and ten years.
Our Managed Services deploymentsAgreements typically provide only for performance warranties of both the efficiency and output of the Energy Server(s), allServer and may include other warranties depending on the type of which are written in favor ofdeployment. We often structure payments from the
customer and contained in the operations and maintenance services agreement. These warranties may be measured onas a monthly, annual, cumulative or other basis. Managed Services projects typically do not include guaranties above the warranty commitments, but in projects where the customer agreement includes a servicedollars per kilowatt-hour payment for our operations and maintenance, that payment is typically proportionate to the output generated by the Energy Server(s) and our pricing assumes service revenuesrevenue at the 95% output level. This means that our service revenuesrevenue may be lower than expected if output is less than 95% and higher if output exceeds 95%. As of December 31, 2019,2021, we had
incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties and the fleet of our Energy Servers deployed pursuant to the Managed Services ProgramFinancings was performing at a lifetime average output of approximately 88%85%.
Power Purchase Agreement Programs
*Under the Third Party PPA arrangements, there is no link with an investment company, as we do not have an equity investment in these arrangements.Portfolio Financings
In each Power Purchase Agreement,the past, we sellfinanced the Energy Servers subject to our PPAs through two types of Portfolio Financings. In one type of transaction, we sold a portfolio of PPAs to a tax equity partnership in which we held a managing member interest (such partnership in which we hold an interest, a “PPA Entity”). In these transactions, we sold the portfolio of Energy Servers to a limited liability project company of which the PPA Entity was the sole member (such portfolio owner, a “Portfolio Company”). Whether an Operatinginvestor, a tax equity partnership, or a single member limited liability company, the Portfolio Company whichis the entity that directly owns the portfolio. The Portfolio Company sells the electricity generated by the Energy Servers contemplated by the PPAs to the ultimate end customers pursuant tocustomers. We recognize revenue as the electricity is produced. Our current practices no longer contemplate these types of transactions.
We also finance PPAs through a Power Purchase Agreement, energy services agreement, or similar contract. Because the end customer's payment is stated on a dollar-per-kilowatt-hour ("$/kWh") basis, we refer to these agreements as Power Purchase Agreements ("PPAs"). Currently, our offerings for PPA Programs primarily include our Third-Party PPA Programssecond type of Portfolio Financing pursuant to which we recognize revenue on acceptance. Through 2017, as part(i) directly sell a portfolio of our PPA Programs, we had also offeredPPAs and the Bloom Electrons Program which includedEnergy Servers or (ii) sell a Portfolio Company, in each case to an investor or tax equity investment by us in the Operating Company andpartnership in which we recognized revenue asdo not have an equity interest (a “Third-Party PPA”). Like the electricity was produced. For further discussion on our Bloom Electrons Programs, see Note 13 of our Notes to Consolidated Financial Statements.
In our Power Purchase Agreement Program, we enter into an Energy Server sales, operations and maintenance agreement ("EPC and O&M Agreement") withother Portfolio Financing structure, the Operatinginvestor or tax equity partnership owns the Portfolio Company that will ownor the Energy Servers. The Operating Company then enters intoServers directly, and in each case, sells the PPA with the end customer which purchases electricity generated by the Energy Servers. The OperatingServers contemplated by the PPAs to the customers. For further discussion, see Note 11 - Portfolio Financings in Part II, Item 8, Financial Statements and Supplementary Data.
When we finance a portfolio of Energy Servers and PPAs through a Portfolio Financing, we typically enter into a sale, engineering and procurement and construction agreement (“EPC Agreement”) and an O&M Agreement, with the Portfolio Company. As owner of the portfolio of PPAs and related Energy Servers, the Portfolio Company receives all cash flowscustomer payments generated under the PPA(s), in addition to all investment tax credits, allPPAs, the benefits of the ITC and accelerated tax depreciation, benefits, and any other cash flows generated byavailable state or local benefits arising out of the ownership or operation of the Energy Servers, to the extent not already allocated to the end customer under the PPA.
The sales of our Energy Servers to the Operating Company in connection with the various Power Purchase Agreement Programsa Portfolio Financing have many of the same terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery of the Energy Server, and upon acceptance of the Energy Server. Acceptance typically occurs when the Energy Server is installed and running at full power as defined in the applicable EPC and
Under an O&M Agreement. AAgreement, a one-year service warrantypackage is provided with the initial sale.sale that includes performance warranties and performance guaranties. After the expiration of the initial standard one-year warranty,package, the OperatingPortfolio Company has the option to extend our operations and maintenance services under the EPC and O&M Agreement on an annual basis at a price determined at the time of purchase of our Energy Server, which may be renewed annually for each Energy Server for up to 30 years.Server. After the
standard one-year warranty period,service package, the OperatingPortfolio Company has almost always exercised the option to renew our operations and maintenance obligationsservices under the EPC and O&M Agreement.
We typically provide output warranties and output guaranties to the Operating Company pursuant to the applicable EPC and O&M Agreement with the Operating Company. The end customer agreement between the Operating Company and the end customer also provides efficiency warranties and efficiency guaranties to the end user, and we provide a backstop of all of the Operating Company’s obligations under those agreements, including both the repair or replacement obligations pursuant to the warranties and any payment liabilities under the guaranties.
As of December 31, 2019,2021, we had incurred no liabilities to investors in Portfolio Financings due to failure to repair or replace Energy Servers pursuant to these performance warranties. Our obligation to make payments for underperformance against the performance guaranties for Power Purchase Agreement projects was capped at an aggregate total of approximately $75.0$114.6 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately $59.4$104.4 million.
Obligations to OperatingPortfolio Companies
In addition to our obligations to the end customers, our Power Purchase Agreement ProgramsOur Portfolio Financings involve many obligations on our part to the Operating Company that purchases our Energy Servers.Portfolio Company. These obligations are set forth in the applicable EPC Agreement and O&M Agreement(s),Agreement, and may include some or all of the following obligations:
•designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Operating Company,Portfolio Company;
•obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Bloom Energy Servers, and maintaining such permits and approvals throughout the term of the EPC Agreements and O&M Agreements,Agreements;
•operating and maintaining the Bloom Energy Servers in compliance with all applicable laws, permits and regulations,regulations;
•satisfying the efficiencyperformance warranties and output warrantiesguaranties set forth in such EPC andthe applicable O&M AgreementsAgreements; and the PPAs ("performance warranties"), and
•complying with any other specific requirements contained in the PPAs with individual end-customers.customers.
TheIn some cases, the EPC andAgreement obligates us to repurchase the Energy Server in the event of certain IP Infringement claims. In others, a repurchase of the Energy Server is only one optional remedy we have to cure an IP Infringement claim. The O&M AgreementsAgreement grants a Portfolio Company the right to obligate us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the performance warranties and guaranties in the eventO&M Agreement and we otherwise breach the terms ofdo not cure such failure in the applicable EPC and O&M Agreements and we fail to remedy such failure or breach after a curetime period, or in the event that a PPA terminates as a result of any failure by us to comply withperform the applicable EPC andobligations in the O&M Agreements.Agreement. In some PPA Program projects,of our Portfolio Financings, our obligation to repurchase Energy Servers under the O&M extends to the entire fleet of Energy Servers sold pursuant to the applicable EPC and O&M Agreements in the event sucha systemic failure that affects more than a specified number of Energy Servers.
In some PPA Programs,Portfolio Financings, we have also agreed to pay liquidated damages to the applicable OperatingPortfolio Company in the event of delays in the manufacture and installation of our Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Servers.
Both the upfront purchase price for the Energy Servers and the ongoing fees for our operations and maintenance are paid on a fixed dollar-per-kilowatt ($/kW) basis.
Indemnification of Performance Warranty Expenses Under PPAs - In addition to the performance warranties and guaranties in the EPC and O&M Agreements, we also have agreed to indemnify certain Operating Companies for any expenses they incur to any of the end customers resulting from failures of the applicable Energy Servers to satisfy any of the performance warranties and guaranties set forth in the applicable PPAs.
Administration of OperatingPortfolio Companies -
In each of our Portfolio Financings in which we hold an equity interest in the Bloom Electrons programs,PPA Entity, we perform certain administrative services on behalf of the applicable Operating Company,as managing member, including invoicing the end customers for amounts owed under the PPAs, administering the cash receipts of the OperatingPortfolio Company in accordance with the requirements of the financing arrangements, interfacing with applicable regulatory agencies, and other similar obligations. We are compensated for these services on a fixed dollar-per-kilowatt ($/kW) basis.
The OperatingFor those Portfolio Financings with project debt, the Portfolio Company inowned by each of our PPA Entities (with the Bloom Electrons Programs (other thanexception of one PPA I) hasEntity) incurred debt in order to finance the acquisition of the Energy Servers. The lenders for these projectstransactions are a combination of banks and/or institutional investors. In each case, the debt is secured by all of the assets of the applicable OperatingPortfolio Company, such assets being primarily comprised of the Energy Servers and a collateral assignment of each of the contracts to which the OperatingPortfolio Company is a party, including the O&M Agreement entered into with us and the offtake agreements entered into with the Operating Company’s customers, and is senior to all other debt obligations of the Operating Company.PPAs. As further collateral,
the lenders receive a security interest in 100% of the membership interest of the OperatingPortfolio Company. However, as is typical in structured finance transactions of this nature, although the project debt is secured by all of the Operating Company’s assets, theThe lenders have no
recourse to us or to any of the other equity investors (the "Equity Investors") in the project. The applicable debt agreements include provisions that implement a customary “payment waterfall” that dictatesPortfolio Company for liabilities arising out of the priority in which the Operating Company will use its available funds to satisfy its payment obligations to us, the lenders, the tax equity investors and other third parties.portfolio.
We have determined that we are the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions (see Note 13, Power Purchase Agreement Programs).transactions. Accordingly, we consolidate 100% of the assets, liabilities and operating results of these entities,PPA Entities, including the Energy Servers and lease income, in our consolidated financial statements. We recognize the tax equity investors’Equity Investors’ share of the net assets of the investment entities as noncontrolling interests in subsidiaries in our consolidated balance sheet. We recognize the amounts that are contractually payable to these investors in each period as distributions to noncontrolling interests in our consolidated statements of redeemable convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficit(deficit) equity and noncontrolling interest. Our consolidated statements of cash flows reflect cash received from these investorsthe Equity Investors as proceeds from investments by noncontrolling interests in subsidiaries. Our consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling interests in subsidiaries. We reflect any unpaid distributions to these investorsEquity Investors as distributions payable to noncontrolling interests in subsidiaries on our consolidated balance sheets. However, the PPA Entities are separate and distinct legal entities, and Bloom Energy Corporation may not receive cash or other distributions from the PPA Entities except in certain limited circumstances and upon the satisfaction of certain conditions, such as compliance with applicable debt service coverage ratios and the achievement of a targeted internal raterates of return to the tax equity investors,Equity Investors, or otherwise.
For further information about our Power Purchase Agreement Programs,Portfolio Financings, see Note 13, Power Purchase Agreement Programs, to our consolidated financial statements included11 - Portfolio Financings in this Annual Report on Form 10-K.Part II, Item 8, Financial Statements and Supplementary Data. Delivery and Installation
The timingtransfer of control of our product to our customer based on the delivery and installations of our products havehas a significant impact on the timing of the recognition of product and installation revenue. Many factors can cause a lag between the time that a customer signs a purchase ordercontract and our recognition of product revenue. These factors include the number of Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, and customer facility construction schedules.schedules, customers’ operational considerations and the timing of financing. Many of these factors are unpredictable and their resolution is often outside of our or our customers’ control. Customers may also ask us to delay an installation for reasons unrelated to the foregoing, includingsuch as, for sales contracts, delays in their obtaining financing. Further, due to unexpected delays, deployments may require unanticipated expenses to expedite delivery of materials or labor to ensure the installation meets the timing objectives. These unexpected delays and expenses can be exacerbated in periods in which we deliver and install a larger number of smaller projects. In addition, if even relatively short delays occur, there may be a significant shortfall between the revenue we expect to generate in a particular period and the revenue that we are able to recognize. For our installations, revenue and cost of revenue can fluctuate significantly on a periodic basis depending on the timing of acceptance and the type of financing used by the customer. As described in the Power Purchase Agreements section above, we offered the Bloom Electrons purchase program through the end of 2016 and no longer offer this financing structure to potential customers.
Our product sales backlog was $1.1 billion, equivalent to 1,983 systems, or 198 megawatts, as of December 31, 2019. Our product sales backlog was $0.8 billion, equivalent to 1,384 systems, or 138 megawatts, as of December 31, 2018.
We define product sales backlog as signed customer product sales orders received prior to the period end, but not yet accepted, excluding site cancellations. The timing of the deployment of our backlog depends on the factors described above. However, as a general matter, at any point in time, we expect at least 50% of our backlog to be deployed within the next 12 months. The portion of our backlog in the year ended December 31, 2019 attributable to each payment option was as follows: Direct Purchase (including Third Party PPAs) 93% and Managed Services 7%. The portion of our backlog in the year ended December 31, 2018 attributable to each payment option was as follows: Direct Purchase (including Third Party PPAs) 98% and Managed Services 2%.
International Channel Partners
Prior to 2018, we consummated a small number of sales outside the United States of America, including in India and Japan. India. In India, sales activities are currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly-owned indirect subsidiary; however, we are currently evaluatingcontinue to evaluate the Indian market to determine whether the use of channel partners would be a beneficial go-to-market strategy to grow our India market sales.
Japan. In Japan, sales arewere previously conducted pursuant to a Japanese joint venture established between us and subsidiaries of SoftBank Corp,Corp., called Bloom Energy Japan Limited ("Bloom Energy Japan"). Under this arrangement, we sellsold Energy Servers to Bloom Energy Japan and we recognizerecognized revenue once the Energy Servers leaveleft the port ofin the U.S. asUnited States. Bloom Energy Japan
enters then entered into the contract with the end customer and performsperformed all installation work as well as some of the operations and maintenance work. As of July 1, 2021, we acquired Softbank Corp.'s interest in Bloom Energy Japan for a cash payment and are now the sole owner of Bloom Energy Japan.
SouthThe Republic of Korea. In 2018, Bloom Energy Japan consummated a sale of Energy Servers in the Republic of Korea to Korea South-East Power Company. Following this sale, we entered into a Preferred Distributor Agreement in November 2018 with SK Engineering & Construction Co., Ltd. ("SK E&C") to enable us to sell directly intoecoplant for the Republicmarketing and sale of Korea.
Under our agreement with SK E&C, SK E&C has a right of first refusal during the term of the agreement, with certain exceptions, to serve as distributor ofBloom Energy Servers for any fuel cell generation projectthe stationary utility and commercial and industrial South Korean power market.
As part of our expanded strategic partnership with SK ecoplant, the parties executed the PDA Restatement in October 2021, which incorporates previously amended terms and establishes: (i) SK ecoplant’s purchase commitments for the next three years (on a take or pay basis) for Bloom Energy Servers; (ii) rollover procedures; (iii) premium pricing for product and
services; (iv) termination procedures for material breaches; and (v) procedures if there are material changes to the Republic of Korea and we haveHydrogen Portfolio Standard. For additional details about the right of first refusal to serve astransaction with SK E&C’s supplier of generation equipment for any Bloom Energy fuel cell project in the Republic of Korea. Under the terms of each purchase order, title, risk of loss and acceptance of the Energy Servers pass from us to ecoplant, please see Note 18 - SK E&C upon delivery at the named port of lading for shipment in the United States for the Energy Servers shipped in 2018 and thereafter upon delivery at the named port of unlading in the Republic of Korea, prior to unloading subject to final purchase order terms. The Preferred Distributor Agreement has an initial term expiring on December 31, 2021, and thereafter will automatically be renewed for three-year renewal terms unless either party terminates the Preferred Distributor Agreement by written notice under certain circumstances.ecoplant Strategic Investment.
Under the terms of the Preferred Distributor Agreement,PDA Restatement, we (or our subsidiary) contract directly with the customer to provide operations and maintenance services for the Energy Servers. We have established a subsidiary in the Republic of Korea, Bloom Energy Korea, LLC, to which we subcontract such operations and maintenance services. The terms of the operations and maintenance are negotiated on a case-by-case basis with each customer, but are generally expected to provide the customer with the option to receive services for at least 10 years, and for up to the life of the Energy Servers, with terms specified below.Servers.
SK E&Cecoplant Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK E&Cecoplant to establish a light-assembly facility in Souththe Republic of Korea for sales of certain portions of the Bloomour Energy Server for the stationary utility and commercial and industrial market in Souththe Republic of Korea. The joint venture is majority controlled and managed by us. We expectus, with the facility, to bewhich became operational by mid-2020 subject to the completion of certain conditions precedent to the establishment of the joint venture company.in July 2020. Other than a nominal initial capital contribution by Bloom Energy, the joint venture will be funded by SK E&C.ecoplant. SK E&C,ecoplant, who currently acts as a distributor for Bloomour Energy Servers for the stationary utility and commercial and industrial market in the Republic of Korea, will be theis our primary customer for the products assembled by the joint venture. In October 2021, as part of our expanded strategic partnership with SK ecoplant, the parties agreed to amend the JVA, which increases the scope of the assembly work done in the joint venture facility.
Community Distributed Generation Programs
In July 2015, the state of New York introduced its Community Distributed Generation ("CDG") program, which extends New York’s net metering program in order to allow utility customers to receive net metering credits for electricity generated by distributed generation assets located on the utility’s grid but not physically connected to the customer’s facility. This program allows for the use of multiple generation technologies, including fuel cells. Since then other states have instituted similar programs and we expect that other states may do so as well in the future. In June 2020, the New York Public Service Commission issued an Order that limited the CDG compensation structure for “high capacity factor resources,” including fuel cells, in a way that will make the economics for these types of projects more challenging in the future. However, projects already under contract were grandfathered into the program under the previous compensation structure.
In December 2019, weWe have entered into fuel cell sales, installation, operations and maintenance agreements with twothree developers for the deployment of fuel cells pursuant to this Community Distributed Generation program. These agreements have many of the same terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery of the Energy Server, and upon acceptance of the Energy Server. Acceptance typically occurs when the Energy Server is installed and running at full power as defined in each contract. A one-year service warranty is provided with the initial sale. After the expiration of the initial standard one-year warranty, the owner has the option to renew our operations and maintenance services for subsequent quarterly or annual periods for up to 30 years. We provide warranties and guaranties regarding both efficiency and output to the owners of the Energy Servers pursuant to the operations and maintenance services agreement with the Operating Company.
New York CDG program for a total of 441 systems. As of December 31, 2021, we have recognized revenue associated with 271 systems. We continue to believe that these types of subscriber-based programs could be a source of future revenue and will continue to look to generate sales through these programs in the future.
Comparison of the Years Ended December 31, 2021 and 2020
A discussion regarding our results of operations for 2021 compared to 2020 is presented in this section. A discussion of 2020 to 2019 we had not yet completedcan be found under Item 7 of Part II of our Annual Report on Form 10-K for the saleyear ended December 31, 2020, which is available free of any Energy Servers in connection withcharge on the New York Community Distributed Generation program.
SEC’s website at www.sec.gov and the Investor section of our website at www.bloomenergy.com. Key Operating Metrics
In addition to the measures presented in the consolidated financial statements, we use the followingcertain key operating metrics below to evaluate business activity, to measure performance, to develop financial forecasts and to make strategic decisions:
•Product accepted - the number of customer acceptances of our Energy Servers in any period. We recognize revenue when an acceptance is achieved. We use this metric to measure the volume of deployment activity. We measure each Energy Server manufactured, shipped and accepted in terms of 100 kilowatt equivalents.
Billings for product accepted in the period - the total contracted dollar amount of the product component of all Energy Servers that are accepted in a period. We use this metric to gauge the dollar value of the product acceptances and to evaluate the change in dollar amount of acceptances between periods.
Billings for installation on product accepted in the period - the total contracted dollar amount billable with respect to the installation component of all Energy Servers that are accepted. We use this metric to gauge the dollar value of the installations of our product acceptances and to evaluate the change in dollar value associated with the installation of our product acceptances between periods.
Billings for annual maintenance service agreements - the dollar amount billable for one-year service contracts that have been initiated or renewed. We use this metric to measure the cumulative billings for all service contracts in any given period. As our installation base grows, we expect our billings for annual maintenance service agreements to grow, as well.
•Product costs of product accepted in the period (per kilowatt) - the average unit product cost for the Energy Servers that are accepted in a period. We use this metric to provide insight into the trajectory of product costs and, in particular, the effectiveness of cost reduction activities.
•Period costs of manufacturing expenses not included in product costs - the manufacturing and related operating costs that are incurred to procure parts and manufacture Energy Servers that are not included as part of product costs. We use this metric to measure any costs incurred to run our manufacturing operations that are not capitalized (i.e.,
absorbed, such as stock-based compensation) into inventory and therefore, expensed to our consolidated statement of operations in the period that they are incurred.
Installation•Installation costs on product accepted (per kilowatt) - the average unit installation cost for Energy Servers that are accepted in a given period. This metric is used to provide insight into the trajectory of install costs and, in particular, to evaluate whether our installation costs are in line with our installation billings.
ComparisonWe no longer consider billings related to our products to be a key operating metric. Billings as a metric was introduced to provide insight into our customer contract billings as differentiated from revenue when a significant portion of those customer contracts had product and installation billings recognized as electricity revenue over the term of the Years Ended December 31, 2019, 2018contract instead of at the time of delivery or acceptance. Today, a very small portion of our customer contracts has revenue recognized over the term of the contract, and 2017
A discussion regarding our key operating metricsthus it is no longer a meaningful metric for fiscal 2019 compared to fiscal 2018 and fiscal 2018 compared to fiscal 2017 is presented below.us.
Acceptances
We use acceptances as a key operating metric to measure the volume of our completed Energy Server installation activity from period to period. WeAcceptance typically define an acceptance as when an Energy Serveroccurs upon transfer of control to our customers, which depending on the contract terms is installed and running at full power as defined in the customer contract or the financing agreements. For orders where a third party performs the installation, acceptances are generally achieved when the Energy Servers are shipped.system is shipped and delivered to our customer, when the system is shipped and delivered and is physically ready for startup and commissioning, or when the system is shipped and delivered and is turned on and producing power.
The product acceptances in the periodsyears ended December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | | | | | | | |
Product accepted during the period
(in 100 kilowatt systems) | | | | | | | | | | 1,879 | | | 1,326 | | | 553 | | | 41.7 | % |
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
Product accepted during the period (in 100 kilowatt systems) | | 1,194 |
| | 809 |
| | 385 |
| | 47.6 | % |
Product accepted for the year ended December 31, 2021 compared to the same period in 2020 increased by approximately 385553 systems, or 47.6%41.7%, for 2019 compared to 2018. Acceptance volume increased as we installed more systems from backlog as demand increased for our Bloom Energy servers, in addition to enhancing our ability and capacity to install more energy servers with our installation team.
As discussedServers in the PurchaseRepublic of Korea and Lease Programs above, ourthe utility sector where we accepted 196 systems as part of the CDG program.
Our customers have several purchase options for our Energy Servers. The portion of acceptances attributable to each purchase option in the years ended December 31, 20192021 and 20182020 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended
December 31, | | |
| | | | | | | 2021 | | 2020 | | |
| | | | | | | | | | | |
| Direct Purchase (including Third-Party PPAs and International Channels) | | | | | | 96 | % | | 96 | % | | |
| | | | | | | | | | |
| Managed Services | | | | | | 4 | % | | 4 | % | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | 100 | % | | 100 | % | | |
|
| | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 |
| | | | | |
| Direct Purchase (including Third Party PPAs and International Channels) | | 93 | % | | 89 | % |
| Traditional Lease | | — | % | | 1 | % |
| Managed Services | | 7 | % | | 10 | % |
| | | 100 | % | | 100 | % |
As discussed in the Purchase and Lease Programs above, our customers have several purchase options for our Energy Servers. The portion of total revenue attributable to each purchase option in the periodyears ended December 31, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | Years Ended
December 31, |
| | | | | | | 2021 | | 2020 |
| | | | | | | | | |
| Direct Purchase (including Third-Party PPAs and International Channels) | | | | | | 84 | % | | 88 | % |
| Traditional Lease | | | | | | 1 | % | | 1 | % |
| Managed Services | | | | | | 10 | % | | 5 | % |
| | | | | | | | |
| Portfolio Financings | | | | | | 5 | % | | 6 | % |
| | | | | | 100 | % | | 100 | % |
|
| | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 |
| | | | | |
| Direct Purchase (including Third Party PPAs and International Channels) | | 85 | % | | 79 | % |
| Traditional Lease | | 1 | % | | 2 | % |
| Managed Services | | 5 | % | | 5 | % |
| Bloom Electrons | | 9 | % | | 14 | % |
| | | 100 | % | | 100 | % |
Billings Related to Our Products
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Billings for product accepted in the period | | $ | 681,034 |
| | $ | 458,290 |
| | $ | 222,744 |
| | 48.6 | % |
| Billings for installation on product accepted in the period | | 61,270 |
| | 78,927 |
| | (17,657 | ) | | (22.4 | )% |
| Billings for annual maintenance services agreements | | 76,852 |
| | 82,881 |
| | (6,029 | ) | | (7.3 | )% |
Billings for product accepted increased by approximately $222.7 million, or 48.6%, for 2019 compared to 2018. The increase was primarily driven by the increase in product accepted, including billings for product accepted under Managed Services agreements. Product accepted increased by approximately 385 systems, or 47.6%, for 2019 compared to 2018. Billings for installation on product accepted decreased $17.7 million for 2019, as compared to 2018. Although product acceptances in the period increased 48.6%, billings for installation on product accepted decreased due to the change in mix in installation billings driven by international sales, where our partners perform the installation, as well as site complexity, site size, customer financing option, and customer option to complete the installation of our Energy Servers themselves. In general, when we do not perform the installation function for a customer, such as SK E&C in the Republic of Korea, we will not have any installation billings for those orders. Billings for annual maintenance service agreements decreased $6.0 million for 2019 compared to 2018. This decrease was driven primarily by the relatively high number of PPA upgrades performed in 2019. When an upgrade occurs, new systems are installed and there are typically no billings for service during the first year after the upgrade as the first year period is covered under our standard warranty.
Costs Related to Our Products
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| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
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| Product costs of product accepted in the period | | $2,881/kW | | $3,372/kW | | $(491)/kW | | (14.6 | )% |
| Period costs of manufacturing related expenses not included in product costs (in thousands) | | $16,989 | | $24,294 | | $(7,305) | | (30.1 | )% |
| Installation costs on product accepted in the period | | $644/kW | | $1,189/kW | | $(545)/kW | | (45.8 | )% |
Product costs of product accepted decreased by approximately $491 per kilowatt, or 14.6%, for 2019 compared to 2018. The product cost reduction was driven generally by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through improved processes and automation at our manufacturing facilities.
Period costs of manufacturing related expenses decreased by approximately $7.3 million, or 30.1%, for 2019 compared to 2018. Our period costs of manufacturing related expenses decreased primarily as a result of higher absorption of fixed manufacturing costs into product costs due to a larger volume of builds through our factory tied to our acceptance growth, which resulted in higher factory utilization.
Installation costs on product accepted decreased by approximately $545 per kilowatt, or 45.8%, for 2019 compared to 2018. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, etc. As such, installation on a per kW basis can vary significantly from period-to-period. When we achieve international acceptances, our partners are responsible for the installation, and therefore we do not incur installation costs. When we achieve acceptances for upgrading customer sites to our latest technology, installation costs are minimal as most of the installation work and costs were incurred when the site was initially installed. The mix of international acceptances, the PPA II upgrade and the PPA IIIb upgrade of Energy Servers contributed to the lower installation cost for 2019 compared to 2018.
Comparison of the Years Ended December 31, 2018 and 2017
Acceptances
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December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
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Product accepted during the period
(in 100 kilowatt systems) | | 809 |
| | 622 |
| | 187 |
| | 30.1 | % |
Product accepted increased by approximately 187 systems, or 30.1%, for 2018 compared to 2017. Acceptance volume increased as we installed more systems from backlog as demand increased for our Bloom Energy servers, in addition to enhancing our ability and capacity to install more energy servers with our installation team.
As discussed in the Purchase and Lease Programs above, our customers have several purchase options for our Energy Servers. The portion of acceptances attributable to each purchase option in the period was as follows: |
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| | | Years Ended
December 31, |
| | | 2018 | | 2017 |
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| Direct Purchase (including Third Party PPAs and International Channels) | | 89 | % | | 72 | % |
| Traditional Lease | | 1 | % | | 6 | % |
| Managed Services | | 10 | % | | 22 | % |
| | | 100 | % | | 100 | % |
The portion of total revenue attributable to each purchase option in the period was as follows:
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| | | Years Ended December 31, |
| | | 2018 | | 2017 |
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| Direct Purchase (including Third Party PPAs and International Channels) | | 79 | % | | 63 | % |
| Traditional Lease | | 2 | % | | 7 | % |
| Managed Services | | 5 | % | | 6 | % |
| Bloom Electrons | | 14 | % | | 24 | % |
| | | 100 | % | | 100 | % |
Billings Related to Our Products
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| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
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| Billings for product accepted in the period | | $ | 458,290 |
| | $ | 248,102 |
| | $ | 210,188 |
| | 84.7 | % |
| Billings for installation on product accepted in the period | | 78,927 |
| | 96,452 |
| | (17,525 | ) | | (18.2 | )% |
| Billings for annual maintenance services agreements | | 82,881 |
| | 79,881 |
| | 3,000 |
| | 3.8 | % |
Billings for product accepted increased by approximately $210.2 million, or 84.7%, for 2018 as compared to 2017. The increase was primarily due to three factors.
First, product accepted increased by approximately 187 systems, or 30.1%, for 2018 compared to 2017.
Second, ITC was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, so our billings for product accepted for 2017 only included $1.3 million in benefit from ITC. Due to the reinstatement of ITC in 2018, billings for product accepted now includes the benefit of ITC. For 2018, billings for product accepted included $132.9 million in benefits from ITC, of which $45.1 million was retroactive ITC for 2017 acceptances.
Third, the adoption of customer personalized applications, such as batteries and grid-independent solutions, increased in 2018 compared to 2017. Products that incorporate these personalized applications have, on average, a higher billings rate than our standard platform products that do not incorporate these personalized applications.
Billings for installation on product accepted decreased $17.5 million for 2018, as compared to 2017. Although product acceptances in the period increased 30.1%, billings for installation on product accepted decreased due to the mix in installation billings driven by site complexity, size, customer purchase option and one large customer in particular in 2018 where the installation was performed by the customer and therefore, we did not have any installation billing for that customer. In general, when we do not perform the installation function for a customer, such as SK E&C in the Republic of Korea, we will not have any installation billings for those orders.
When we analyze changes between the years ended 2018 and 2017, we take into account the impact of ITC that was available in 2018 as a result of the reinstatement of the ITC through December 2021. The effect of the reinstatement of ITC was higher billings in the periods eligible for ITC. For 2018, the combined total for billings for product and installation accepted was $537.2 million, an increase of 55.9% from the billings for product and installation accepted combined of $344.6 million for 2017. The increase was significantly greater than the 30.1% increase in associated acceptances during the same periods due to the reinstatement of the ITC benefit, including the one-time fiscal 2017 retroactive ITC benefit recognized in 2018 that is included in the 2018 billings numbers.
Costs Related to Our Products
Total product related costs for the years ended December 31, 2021 and 2020 was as follows: | | | | | Years Ended
December 31, | | Change | | | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % | | | 2021 | | 2020 | | Amount | | % |
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| Product costs of product accepted in the period | | $3,372/kW | | $3,292/kW | | $80/kW | | 2.4 | % | Product costs of product accepted in the period | | | $2,319/kW | | $2,368 /kW | | $(49)/kW | | (2.1) | % |
| Period costs of manufacturing related expenses not included in product costs (in thousands) | | $24,294 | | $32,437 | | $(8,143) | | (25.1 | )% | Period costs of manufacturing related expenses not included in product costs (in thousands) | | | $ | 22,794 | | | $ | 19,573 | | | $ | 3,221 | | | 16.5 | % |
| Installation costs on product accepted in the period | | $1,189/kW | | $1,271/kW | | $(82)/kW | | (6.5 | )% | Installation costs on product accepted in the period | | | $561/kW | | $900/kW | | $(339)/kW | | (37.7) | % |
Product costs of product accepted increasedfor the year ended December 31, 2021 compared to the same period in 2020 decreased by approximately $80$49 per kilowatt or 2.4%, for 2018 compareddriven generally by our ongoing cost reduction efforts to 2017.reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. This increasedecrease was partially offset by increases in cost is primarily related to the reinstatement of the ITC program in February 2018, in which we were required to repay certain suppliers for previously negotiated contractual discounts. This resulted in a one-time payment of $116 per kilowatt or $9.4 million, which was recorded to cost of product revenue.freight and other supply chain-related pricing pressures.
Period costs of manufacturing related expenses decreasedfor the year ended December 31, 2021 compared to the same period in 2020 increased by approximately $8.1$3.2 million or 25.1%, for 2018 as compared to 2017. Our period costs of manufacturing related expenses decreased primarily as a result of higher absorption of fixed manufacturing costs into product costs due to a larger volume of builds through our factory tied to our acceptance growth, which resulteddriven by increases in higher factory utilization.freight charges and other supply chain-related pricing pressures.
Installation costs on product accepted for the year ended December 31, 2021 compared to the same period in 2020 decreased by approximately $82$339 per kilowatt, or 6.5%, for 2018 compared to 2017. Each customerkilowatt. For the year ended December 31, 2021, the decrease in install cost was driven by site is different andmix as many of the acceptances did not have installation, costs can vary due to a number of factors, including site complexity, size, location of gas, etc. As such,either because the installation on a per kW basis can vary significantly from period-to-period. In addition, some customers do their own installation, or, as is the case for SK E&Cwas done by our distribution channel partner in the Republic of Korea orders,or the final installation associated with a specific customer was scheduled to be completed at a later date although the Energy Servers were delivered and accepted during the period.
Results of Operations
A discussion regarding the comparison of our financial condition and results of operations for the years ended December 31, 2021 and 2020is presented below.
Revenue
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | (dollars in thousands) | | |
| Product | | | | | | | | | | $ | 663,512 | | $ | 518,633 | | $ | 144,879 | | 27.9 | % |
| Installation | | | | | | | | | | 96,059 | | 101,887 | | (5,828) | | (5.7) | % |
| Service | | | | | | | | | | 144,184 | | 109,633 | | 34,551 | | 31.5 | % |
| Electricity | | | | | | | | | | 68,421 | | 64,094 | | 4,327 | | 6.8 | % |
| Total revenue | | | | | | | | | | $ | 972,176 | | $ | 794,247 | | $ | 177,929 | | 22.4 | % |
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Total Revenue
Total revenue increased by $177.9 million, or 22.4%, for the year ended December 31, 2021 as compared to the prior year period. This increase was primarily driven by a $144.9 million increase in product revenue and a $34.6 million increase in service revenue partially offset by price reductions to expand our addressable market and $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the year ended December 31, 2020.
Product Revenue
Product revenue increased by $144.9 million, or 27.9%, for the year ended December 31, 2021 as compared to the prior year period. The product revenue increase was driven primarily by a 41.7% increase in product acceptances as a result of expansion in existing markets and in our CDG program partially offset by price reductions to expand our addressable market and a $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the year ended December 31, 2020.
Installation Revenue
Installation revenue decreased by $5.8 million, or (5.7)%, for the year ended December 31, 2021 as compared to the prior year period. This decrease in installation revenue was driven by site mix as many of the acceptances did not have installation, either because the installation was done by our distribution channel partner in the Republic of Korea or the final installation associated with a specific customer was scheduled to be completed at a later date although the Energy Servers were delivered and accepted during the period. We expect our installation revenue to continue to decline as percentage of total revenue as we ramp up shipments to SK ecoplant under PDA Restatement.
Service Revenue
Service revenue increased by $34.6 million, or 31.5%, for the year ended December 31, 2021 as compared to the prior year period. This increase was primarily due to the continued growth of our installation base driven by both an increase in new acceptances and renewal of existing service contracts. We expect our service revenue growth at a similar rate as we continue to expand our install base.
Electricity Revenue
Electricity revenue increased by $4.3 million, or 6.8%, for the year ended December 31, 2021 as compared to the prior year period due to the increase in Managed Services Financings.
Cost of Revenue
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | (dollars in thousands) | | |
| Product | | | | | | | | | | $ | 471,654 | | | $ | 332,724 | | | $ | 138,930 | | | 41.8 | % |
| Installation | | | | | | | | | | 110,214 | | | 116,542 | | | (6,328) | | | (5.4) | % |
| Service | | | | | | | | | | 148,286 | | | 132,329 | | | 15,957 | | | 12.1 | % |
| Electricity | | | | | | | | | | 44,441 | | | 46,859 | | | (2,418) | | | (5.2) | % |
| Total cost of revenue | | | | | | | | | | $ | 774,595 | | | $ | 628,454 | | | $ | 146,141 | | | 23.3 | % |
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Total Cost of Revenue
Total cost of revenue increased by $146.1 million, or 23.3%, for the year ended December 31, 2021 as compared to the prior year period primarily driven by a $138.9 million increase in cost of product revenue, $16.0 million increase in cost of service revenue, increased freight charges and other supply chain-related pricing pressures. This increase was partially offset by a $6.3 million decrease in cost of installation revenue and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities.
Cost of Product Revenue
Cost of product revenue increased by $138.9 million, or 41.8%, for the year ended December 31, 2021 as compared to the prior year period. The cost of product revenue increase was driven primarily by a 41.7% increase in product acceptances, increased freight charges and other supply chain-related pricing pressures. This increase was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities.
Cost of Installation Revenue
Cost of installation revenue decreased by $6.3 million, or (5.4)%, for the year ended December 31, 2021 as compared to the prior year period. This decrease, similar to the $5.8 million decrease in installation revenue, was driven by site mix as many of the acceptances did not have installation in the year ended December 31, 2021.
Cost of Service Revenue
Cost of service revenue increased by $16.0 million, or 12.1%, for the year ended December 31, 2021 as compared to the prior year period. This increase was primarily due to the 41.7% increase in acceptances plus the maintenance contract renewals associated with the increase in our fleet of Energy Servers, partially offset by the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Cost of Electricity Revenue
Cost of electricity revenue decreased by $2.4 million, or (5.2)%, for the year ended December 31, 2021 as compared to the prior year period, primarily due to the $1.2 million change in the fair value of the natural gas fixed price forward contract and lower property tax expenses partially offset by the increase in Managed Services Financings.
Gross Profit and Gross Margin
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | 2021 | | 2020 | |
| | | | | | | | (dollars in thousands) |
| Gross profit: | | | | | | | | | | | | |
| Product | | | | | | | | $ | 191,858 | | $ | 185,909 | | $ | 5,949 |
| Installation | | | | | | | | (14,155) | | (14,655) | | 500 |
| Service | | | | | | | | (4,102) | | (22,696) | | 18,594 |
| Electricity | | | | | | | | 23,980 | | 17,235 | | 6,745 |
| Total gross profit | | | | | | | | $ | 197,581 | | $ | 165,793 | | $ | 31,788 |
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| Gross margin: | | | | | | | | | | | | |
| Product | | | | | | | | 29 | % | | 36 | % | | |
| Installation | | | | | | | | (15) | % | | (14) | % | | |
| Service | | | | | | | | (3) | % | | (21) | % | | |
| Electricity | | | | | | | | 35 | % | | 27 | % | | |
| Total gross margin | | | | | | | | 20 | % | | 21 | % | | |
Total Gross Profit
Gross profit increased by $31.8 million in the year ended December 31, 2021 as compared to the prior year period primarily driven by the 41.7% increase in acceptances and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. This increase was partially offset by price reductions to expand our addressable market and $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the year ended December 31, 2020 without a corresponding increase in costs, increased freight charges and other supply chain-related pricing pressures.
Product Gross Profit
Product gross profit increased by $5.9 million in the year ended December 31, 2021 as compared to the prior year period. The improvement is driven by a 41.7% increase in product acceptances and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. This increase was partially offset by price reductions to expand our addressable market and $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the year ended December 30, 2020, increased freight charges and other supply chain-related pricing pressures.
Installation Gross Loss
Installation gross loss decreased by $0.5 million in the year ended December 31, 2021 as compared to the prior year period driven by the site mix, as many of the acceptances did not have installation in the current time period, and other site related factors such as site complexity, size, local ordinance requirements and location of the utility interconnect.
Service Gross Profit (Loss)
Service gross loss improved by $18.6 million in the year ended December 31, 2021 as compared to the prior year period. This was primarily due to the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Electricity Gross Profit
Electricity gross profit increased by $6.7 million in the year ended December 31, 2021 as compared to the prior year period mainly due to the $1.2 million change in the fair value of the natural gas fixed price forward contract and lower property tax expenses.
Operating Expenses
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December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
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| Research and development | | | | | | | | | | $ | 103,396 | | | $ | 83,577 | | | $ | 19,819 | | | 23.7 | % |
| Sales and marketing | | | | | | | | | | 86,499 | | | 55,916 | | | 30,583 | | | 54.7 | % |
| General and administrative | | | | | | | | | | 122,188 | | | 107,085 | | | 15,103 | | | 14.1 | % |
| Total operating expenses | | | | | | | | | | $ | 312,083 | | | $ | 246,578 | | | $ | 65,505 | | | 26.6 | % |
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Total Operating Expenses
Total operating expenses increased by $65.5 million in the year ended December 31, 2021 as compared to the prior year period. This increase was primarily attributable to our investment in business development and front-end sales both in the United States and internationally, investment in brand and product management, and our continued investment in our R&D capabilities to support our technology roadmap.
Research and Development
Research and development expenses increased by $19.8 million in the year ended December 31, 2021 as compared to the prior year period as we began shifting our investments from sustaining engineering projects for the current Energy Server platform, to continued development of the next generation platform and to support our technology roadmap, including our hydrogen, electrolyzer, carbon capture, marine and biogas solutions.
Sales and Marketing
Sales and marketing expenses increased by $30.6 million in the year ended December 31, 2021 as compared to the prior year period. This increase was primarily driven by the efforts to expand our U.S. and international sales force, as well as increased investment in brand and product management.
General and Administrative
General and administrative expenses increased by $15.1 million in the year ended December 31, 2021 as compared to the prior year period. This increase was primarily driven by increases in outside services and consulting expense, payroll expense and facilities expense to ensure our infrastructure and control environment is ready to scale for growth, partially offset by lower legal expense.
Stock-Based Compensation
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December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
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| Cost of revenue | | | | | | | | | | $ | 13,811 | | | $ | 17,475 | | | $ | (3,664) | | | (21.0) | % |
| Research and development | | | | | | | | | | 20,274 | | | 19,037 | | | 1,237 | | | 6.5 | % |
| Sales and marketing | | | | | | | | | | 17,085 | | | 10,997 | | | 6,088 | | | 55.4 | % |
| General and administrative | | | | | | | | | | 24,962 | | | 26,384 | | | (1,422) | | | (5.4) | % |
| Total stock-based compensation | | | | | | | | | | $ | 76,132 | | | $ | 73,893 | | | $ | 2,239 | | | 3.0 | % |
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Total stock-based compensation for the year ended December 31, 2021 compared to the prior year period increased by $2.2 million primarily driven by the efforts to expand our U.S. and international sales force, as well as investment to build our brand and product management teams.
Other Income and Expense
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December 31, | | Change |
| | | | | | | | 2021 | | 2020 | |
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| Interest income | | | | | | | | $ | 262 | | | $ | 1,475 | | | $ | (1,213) | |
| Interest expense | | | | | | | | (69,025) | | | (76,276) | | | 7,251 | |
| Interest expense - related parties | | | | | | | | — | | | (2,513) | | | 2,513 | |
| Other income (expense), net | | | | | | | | (8,139) | | | (8,318) | | | 179 | |
| Loss on extinguishment of debt | | | | | | | | — | | | (12,878) | | | 12,878 | |
| Gain (loss) on revaluation of embedded derivatives | | | | | | | | (919) | | | 464 | | | (1,383) | |
| Total | | | | | | | | $ | (77,821) | | | $ | (98,046) | | | $ | 20,225 | |
Interest Income
Interest income is derived from investment earnings on our cash balances primarily from money market funds.
Interest income for the year ended December 31, 2021 as compared to the prior year period decreased by $1.2 million primarily due to the decrease in the rates of interest earned on our cash balances.
Interest Expense
Interest expense is from our debt held by third parties. Interest expense for the year ended December 31, 2021 as compared to the prior year period decreased by $7.3 million. This decrease was primarily due to lower interest expense as a result of refinancing our notes at a lower interest rate, and the elimination of the amortization of the debt discount associated with notes that have been converted to equity, partially offset by $0.6 million related to an interest rate swap settlement.
Interest Expense - Related Parties
Interest expense - related parties is from our debt held by related parties. Interest expense - related parties for the year ended December 31, 2021 as compared to the prior year period decreased by $2.5 million due to the conversion of all of our notes held by related parties during 2020.
Other Expense, net
Other expense, net, is primarily derived from investments in joint ventures, plus the impact of foreign currency translation. Other expense, net for the year ended December 31, 2021 as compared to the prior year period decreased by $0.2 million due to a $2.0 million gain recorded on fair value remeasurement of our equity investment in the Bloom Energy Japan joint venture in connection with the acquisition thereof plus the prior year's $3.9 million write-off of our investment in the Bloom Energy Japan joint venture.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the year ended December 31, 2021 as compared to the prior year period improved by $12.9 million resulting from our debt restructuring and debt extinguishment in the prior year period. There were no comparable debt restructuring activities in the current year's period.
Gain (Loss) on Revaluation of Embedded Derivatives
Gain (loss) on revaluation of embedded derivatives is derived from the change in fair value of our sales contracts of embedded EPP derivatives valued using historical grid prices and available forecasts of future electricity prices to estimate future electricity prices.
Gain (loss) on revaluation of embedded derivatives for the year ended December 31, 2021 as compared to the prior year period worsened by $1.4 million due to the change in fair value of our embedded EPP derivatives in our sales contracts.
Provision for Income Taxes
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | (dollars in thousands) |
| Income tax provision | | | | | | | | | | $ | 1,046 | | | $ | 256 | | | $ | 790 | | | 308.6 | % |
Income tax provision consists primarily of income taxes in foreign jurisdictions in which we conduct business. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss and certain tax credit carryforwards.
Income tax provision increased for the year ended December 31, 2021 as compared to the prior year period was primarily due to fluctuations in the effective tax rates on income earned by international entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | (dollars in thousands) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | | | | | | | | | $ | (28,924) | | | $ | (21,534) | | | $ | (7,390) | | | (34.3) | % |
Net loss attributable to noncontrolling interests is the result of allocating profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities.
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests for the year ended December 31, 2021 as compared to the prior year period changed by $7.4 million due to increased losses in our PPA Entities, which are allocated to our noncontrolling interests.
Liquidity and Capital Resources
As of December 31, 2021, we had cash and cash equivalents of $396.0 million. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with high credit quality counterparties, continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk.
In October 2021, we entered into a Securities Purchase Agreement with SK ecoplant Co., Ltd. in connection with a strategic partnership. On December 29, 2021, we consummated the transactions related to the First Closing by issuing and selling to SK ecoplant 10,000,000 shares of RCPS, at a purchase price of $25.50 per share or an aggregate purchase price of $255 million. In November 2021, PPA V entered into a $136 million term loan, which replaces the LIBOR + 2.5% Term Loan due December 2021.
As of December 31, 2021, we had $291.8 million of total outstanding recourse debt, $234.9 million of non-recourse debt and $16.8 million of other long-term liabilities. For a complete description of our outstanding debt, please see Note 7 - Outstanding Loans and Security Agreements in Part II, Item 8, Financial Statements and Supplementary Data. The combination of our existing cash and cash equivalents is expected to be sufficient to meet our anticipated cash flow needs for the next 12 months and thereafter for the foreseeable future. If these sources of cash are insufficient to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, in particular, our manufacturing capacity, product development and market expansion requirements, to timely respond to competitive market pressures or strategic opportunities, or otherwise. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.
Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our Energy Servers, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through an equity or debt financing. Failure to obtain this financing or financing in future quarters will affect our results of operations, including revenue and cash flows.
As of December 31, 2021, the current portion of our total debt is $25.8 million, of which $17.5 million is outstanding non-recourse debt. We expect a certain portion of the non-recourse debt would be refinanced by the applicable PPA Entity prior to maturity.
A summary of our consolidated sources and uses of cash, cash equivalents and restricted cash was as follows (in thousands):
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| | | Years Ended
December 31, | | | | |
| | | 2021 | | 2020 | | | | | |
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| Net cash provided by (used in): | | | | | | | | | | |
| Operating activities | | $ | (60,681) | | | $ | (98,796) | | | | | | | |
| Investing activities | | (46,696) | | | (37,913) | | | | | | | |
| Financing activities | | 306,375 | | | 176,031 | | | | | | | |
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Net cash provided by (used in) our PPA Entities, which are incorporated into the consolidated statements of cash flows, was as follows (in thousands):
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| | | Years Ended
December 31, | | | | |
| | | 2021 | | 2020 | | | | | |
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| PPA Entities ¹ | | | | | | | | |
| Net cash provided by PPA operating activities | | $ | 3,188 | | | $ | 26,039 | | | | | | | |
| Net cash provided by (used in) PPA financing activities | | 3,231 | | | (23,784) | | | | | | | |
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1 The PPA Entities' operating and financing cash flows are a subset of our consolidated cash flows and represent the stand-alone cash flows prepared in accordance with U.S. GAAP. Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase of Energy Servers from us and principal reductions in loan balances. Financing activities consist primarily of changes in debt carried by our PPAs, and payments from and distributions to noncontrolling partnership interests. We believe this presentation of net cash provided by (used in) PPA activities is useful to provide the reader with the impact to consolidated cash flows of the PPA Entities in which we have only a partner who performsminority interest.
Operating Activities
Our operating activities have consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. The increase in cash used in operating activities during the installation. In those instances,year ended December 31, 2021 as compared to the prior year period was primarily the result of an increase in our net working capital of $18.8 million in the year ended December 31, 2021 due to the timing of revenue transactions and corresponding collections and the increase in inventory levels to support future demand.
Investing Activities
Our investing activities have consisted of capital expenditures that include investment to increase our production capacity. We expect to continue such activities as our business grows. Cash used in investing activities of $46.7 million during the year ended December 31, 2021 was primarily the result of expenditures on tenant improvements for a newly leased engineering building in Fremont, California. We expect to continue to make capital expenditures over the next few quarters to prepare our new manufacturing facility in Fremont, California for production, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital expenditures from cash on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures.
Financing Activities
Historically, our financing activities have consisted of borrowings and repayments of debt including to related parties, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests and redeemable noncontrolling interests, and the proceeds from the issuance of our common stock. Net cash provided by financing activities during the year ended December 31, 2021 was $306.4 million, an increase of $130.3 million compared to the prior year period, primarily due to the issuance of RCPS to SK ecoplant in December 2021, combined with proceeds in 2021 from stock option exercises and the sale of shares under our 2018 Employee Stock Purchase Plan.
Off-Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities and results of operations of our PPA Entities that we have little toentered into and over which we have substantial control. For additional information, see Note 13 -Portfolio Financingsin Part II, Item 8, Financial Statements and Supplementary Data. We have not entered into any other transactions that have generated relationships with unconsolidated entities or financial partnerships or special purpose entities. Accordingly, as of December 31, 2021 and 2020 we had no installation cost.off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S. GAAP") The preparation of the consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations belowOperations above are based on our audited results of operations, which we have prepared in accordance with U.S. GAAP. In preparing these consolidated financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are representative of estimation uncertainty, and are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating the consolidated financial condition and results of operations.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, include:
Discussion of Earliest Year of Changes in Financial Condition and Results of Operations
We include discussion of the earliest year of changes in financial condition and results of operations, as deemed appropriate, even when such information has been previously disclosed in our prior EDGAR filings. We consider the total mix of available information, including the impact of any recastable events when determining whether to omit discussion of the earliest year and the most appropriate form of presentation. We determine to limit the discussion to the information that has changed or has been determined to be significant to our operations or financial condition.
Revenue Recognition
We primarily earn product and installation revenue from the sale and installation of our Energy Servers, service revenue by providing services under operations and maintenance services contracts and electricity revenue by selling electricity to customers under power purchase agreements. We offer our customers several ways to finance their use of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose to purchase our Energy Servers outright. Customers may also lease our Energy Servers through one of our financing partners via our Managed Services Program or as a traditional lease. Finally, customers may purchase electricity through our Power Purchase Agreement Programs.
Prior to Adoption of ASCapply Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers
Prior. We identify our contracts with Customers, determine our performance obligations and the transaction price, and after allocating the transaction price to the adoptionperformance obligations, we recognize revenue as we satisfy our performance obligations and transfer control of ASC 606 Revenue from Contractsour products and services to our customers. Most of our contracts with Customers,customers contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we recognizedallocate the total transaction price to each performance obligation based on the relative standalone selling price.
We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance which typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system is shipped and delivered to our customers, when the system is shipped and delivered and is physically ready for start up and commissioning, or when the sales of products,system is shipped and delivered and is turned on and producing power.
We recognize installation revenue when the system has been installed and services in accordance with ASC 605-25, Revenue Recognition for Multiple-Element Arrangements.
Revenue from the sale and installation of Energy Servers was recognized when all of the following criteria are met:
Persuasive evidence of an arrangement exists. We rely upon non-cancelable sales agreements and purchase orders to determine the existence of an arrangement.
Delivery and acceptance has occurred. We use shipping documents and confirmation from our installations team that the deployed systems areis running at full power as defined in each contract to verify delivery and acceptance.power.
The feeService revenue is fixed or determinable. We assess whetherrecognized ratably over the fee is fixed or determinable based on the payment terms associated with the transaction.
Collectability is reasonably assured. We assess collectability based on the customer’s credit analysis and payment history.
When these criteria are met, we allocate revenue to each elementterm of the customer arrangement (product, installation and services) based on an estimated sellingfirst or renewed one-year service period. Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price atmay be less than the arrangement inception. The estimated selling price for each element is based upon the following hierarchy: vendor-specific objective evidence ("VSOE") of selling price, if available; third-party evidence ("TPE") of selling price, if VSOE of selling price is not available; or best estimate of selling price ("BESP") if neither VSOE of selling price nor TPE of selling price are available. We limit the amount of revenue recognized for delivered elements to an amount that is not contingent upon future delivery of additional products or services or upon meeting any specified performance conditions.
We have not been able to obtain reliable evidence of thestandalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right. We estimate the standalone Energy Server. selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, we have no evidence ofstandalone selling prices for either and virtually no customers have electedare estimated using a cost-plus approach. Costs relating to cancel their maintenance service agreements while continuing to operate the Energy Servers. Our objective is to determine the price at which we would transact business if the items were being sold separately. As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and installation based on
their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred during the expected service period.
Costs for Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. Costs relating to expected installation costsinclude all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to determine the selling price to be used in our BESP model.installation. Costs for
maintenance service arrangements are estimated over the expected life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the expected period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations.expectations and comparable historical industry service margins. As a result, our business offerings and eligibility for the Investment Tax Credit ("ITC") evolve over time, we may be required to modifyestimate of our estimated selling prices in subsequent periods andprice is driven primarily by our revenue could be adversely affected.
Subsequent to adoption of ASC 606 Revenue from Contracts with Customers
We adopted ASC 606 Revenue from Contracts with Customers as of January 1, 2019 using the modified retrospective method and present the impacts for the first time in our Annual Reportexpected margin on Form 10-K for the fiscal year ended December 31, 2019.
In applying ASC 606, we frequently combine contracts governing the sale and installation of an Energy Server with the related maintenance service contracts and account for them as a single contract at contract inception to the extent the contracts are with the same customer. These contracts are not combined when the customer for the sale and installation ofboth the Energy Server is different toand the maintenance service contract customer. We also assess whether any contract terms including default provisions, put or call options result in components of our contracts being accounted for as financing or leasing transactions outside of the scope of ASC 606.
Most of our contracts contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate revenue to each performance obligationagreements based on their respective costs or, in the total transaction price for each contract. Ourcase of maintenance service contracts are typically subjectagreements, the estimated costs to renewal by customers on an annual basis. We assess these maintenance service renewal options at contract inception to determine whether they provide customers with material rights that give rise to a separate performance obligation.be incurred.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a production guaranteeperformance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method. We also consider the customers’ rights of return in determining the transaction price where applicable.
We exclude from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. We allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to whichFor successful sales-leaseback arrangements, we expect to be entitled in exchange for transferring and installing the Energy Server and providing associated maintenance services.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. As our business offerings and eligibility for the Investment Tax Credit ("ITC") evolve over time, we may be required to modify the expected margin in subsequent periods and our revenue could be adversely affected.
Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable historical industry service margins.
As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance service agreements based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred. We recognize product and installation revenue atupon meeting criteria demonstrating we have transferred control to the point in time that the Customer obtainscustomer (the Buyer-Lessor). When control of the Energy Server. We recognize service revenue, including revenue associated with any related customer material rights, over time as we perform service maintenance activities.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling fees are recorded as revenue and the related cost is a cost to fulfill the contract that is recognized within costs of goods sold.
The following is a description of the principal activities from which we generate revenue. Our four revenue streams are classified as follows:
Product Revenue - All of our product revenue is generated from the sale of our Energy Servers to direct purchase, including financing partners on Third-Party PPAs, international channel providers and traditional lease customers. We generally recognize product revenue from contracts with customers at the point that controlServer is transferred to the customers. This occurs whenfinancier, and we achieve customer acceptance which is whendetermine the system has been installedleaseback qualifies as an operating lease in accordance with ASC 842, Leases ("ASC 842"), we record a ROU asset and is running at full power or, ina lease liability, and recognize revenue based on the casefair value of sales to our international channel providers, based upon shipment terms.
Under our traditional leases financing option, we sell our Energy Servers through a direct sale to a financing partner who, in turn, leases the Energy Servers with an allocation to the customer under a lease agreement. With our sales to our international channel providers, our international channel providers typically sell the Energy Servers to, or sometimes provide a PPA to, an end customer. In both traditional lease and international channel providers transactions, we contract directly with the end customer to provide extended maintenance services after the end of the standard warranty period. As a result, since the customer that purchases the server is a different and unrelated party to the customer that purchases extended warranty services, the product and maintenance service contract are not combined.
Payments received from customers are recorded within deferred revenue and customer deposits in the consolidated balance sheets until the acceptance criteria as defined within the customer contract are met. The related cost of such product and installation is also deferred as a component of deferred cost in the consolidated balance sheets until acceptance.
Installation Revenue - Nearly all of our installationinstallations revenue relates to the installation of Energy Servers sold to direct purchase, including financing partners on Third-Party PPAs and traditional lease customers. Generally, we recognize installation revenue when the system has been installed and is running at full power.
Service Revenue - Service revenue is generated from maintenance services agreements. We typically provide to our customers a standard one-year warranty against manufacturing or performance defects in our Energy Servers. We also sell to these customers extended annual maintenance services that effectively extend the standard one-year warranty coverage at the customer’s option. These customers generally have an option to renew or cancel the extended maintenance services on an annual basis and nearly every customer has renewed historically. The contractual renewal price may be less than the standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right.
Revenue is recognized over the term of the renewed one-year service period. Given our customers' renewal history, we anticipate that almost all of our customers will continue to renew their maintenance services agreements each year through their expected use of the Energy Server. As a result, we estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional operations and maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects that our additional performance obligations in any contractual renewal period are consistent with the services provided under the initial maintenance service contract.
Payments from customers for the extended maintenance contracts are received at the beginning of each service year. Accordingly, the customer payment received is recorded as a customer deposit and revenue is recognized over the related period as the services are performed using a cost-to-cost basis that reflects the cost of providing these services.
Electricity Revenue - We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA entities. Our PPA Entities purchase Energy Servers from us and sell electricity produced by these systems to customers through long-term power purchase agreements ("PPAs"). Customers are required to purchase all of the electricity produced by those Energy Servers at agreed-upon rates over the course of the PPAs' contractual term.
In addition, in certain product sales, we are a party to master lease agreements that provide for the sale of our Energy Servers to third-parties and the simultaneous leaseback of the systems, which we then sublease to our customers. In sale-leaseback sublease arrangements ("Managed Services"), we first determine whether the Energy Servers under the sale-leaseback arrangement are “integral equipment”. As the Energy Servers are determined not to be integral equipment, we determine if the leaseback is classified as a capital lease or an operating lease.
Our managed services arrangements with the financing party are classified as capital leases and are recorded as financing transactions, while the sub-lease arrangements with the end customer are classified as operating leases. Payments received from the financier are recorded as financing leases. We then recognize revenue for the electricity generated by allocating the total proceeds based on the relative standalone selling prices to electricity revenue and to service revenue. Electricity revenue relating to power purchase agreements is typically accounted for in accordance with ASC 840 Leases and service revenue in accordance with ASC 606.
prices. We recognize revenue from the PPAs and Managed Services contracts as the electricity is provided over the term of the agreement.
Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. Lastly, if the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date. During fiscal 2019, we did not recognizefinancing obligations any material revenue for contracts modified during the period that had performance obligations satisfied in prior periods.
We recognize a contract liability (deferred revenue) when we have an obligationproceeds received to transfer products or servicesfinance our ongoing costs to a customer in advance of us satisfying a performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The related cost of such product is deferred as a component of deferred cost of goods sold in the consolidated balance sheets. Prior to shipment of the product or the commencement of performance of maintenance services, any prepayment made by the customer is recorded as a customer deposit.
Property, Plant and Equipment - Property, plant and equipment, including leasehold improvements are stated at cost less accumulated depreciation. Energy Servers are depreciated to their residual values over their useful economic lives which reflect consideration of the terms of their related power purchase and tariff agreements. These useful lives are reassessed when there is an expected change in the use ofoperate the Energy Servers. Leasehold improvements are depreciated over the shorter
Valuation of the lease term or their estimated depreciable lives. The carrying amounts of our long-lived assets are periodically reviewed for impairment whenever events or changesEscalator Protection Plan Agreements ("EPP")
We have entered into agreements with certain customers which require us to recognize a liability in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.
Inventories - Inventories consist principally of raw materials, work-in-process and finished goods and are stated on a first-in, first-out basis at the lower of cost or net realizable value.
We record inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory, including inventory from purchase commitments, equal to the difference between the cost of inventory and estimated net realizable value based upon assumptions about market conditions and future demand for product generally expected to be utilized over the next 12 to 24 months, including product needed to fulfill our warranty obligations. If actual future demand for our products is less than currently forecasted, additional inventory provisions may be required. Once a provision is recorded, it is maintained until the product to which it relates to is sold or otherwise disposed.
Derivative Financial Instruments
We enter into derivative natural gas fixed price forward contracts to manage our exposure to the fluctuating price of natural gas under certain of our power purchase agreements entered in connectioncompliance with the Bloom Electrons program. In addition, we enter into fixed forward interest rate swap arrangementsfinancial accounting and reporting requirements of ASC Topic 820, Fair Value Measurement ("ASC 820"). We use third party valuation experts to convert variable interest rates on debt to a fixed rate and on occasion have committed to certain utility grid price protection guarantees in sales agreements. We do not enter into derivative transactions for trading or speculative purposes.
We account for our derivative instruments as either an asset or a liability which are carried atprovide us with the initial Level 3 fair value on the consolidated balance sheets. Changes inmeasurement that estimates the fair value of the derivativessubject liabilities using inputs of forecasted avoided costs and the cost of electricity. We determine our final estimate of liability based on internal reviews and in consideration of the estimates received. Although measured each reporting period, our estimates may vary from the actual payments made under the contractual agreements, as the estimates include current known liability and estimates of potential future payments. We use valuation methodology including using a Monte Carlo simulation model, with estimated inputs of beginning value, growth rate and volatility, and further discount our estimate of liability based on our cost of debt commensurate with the payment period.
Valuation of Certain Financial Instruments and Customer Financing Receivables
We have entered into certain Customer Financing Receivables with our PPA 3a arrangement, and debt financings that include Redeemable Senior Secured Notes, Convertible Senior Notes, Senior Secured Notes, Term Loans and Fixed Rate Notes. We are designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) on the consolidated balance sheets and for those that do not qualify for hedge accounting or are not designated hedges are recorded through earnings in the consolidated statements of operations.
While we hedge certain of our natural gas purchase requirements under our power purchase agreements, we do not classify these natural gas fixed price forward contracts as designated hedges for accounting purposes. Therefore, we record the change inrequired to determine the fair value of our natural gas fixed price forward contracts in costthe assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of revenue onASC Topic 840, Leases, and ASC Topic 815, Derivatives and Hedging ("ASC 815"). We use third party valuation experts to provide us with the consolidated statements of
operations. Theinitial Level 3 fair value measurement that estimates the fair value of the natural gas fixedsubject assets or liabilities using inputs of principal to be received or paid, maturity dates, coupon rates, selected discount rate based on implied rating and comparable yield curves in Energy and Non-Financial markets. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price forward contracts is recordedthat would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation of Assets and Liabilities of the SK ecoplant Strategic Investment
We have entered into an agreement with SK ecoplant that provides the opportunity, but does not require, an additional investment in common stock Class A, subject to a cap on the consolidated balance sheetstotal potential share purchase, and as a component of accrued expenses and other current liabilities and as derivative liabilities. As these forward contractstransaction, includes a purchase commitment by the investor for future product purchases.
We are considered economic hedges, the changes inrequired to determine the fair value of these forward contractsthe assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC 815and ASC Topic 480 Distinguishing Liabilities from Equity. We use third party valuation experts that are classifiedrecognized as operating activities within the statement of cash flows, which is consistentfinancial instrument accounting specialists to provide us with the classification ofinitial Level 3 fair value measurement that estimates the cash flows of the hedged item.
Our interest rate swap arrangements qualify as cash flow hedges for accounting purposes as they effectively convert variable rate obligations into fixed rate obligations. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change is recorded in accumulated other comprehensive income (loss) and will be recognized as interest expense on settlement. As of January 1, 2019, we adopted Accounting Standards Update ("ASU") 2017-12 Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). Per ASU 2017-12, ineffectiveness is no longer required to be measured or disclosed. If a cash flow hedge is discontinued due to changes in the forecasted hedged transactions, hedge accounting is discontinued prospectively and any unrealized gain or loss on the related derivative is recorded in accumulated other comprehensive income (loss) and is reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The fair value of the swap arrangementsubject assets or liabilities using inputs of number of shares,
underlying prices of Bloom Energy stock, rights and obligations of the counterparties, valuation assumptions related to options, and the assessed value of our product revenue streams and the timing of expected revenue recognition. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is recordedto represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We determine the reasonableness of our valuation methodology, assumptions on the timing and probability of a redemption event, and the expected number of shares to be exercised with the Option, and review the mathematical accuracy of the calculations before recording in our consolidated statement of operations and consolidated balance sheets. See Note 18 - SK ecoplant Strategic Investment.
Incremental Borrowing Rate ("IBR") by Lease Class
We adopted ASC 842 on January 1, 2020 on a modified retrospective basis. This guidance requires that, for all our leases, we recognize ROU assets representing our right to use the underlying asset for the lease term, and lease liabilities related to the rights and obligations created by those leases, on the balance sheet regardless of whether they are classified as finance or operating leases, with classification affecting the pattern and presentation of expenses and cash flows on the consolidated balance sheetsfinancial statements. Lease liabilities are measured at the lease commencement date as a componentthe present value of accrued expensesfuture minimum lease payments over the reasonably certain lease term. Lease ROU assets are measured as the lease liability plus initial direct costs and other current liabilitiesprepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, we used our collateralized incremental borrowing rate as our leases do not generally provide an implicit rate. The determination of the incremental borrowing rate considers qualitative and quantitative factors as derivative liabilities. The changes inwell as the estimated impact that the collateral has on the rate. We determine our incremental borrowing rate based on the lease class of assets which relates to those supporting of manufacturing and general operations, and those supporting electricity revenue transactions.
For successful sale-leasebacks, as Seller-Lessee, we determine the collateralized IBR on our leased equipment based on a fair value of swap agreement are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.assessment provided by third-party valuation experts.
Stock-basedStock-Based Compensation
We measureaccount for stock options and other stock-basedequity awards, such as restricted stock units grantedand performance-based stock units, to employees and non-employee directors under the provisions of ASC 718, Compensation-Stock Compensation. Accordingly, the stock-based compensation expense for these awards is measured based on the fair value on the date of grant. For stock options, we recognize the grant and recognize compensation expense, of those awards, net of estimated forfeitures, under the straight-line attribution over the requisite service period which is generally the vesting period of the respective award. Generally, we issue stock options with only service-based vesting conditions and record the expense for these awards using the straight-line method. The liability related to these awards is recognized over the period during which services are rendered until completed.term. The fair value of the stock-based compensation liabilitystock options is estimated using the Black-Scholes option pricingvaluation model. For options with a vesting condition tied to the attainment of service and market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. In addition, we use the Black-Scholes valuation model and are recorded in our consolidated statementsto estimate the fair value of operations. stock purchase rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach.
The Black-Scholes option-pricingvaluation model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of ourthe stock options and ourthe expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options as well as expected forfeiture rates based on the historical settlement experience and after giving consideration to vesting schedules.
Income Taxes
We account for income taxes using the liability method under ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. This determination is based on expected future results and the future reversals of existing taxable temporary differences. Furthermore, uncertain tax positions are evaluated by management and amounts are recorded when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits. Significant judgement is required throughout management's process in evaluating each uncertain tax position including future taxable income expectations and tax-planning strategies to determine whether the more likely than not recognition threshold has been met. We have provided a full valuation allowance on our domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
PrinciplesInterest Expense
Interest expense is from our debt held by third parties. Interest expense for the year ended December 31, 2021 as compared to the prior year period decreased by $7.3 million. This decrease was primarily due to lower interest expense as a result of Consolidationrefinancing our notes at a lower interest rate, and the elimination of the amortization of the debt discount associated with notes that have been converted to equity, partially offset by $0.6 million related to an interest rate swap settlement.
These consolidated financial statements reflectInterest Expense - Related Parties
Interest expense - related parties is from our accounts and operations and thosedebt held by related parties. Interest expense - related parties for the year ended December 31, 2021 as compared to the prior year period decreased by $2.5 million due to the conversion of all of our subsidiariesnotes held by related parties during 2020.
Other Expense, net
Other expense, net, is primarily derived from investments in joint ventures, plus the impact of foreign currency translation. Other expense, net for the year ended December 31, 2021 as compared to the prior year period decreased by $0.2 million due to a $2.0 million gain recorded on fair value remeasurement of our equity investment in the Bloom Energy Japan joint venture in connection with the acquisition thereof plus the prior year's $3.9 million write-off of our investment in the Bloom Energy Japan joint venture.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the year ended December 31, 2021 as compared to the prior year period improved by $12.9 million resulting from our debt restructuring and debt extinguishment in the prior year period. There were no comparable debt restructuring activities in the current year's period.
Gain (Loss) on Revaluation of Embedded Derivatives
Gain (loss) on revaluation of embedded derivatives is derived from the change in fair value of our sales contracts of embedded EPP derivatives valued using historical grid prices and available forecasts of future electricity prices to estimate future electricity prices.
Gain (loss) on revaluation of embedded derivatives for the year ended December 31, 2021 as compared to the prior year period worsened by $1.4 million due to the change in fair value of our embedded EPP derivatives in our sales contracts.
Provision for Income Taxes
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | (dollars in thousands) |
| Income tax provision | | | | | | | | | | $ | 1,046 | | | $ | 256 | | | $ | 790 | | | 308.6 | % |
Income tax provision consists primarily of income taxes in foreign jurisdictions in which we haveconduct business. We maintain a controlling financial interest. We use a qualitative approach in assessingfull valuation allowance for domestic deferred tax assets, including net operating loss and certain tax credit carryforwards.
Income tax provision increased for the consolidation requirement for each of our variable interest entities ("VIE"), which we refer toyear ended December 31, 2021 as our power purchase agreement entities ("PPA Entities"). This approach focuses on determining whether we haves the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significantcompared to the PPA Entities.prior year period was primarily due to fluctuations in the effective tax rates on income earned by international entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
We generally allocate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | (dollars in thousands) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | | | | | | | | | $ | (28,924) | | | $ | (21,534) | | | $ | (7,390) | | | (34.3) | % |
Net loss attributable to noncontrolling interests is the result of allocating profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPEPPA Entities.
The determination of equity in earnings under the HLBV method requires managementNet loss attributable to determine how proceeds, upon a hypothetical liquidation of the entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 ("JOBS Act") provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. However, we have elected notyear ended December 31, 2021 as compared to “opt out” of such extended transitionthe prior year period which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard, provided that we continuechanged by $7.4 million due to be an emerging growth company.
Results of Operations
Revenue
We primarily recognize revenue from the sale and installation of Energy Servers, by providing services under maintenance contracts, and from electricity sales byincreased losses in our PPA Entities, which are allocated to our noncontrolling interests.
Liquidity and fromCapital Resources
As of December 31, 2021, we had cash and cash equivalents of $396.0 million. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with high credit quality counterparties, continually monitor the amount of credit exposure to any one issuer and diversify our Managed Services agreements.investments in order to minimize our credit risk.
Product RevenueIn October 2021, we entered into a Securities Purchase Agreement with SK ecoplant Co., Ltd. in connection with a strategic partnership. On December 29, 2021, we consummated the transactions related to the First Closing by issuing and selling to SK ecoplant 10,000,000 shares of RCPS, at a purchase price of $25.50 per share or an aggregate purchase price of $255 million. In November 2021, PPA V entered into a $136 million term loan, which replaces the LIBOR + 2.5% Term Loan due December 2021.
AllAs of December 31, 2021, we had $291.8 million of total outstanding recourse debt, $234.9 million of non-recourse debt and $16.8 million of other long-term liabilities. For a complete description of our outstanding debt, please see Note 7 - Outstanding Loans and Security Agreements in Part II, Item 8, Financial Statements and Supplementary Data.The combination of our existing cash and cash equivalents is expected to be sufficient to meet our anticipated cash flow needs for the next 12 months and thereafter for the foreseeable future. If these sources of cash are insufficient to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, in particular, our manufacturing capacity, product development and market expansion requirements, to timely respond to competitive market pressures or strategic opportunities, or otherwise. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.
Our future capital requirements will depend on many factors, including our rate of revenue is generated fromgrowth, the saletiming and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our Energy Servers, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. In order to directsupport and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through an equity or debt financing. Failure to obtain this financing or financing in future quarters will affect our results of operations, including revenue and cash flows.
As of December 31, 2021, the current portion of our total debt is $25.8 million, of which $17.5 million is outstanding non-recourse debt. We expect a certain portion of the non-recourse debt would be refinanced by the applicable PPA Entity prior to maturity.
A summary of our consolidated sources and uses of cash, cash equivalents and restricted cash was as follows (in thousands):
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| | | Years Ended
December 31, | | | | |
| | | 2021 | | 2020 | | | | | |
| | | | | | | | | | | |
| Net cash provided by (used in): | | | | | | | | | | |
| Operating activities | | $ | (60,681) | | | $ | (98,796) | | | | | | | |
| Investing activities | | (46,696) | | | (37,913) | | | | | | | |
| Financing activities | | 306,375 | | | 176,031 | | | | | | | |
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Net cash provided by (used in) our PPA Entities, which are incorporated into the consolidated statements of cash flows, was as follows (in thousands):
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| | | Years Ended
December 31, | | | | |
| | | 2021 | | 2020 | | | | | |
| | | | | | | | | | |
| PPA Entities ¹ | | | | | | | | |
| Net cash provided by PPA operating activities | | $ | 3,188 | | | $ | 26,039 | | | | | | | |
| Net cash provided by (used in) PPA financing activities | | 3,231 | | | (23,784) | | | | | | | |
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1 The PPA Entities' operating and financing cash flows are a subset of our consolidated cash flows and represent the stand-alone cash flows prepared in accordance with U.S. GAAP. Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase Third-Partyof Energy Servers from us and principal reductions in loan balances. Financing activities consist primarily of changes in debt carried by our PPAs, and traditionalpayments from and distributions to noncontrolling partnership interests. We believe this presentation of net cash provided by (used in) PPA activities is useful to provide the reader with the impact to consolidated cash flows of the PPA Entities in which we have only a minority interest.
Operating Activities
Our operating activities have consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. The increase in cash used in operating activities during the year ended December 31, 2021 as compared to the prior year period was primarily the result of an increase in our net working capital of $18.8 million in the year ended December 31, 2021 due to the timing of revenue transactions and corresponding collections and the increase in inventory levels to support future demand.
Investing Activities
Our investing activities have consisted of capital expenditures that include investment to increase our production capacity. We expect to continue such activities as our business grows. Cash used in investing activities of $46.7 million during the year ended December 31, 2021 was primarily the result of expenditures on tenant improvements for a newly leased engineering building in Fremont, California. We expect to continue to make capital expenditures over the next few quarters to prepare our new manufacturing facility in Fremont, California for production, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital expenditures from cash on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures.
Financing Activities
Historically, our financing activities have consisted of borrowings and repayments of debt including to related parties, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests and redeemable noncontrolling interests, and the proceeds from the issuance of our common stock. Net cash provided by financing activities during the year ended December 31, 2021 was $306.4 million, an increase of $130.3 million compared to the prior year period, primarily due to the issuance of RCPS to SK ecoplant in December 2021, combined with proceeds in 2021 from stock option exercises and the sale of shares under our 2018 Employee Stock Purchase Plan.
Off-Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities and results of operations of our PPA Entities that we have entered into and over which we have substantial control. For additional information, see Note 13 -Portfolio Financingsin Part II, Item 8, Financial Statements and Supplementary Data. We have not entered into any other transactions that have generated relationships with unconsolidated entities or financial partnerships or special purpose entities. Accordingly, as of December 31, 2021 and 2020 we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S. GAAP") The preparation of the consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations above are based on our audited results of operations, which we have prepared in accordance with U.S. GAAP. In preparing these consolidated financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are representative of estimation uncertainty, and are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating the consolidated financial condition and results of operations.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, include:
Discussion of Earliest Year of Changes in Financial Condition and Results of Operations
We include discussion of the earliest year of changes in financial condition and results of operations, as deemed appropriate, even when such information has been previously disclosed in our prior EDGAR filings. We consider the total mix of available information, including the impact of any recastable events when determining whether to omit discussion of the earliest year and the most appropriate form of presentation. We determine to limit the discussion to the information that has changed or has been determined to be significant to our operations or financial condition.
Revenue Recognition
We apply Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. We identify our contracts with Customers, determine our performance obligations and the transaction price, and after allocating the transaction price to the performance obligations, we recognize revenue as we satisfy our performance obligations and transfer control of our products and services to our customers. Most of our contracts with customers contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate the total transaction price to each performance obligation based on the relative standalone selling price.
We generally recognize product revenue from contracts with customers forat the sales of our Energy Servers oncepoint that control is transferred to the customers. This occurs when we achieve acceptance; thatcustomer acceptance which typically occurs upon transfer of control to our customers, which depending on the contract terms is generallywhen the system is shipped and delivered to our customers, when the system is shipped and delivered and is physically ready for start up and commissioning, or when the system is shipped and delivered and is turned on and producing power.
We recognize installation revenue when the system has been installed and is running at full power as defined in each contract or, for sales to some of our International Channel Partners, based upon shipment terms.
The amount of product revenue we recognize in a given period is materially dependent on the volume and size of installations of our Energy Servers and on the type of financing used by the customer.
Installation Revenue
The majority of our installation revenue is generated from the installation of our Energy Servers to direct purchase Third-Party PPAs and traditional lease customers. The amount of installation revenue we recognize in a given period is materially dependent on the volume and size of installations of our Energy Servers in a given period, whether the customer chooses to do the installation themselves, and on the type of financing used by the customer.
Service Revenuepower.
Service revenue is generated from operations and maintenance services agreements to support and maintainrecognized ratably over the Energy Servers in the field. Customers of our direct purchase, Third Party PPA and lease programs can renew their operating and maintenance services agreements on an annual basis for the lifeterm of the contract at prices predetermined at the time of purchase of the Energy Server. Wefirst or renewed one-year service period. Given our customers' renewal history, we anticipate that almost allmost of our customersthem will continue to renew their operations and maintenance services agreements each year throughoutfor the period of their expected use of the Energy Server.
Electricity Revenue
Our PPA Entities and financiers in our Managed Services contracts purchase Energy Servers from us and sell The contractual renewal price may be less than the electricity produced by these systems to end customers. Customers are required to purchase allstandalone selling price of the electricity produced by the Energy Servers at agreed-upon rates over the course ofmaintenance services and consequently the contract term.renewal option may provide the customer with a material right. We generally recognize revenue from such PPA Entities and managedestimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services customers as the electricity isrenewal periods expected to be provided over the term of the agreement.
Cost of Revenue
Our total cost of revenue consists of cost of product revenue, cost of installation revenue, cost of service revenue and cost of electricity revenue. It includes personnel costs associated with our operations and global customer support organizations consisting of salaries, benefits, bonuses, stock-based compensation and allocated facilities costs.
Cost of Product Revenue
Cost of product revenue consists of costs of Energy Servers that we sell to direct, Third Party PPA and traditional lease customers, including costs of materials, personnel costs, allocated costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs ofcorresponding expected consideration for these services. This reflects the fact that our equipment. We expect our cost of product revenue to increaseadditional performance obligations in absolute dollars asany contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we deliver and install more Energy Servers and our product revenue increases.
Cost of Installation Revenue
Cost of installation revenue consists of the costs to install the Energy Servershave determined that we sell to direct, Third Party PPA and traditional lease customers, including costs of materials and service providers, personnel costs, and allocated costs. In our Asia Pacific region, the cost of the installations and resulting revenue is attributable to our channel partners. Notwithstanding the use of channel partners, for the next twelve months, we expect our cost of installation revenue to increase in absolute dollars as we deliver and install more Energy Servers, though it will be subject to variabilitya customer has a material right as a result of their contract renewal option, we recognize that portion of the timing of installation and other factors.transaction price allocated to the material right over the period in which such rights are exercised.
Cost of Service Revenue
Cost of service revenue consists of costs incurred underGiven that we typically sell an Energy Server with a maintenance service contracts foragreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all customers including direct sales, Third Party PPA, traditional lease, managed services and PPA customers. Suchindirect manufacturing costs, include personnelapplicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our customer support organization, allocatedprofit objectives relating to installation. Costs for
maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and extended maintenance-relatedfuture material costs. Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable historical industry service margins. As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance service agreements based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method.
For successful sales-leaseback arrangements, we recognize product repair and replacement costs. We expect our costinstallation revenue upon meeting criteria demonstrating we have transferred control to the customer (the Buyer-Lessor). When control of service revenuethe Energy Server is transferred to increase in absolute dollars as our base of megawatts deployed grows,the financier, and we expect our cost of servicedetermine the leaseback qualifies as an operating lease in accordance with ASC 842, Leases ("ASC 842"), we record a ROU asset and a lease liability, and recognize revenue to fluctuate period by period dependingbased on the timing of maintenance of Energy Servers.
Cost of Electricity Revenue
Cost of electricity revenue primarily consists of the depreciation of the costfair value of the Energy Servers owned bywith an allocation to product revenue and installations revenue based on the relative standalone selling prices. We recognize as financing obligations any proceeds received to finance our PPA Entitiesongoing costs to operate the Energy Servers.
Valuation of Escalator Protection Plan Agreements ("EPP")
We have entered into agreements with certain customers which require us to recognize a liability in compliance with the financial accounting and byreporting requirements of ASC Topic 820, Fair Value Measurement ("ASC 820"). We use third party valuation experts to provide us through our managed services agreementswith the initial Level 3 fair value measurement that estimates the fair value of the subject liabilities using inputs of forecasted avoided costs and the cost of gas purchasedelectricity. We determine our final estimate of liability based on internal reviews and in connection with our first PPA Entity. The cost of depreciationconsideration of the Energy Servers is reduced byestimates received. Although measured each reporting period, our estimates may vary from the amortizationactual payments made under the contractual agreements, as the estimates include current known liability and estimates of any U.S. Treasury grant payment in lieupotential future payments. We use valuation methodology including using a Monte Carlo simulation model, with estimated inputs of the energy investment tax credit associated with these systems. We expectbeginning value, growth rate and volatility, and further discount our estimate of liability based on our cost of electricity revenue to be correlated in absolute dollars to our basedebt commensurate with the payment period.
Valuation of megawatts deployed byCertain Financial Instruments and Customer Financing Receivables
We have entered into certain Customer Financing Receivables with our PPA entities3a arrangement, and by us through our managed services agreements.
Gross Profit (Loss)
Gross profit (loss) has beendebt financings that include Redeemable Senior Secured Notes, Convertible Senior Notes, Senior Secured Notes, Term Loans and will continueFixed Rate Notes. We are required to be affected by a variety of factors, includingdetermine the sales price of our products, manufacturing costs, the costs to install the products, the costs to maintain the systems in the field, the mix of financing options used and the mix of revenue between product, service and electricity. We expect our gross profit to fluctuate over time depending on the factors described above.
Operating Expenses
Research and Development
Research and development costs are expensed as incurred and consist primarily of personnel costs. Research and development expense also includes prototype related expenses and allocated facilities costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, and we expect our research and development expense to fluctuate as a percentage of total revenue.
Sales and Marketing
Sales and marketing expense consists primarily of personnel costs, including commissions. We expense commission costs as each performance obligation occurs over the duration of the contract. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, travel costs, office equipment and software, depreciation, professional services and allocated facilities costs. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations and as we expand our international presence, and we expect our sales and marketing expense to fluctuate as a percentage of total revenue.
General and Administrative
General and administrative expense consists of personnel costs, fees for professional services and allocated facilities costs. General and administrative personnel include our executive, finance, human resources, information technology, facilities, business development and legal organizations. We expect general and administrative expense to increase in absolute dollars due to additional legal fees and costs associated with accounting, insurance, investor relations, SEC and stock exchange compliance and other costs associated with being a public company, and we expect our general and administrative expense to fluctuate as a percentage of total revenue.
Stock-Based Compensation
We measure and recognize compensation costs for all stock-based awards, including stock options and purchase rights issued to employees based on the estimated fair value of the awardsassets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC Topic 840, Leases, and ASC Topic 815, Derivatives and Hedging ("ASC 815"). We use third party valuation experts to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of principal to be received or paid, maturity dates, coupon rates, selected discount rate based on implied rating and comparable yield curves in Energy and Non-Financial markets. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation of Assets and Liabilities of the SK ecoplant Strategic Investment
We have entered into an agreement with SK ecoplant that provides the opportunity, but does not require, an additional investment in common stock Class A, subject to a cap on the granttotal potential share purchase, and as a component of transaction, includes a purchase commitment by the investor for future product purchases.
We are required to determine the fair value of the assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC 815and ASC Topic 480 Distinguishing Liabilities from Equity. We use third party valuation experts that are recognized as financial instrument accounting specialists to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of number of shares,
underlying prices of Bloom Energy stock, rights and obligations of the counterparties, valuation assumptions related to options, and the assessed value of our product revenue streams and the timing of expected revenue recognition. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We determine the reasonableness of our valuation methodology, assumptions on the timing and probability of a redemption event, and the expected number of shares to be exercised with the Option, and review the mathematical accuracy of the calculations before recording in our consolidated statement of operations and consolidated balance sheets. See Note 18 - SK ecoplant Strategic Investment.
Incremental Borrowing Rate ("IBR") by Lease Class
We adopted ASC 842 on January 1, 2020 on a modified retrospective basis. This guidance requires that, for all our leases, we recognize ROU assets representing our right to use the Black-Scholes-Merton ("Black-Scholes") option pricingunderlying asset for the lease term, and lease liabilities related to the rights and obligations created by those leases, on the balance sheet regardless of whether they are classified as finance or operating leases, with classification affecting the pattern and presentation of expenses and cash flows on the consolidated financial statements. Lease liabilities are measured at the lease commencement date as the present value of future minimum lease payments over the reasonably certain lease term. Lease ROU assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, we used our collateralized incremental borrowing rate as our leases do not generally provide an implicit rate. The determination of the incremental borrowing rate considers qualitative and quantitative factors as well as the estimated impact that the collateral has on the rate. We determine our incremental borrowing rate based on the lease class of assets which relates to those supporting of manufacturing and general operations, and those supporting electricity revenue transactions.
For successful sale-leasebacks, as Seller-Lessee, we determine the collateralized IBR on our leased equipment based on a fair value assessment provided by third-party valuation experts.
Stock-Based Compensation
We account for stock options and other equity awards, such as restricted stock units and performance-based stock units, to employees and non-employee directors under the provisions of ASC 718, Compensation-Stock Compensation. Accordingly, the stock-based compensation expense for these awards is measured based on the fair value on the date of grant. For stock options, we recognize the expense, net of estimated forfeitures, under the straight-line attribution over the requisite service period which is generally the vesting term. The fair value of the stock options is estimated using the Black-Scholes valuation model. For options with a vesting condition tied to the attainment of service and market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. In addition, we use the Black-Scholes valuation model to estimate the fair value of stock options and employee stock purchase plan ("rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP") rights. The fair value of stock options is recognized as expense on a straight-line basis over the requisite service period, which is generally four years. The fair value of restricted stock units ("RSUs"), is measured using the fair value of our common stock on the date of the grant. The fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which generally ranges from two to four years. For stock-based awards granted to employees with a performance condition, we recognize stock-based compensation costs using the accelerated attribution method over the requisite service period when management determines it is probable that the performance condition will be satisfied. For stock-based awards granted to employees with market conditions, we recognize stock-based compensation costs over the requisite service period and use the Monte Carlo simulation option pricing model to estimate the fair value of the awards at the time of grant.. The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach.
The Black-Scholes valuation model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of the stock options and the expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options as well as expected forfeiture rates based on the historical settlement experience and after giving consideration to vesting periodschedules.
Income Taxes
We account for income taxes using the liability method under ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of each offering period. Stock-based compensation costsitems for tax and financial reporting purposes. Deferred items are recorded net of estimated forfeitures such that expense is recorded only for those stock-based awardsmeasured using the enacted tax rates and laws that are expected to vest.
Stock-based compensation expensebe in effect when the differences reverse. We must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. This determination is based on expected future results and the future reversals of existing taxable temporary differences. Furthermore, uncertain tax positions are evaluated by management and amounts are recorded inwhen it is more likely than not that the consolidated statementsposition will be sustained upon examination, including resolution of operationsany related appeals or litigation processes, based on the employees’ respective function. Additionally, stock-based compensation costs relatingtechnical merits. Significant judgement is required throughout management's process in evaluating each uncertain tax position including future taxable income expectations and tax-planning strategies to manufacturing employees are capitalized asdetermine whether the more likely than not recognition threshold has been met. We have provided a component of Energy Server manufacturing costs to inventory,full valuation allowance on our domestic deferred cost of revenues, construction-in-progress and property, plant and equipment as per ASC 330 and SEC Staff Accounting Bulletin Topic 14. These costs are expensed on consumption of the related inventory and over the economic useful life of the property, plant and equipment, as applicable.tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
Interest Expense
Interest expense is from our debt held by third parties. Interest expense for the year ended December 31, 2021 as compared to the prior year period decreased by $7.3 million. This decrease was primarily consistsdue to lower interest expense as a result of refinancing our notes at a lower interest chargesrate, and the elimination of the amortization of the debt discount associated with notes that have been converted to equity, partially offset by $0.6 million related to an interest rate swap settlement.
Interest Expense - Related Parties
Interest expense - related parties is from our secured linedebt held by related parties. Interest expense - related parties for the year ended December 31, 2021 as compared to the prior year period decreased by $2.5 million due to the conversion of credit, long-term debt facilities, financing obligations and capital lease obligations.all of our notes held by related parties during 2020.
Other Income (Expense), NetExpense, net
Other income (expense),expense, net, is primarily consistsderived from investments in joint ventures, plus the impact of gains or losses associated with foreign currency fluctuations,translation. Other expense, net for the year ended December 31, 2021 as compared to the prior year period decreased by $0.2 million due to a $2.0 million gain recorded on fair value remeasurement of our equity investment in the Bloom Energy Japan joint venture in connection with the acquisition thereof plus the prior year's $3.9 million write-off of our investment in the Bloom Energy Japan joint venture.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the year ended December 31, 2021 as compared to the prior year period improved by $12.9 million resulting from our debt restructuring and of income earned on our cash and cash equivalents holdingsdebt extinguishment in interest-bearing accounts. We have historically invested our cashthe prior year period. There were no comparable debt restructuring activities in money-market funds.the current year's period.
Gain (Loss) on Revaluation of Warrant Liabilities and Embedded Derivatives
Warrants issued to investors and lenders that allow them to acquire our convertible preferred stock have been classified as liability instrumentsGain (loss) on our balance sheet. Since the warrants issued were mandatorily convertible into common stock at the completion of our IPO, the liability related to these mandatorily converted warrants was reclassified to additional paid-in capital on the IPO date and total gains and losses for revaluation of warrant liabilities was recordedembedded derivatives is derived from the change in the consolidated statement of operations. We estimate the fair value of our sales contracts of embedded EPP derivatives valued using historical grid prices and available forecasts of future electricity prices to estimate future electricity prices.
Gain (loss) on revaluation of embedded derivatives in certain sales contracts using a Monte Carlo simulation model which considers various potential natural gas forward curves overfor the sales contract term. We record any changesyear ended December 31, 2021 as compared to the prior year period worsened by $1.4 million due to the change in the fair value of these instruments between reporting datesour embedded EPP derivatives in our consolidated statements of operations.sales contracts.
Provision for Income Taxes
Provision for income taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | (dollars in thousands) |
| Income tax provision | | | | | | | | | | $ | 1,046 | | | $ | 256 | | | $ | 790 | | | 308.6 | % |
Income tax provision consists primarily of federal and state income taxes in the United States and income taxes in foreign jurisdictions in which we conduct business. We have providedmaintain a full valuation allowance on our U.S.for domestic deferred tax assets, because we believe it is more likely than not that the deferred tax assets will not be realized. At December 31, 2019, we had federal and stateincluding net operating loss carryforwards of $1.8 billion and $1.6 billion, respectively, which will expire, if unused, beginningcertain tax credit carryforwards.
Income tax provision increased for the year ended December 31, 2021 as compared to the prior year period was primarily due to fluctuations in 2022 and 2028, respectively.the effective tax rates on income earned by international entities.
Net Income (Loss)Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
We allocate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | (dollars in thousands) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | | | | | | | | | $ | (28,924) | | | $ | (21,534) | | | $ | (7,390) | | | (34.3) | % |
Net loss attributable to noncontrolling interests is the result of allocating profits and losses to the noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as ourthe flip structure of the PPA entities. Entities.
Net income (loss)loss attributable to noncontrolling interests is deducted from our net income (loss) in determining our net income (loss) attributable to common stockholders.
Deemed Dividend to Noncontrolling Interests
We recognized a deemed dividend of $2.4 million on November 26, 2019 related to our buyout of the tax equity partner’s equity interest in PPA IIIb. The deemed dividend was recorded as a result of the buyout amount exceeding the hypothetical liquidation book value of the tax equity investor's equity interest in PPA IIIb on the date the buyout occurred. This charge impacted net income attributable to common stockholders and earnings per share inredeemable noncontrolling interests for the year ended December 31, 2019.
A discussion regarding our financial condition and results of operations for fiscal 20192021 as compared to fiscal 2018 and for fiscal 2018 compared to fiscal 2017 is presented below.
We adopted new revenue guidance, Accounting Standards Codification ("ASC") 606, Revenue From Contracts With Customers ("ASC 606"), which was effective from January 1, 2019 under the modified retrospective method which has limited the comparability of prior year results. The comparative information for periods prior to 2019 has not been recast for the impact of ASC 606. Additional comparative information is provided in Note 3 of the Notes to Consolidated Financial Statements for the adoption of ASC 606 and our proforma financial results under ASC 605, Revenue Recognition ("ASC 605"), for fiscal 2019.
Comparison of the Years Ended December 31, 2019 and 2018
Revenue
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | As Restated | | | | |
| | | (dollars in thousands) |
| Product | | $ | 557,336 |
| | $ | 400,638 |
| | $ | 156,698 |
| | 39.1 | % |
| Installation | | 60,826 |
| | 68,195 |
| | (7,369 | ) | | (10.8 | )% |
| Service | | 95,786 |
| | 83,267 |
| | 12,519 |
| | 15.0 | % |
| Electricity | | 71,229 |
| | 80,548 |
| | (9,319 | ) | | (11.6 | )% |
| Total revenue | | $ | 785,177 |
| | $ | 632,648 |
| | $ | 152,529 |
| | 24.1 | % |
Total Revenue
Total revenue increasedperiod changed by approximately $152.5 million, or 24.1%, for 2019 as compared to 2018. Revenue in 2019 included a revenue recognition timing adjustment decrease of $34.6 million associated with the adoption of ASC 606. Excluding this adjustment in 2019, revenue would have increased in 2019 by approximately $187.1 million, or 29.6%.
Revenue in 2018 included a one-time benefit of $45.5 million associated with the 2017 retroactive ITC benefit recognized in the same period in 2018. In early 2018, the ITC law was retroactively reinstated, extending and phasing-out the ITC through 2021. Future application of ITC to new installations is subject to a phase-out schedule, see Note 14, Commitments and Contingencies - Investment Tax Credits for additional information.
Excluding this one-time retroactive ITC benefit in 2018 and the adjustment in connection with the adoption of ASC 606, revenue would have increased in 2019 by approximately $232.6 million, or 39.6%, as compared to 2018. This increase was driven primarily by the increase in product acceptances of approximately 385 systems, or 47.6%, for 2019, as compared to 2018.
Product Revenue
Product revenue increased by approximately $156.7 million, or 39.1%, for 2019, as compared to 2018. This increase was driven by the increase in acceptances of 385 systems. Product revenue in 2018 included a one-time benefit of $45.5 million associated with the 2017 retroactive ITC benefit recognized in the same period in 2018 and product revenue in 2019 included an adjustment in connection with the adoption of ASC 606 of $44.5 million. Excluding these adjustments in 2018 and 2019, revenue increased during 2019 by approximately $246.7 million, or 69.5%, as compared to 2018, driven primarily by the increase in product acceptances of approximately 385 systems, or 47.6%, for 2019.
Installation Revenue
Installation revenue decreased by approximately $7.4 million or 10.8%, for 2019, as compared to 2018. Installation revenue in 2019 included an adjustment in connection with the adoption of ASC 606 of $6.1 million. Excluding the adjustment in connection with the adoption of ASC 606, installation revenue would have decreased by approximately $13.5 million, or 19.8%. This decrease was generally driven by the higher mix of international acceptances, where we typically do not perform the installation service.
Service Revenue
Service revenue increased by approximately $12.5 million, or 15.0% for 2019, as compared to 2018. Service revenue in 2019 included an adjustment in connection with the adoption of ASC 606 of $3.8 million. Excluding the adjustment in connection with the adoption of ASC 606, service revenue would have increased by approximately $8.7 million, or 10.4%. This was primarily due to the increase in the number of annual maintenance contract renewals driven by our growing fleet of installed Energy Servers.
Electricity Revenue
Electricity revenue decreased by approximately $9.3 million, or 11.6%, for 2019, as compared to 2018, due to a reduction in electricity revenues resulting from the decommissioning and deconsolidation of the existing Energy Servers during the PPA II and PPA IIIb upgrades of Energy Servers. Electricity revenue is driven from our former Bloom Electrons program, which included PPA II and PPA IIIb. When these PPAs were decommissioned, we no longer recognized electricity revenue for them.
Cost of Revenue
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | As Restated | | | | |
| | | (dollars in thousands) |
| Cost of revenue: | | | | | | | | |
| Product | | $ | 435,479 |
| | $ | 281,275 |
| | $ | 154,204 |
| | 54.8 | % |
| Installation | | 76,487 |
| | 95,306 |
| | (18,819 | ) | | (19.7 | )% |
| Service | | 100,238 |
| | 100,689 |
| | (451 | ) | | (0.4 | )% |
| Electricity | | 75,386 |
| | 49,628 |
| | 25,758 |
| | 51.9 | % |
| Total cost of revenue | | $ | 687,590 |
| | $ | 526,898 |
| | $ | 160,692 |
| | 30.5 | % |
Total Cost of Revenue
Total cost of revenue increased by approximately $160.7 million, or 30.5%, for 2019, as compared to 2018. Total cost of revenue in 2019 included an adjustment in connection with the adoption of ASC 606 of $7.1 million. Excluding the adjustment in connection with the adoption of ASC 606, total cost of revenue increased by approximately $167.8 million, or 31.9%. Further, included as a component of total cost of revenue, stock-based compensation increased approximately $15.7 million for 2019, as compared to 2018. Total cost of revenue, excluding stock-based compensation, increased approximately $144.9 million, or 29.2%, for 2019, as compared to 2018. Cost of revenue for 2019 included $94.8 million in expenses associated with the PPA II and PPA IIIb upgrades of Energy Servers transactions. See Note 13, Power Purchase Agreement Programs- PPA II Upgrade of Energy Servers for further details. Cost of revenue for 2018 included a payment of $9.4 million driven by the reinstatement of the ITC program in February 2018 where we were required to repay certain suppliers for previously negotiated contractual discounts.
Total cost of revenue, excluding stock-based compensation, the adjustment in connection with the adoption of ASC 606, the expenses associated with the PPA upgrades and the ITC reinstatement, increased approximately 66.7 million, or 13.7%, to $554.5 million for 2019, as compared to $487.8 million for 2018, primarily driven by higher volume of product acceptances.
Cost of Product Revenue
Cost of product revenue increased by approximately $154.2 million, or 54.8%, for 2019, as compared to 2018. Included as a component of cost of product revenue, stock-based compensation increased approximately $14.6 million for 2019, as compared to 2018. Cost of product revenue, excluding stock-based compensation, increased approximately $139.6 million, or 53.4%, for 2019, as compared to 2018. This increase was driven primarily by the increase in product acceptances of approximately 385 systems, or 47.6%, for 2019, as compared to 2018. There was also a $70.5 million write-off associated with the PPA upgrade projects in 2019, partially offset by a payment of $9.4 million recorded to cost of product revenue in 2018. This $9.4 million cost was driven by the reinstatement of the ITC program in February 2018 where we were required to repay certain suppliers for previously negotiated contractual discounts.
Cost of Installation Revenue
Cost of installation revenue decreased by approximately $18.8 million, or 19.7%, for 2019, as compared to 2018. This decrease was generally driven by the higher mix of international acceptances in 2019 where we do not perform the installation service and due to lower install cost associated with the PPA II and the PPA IIIb upgrades of Energy Servers.
Cost of Service Revenue
Cost of service revenue decreased by approximately $0.5 million, or 0.4%, for 2019, as compared to 2018. Cost of service revenue in 2019 included an adjustment in connection with the adoption of ASC 606 of $6.5 million. This adjustment is associated with performance guarantees to our customers and with the adoption of ASC 606, these costs are recorded as a reduction to service revenue. Excluding the adjustment in connection with the adoption of ASC 606, cost of service revenue increased by approximately $6.1 million, or 6.1%. This increase in service cost was primarily due to more power module replacements required in the fleet as our fleet of installed Energy Servers grows with acceptances and additional extended service contracts are executed and renewed.
Cost of Electricity Revenue
Cost of electricity revenue increased by approximately $25.8 million, or 51.9%, for 2019, as compared to 2018, mainly due to a $24.4 million charge related to the decommissioning and deconsolidation of Energy Servers associated with the PPA II and PPA IIIb upgrades of Energy Servers.
Gross Profit (Loss)
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | |
| | | | | As Restated | | |
| | | (dollars in thousands) |
| Gross Profit: | | | | | | |
| Product | | $ | 121,857 |
| | $ | 119,363 |
| | $ | 2,494 |
|
| Installation | | (15,661 | ) | | (27,111 | ) | | 11,450 |
|
| Service | | (4,452 | ) | | (17,422 | ) | | 12,970 |
|
| Electricity | | (4,157 | ) | | 30,920 |
| | (35,077 | ) |
| Total Gross Profit | | $ | 97,587 |
| | $ | 105,750 |
| | $ | (8,163 | ) |
| | | | | | | |
| Gross Margin: | | | | | | |
| Product | | 22 | % | | 30 | % | |
|
|
| Installation | | (26 | )% | | (40 | )% | |
|
|
| Service | | (5 | )% | | (21 | )% | |
|
|
| Electricity | | (6 | )% | | 38 | % | |
|
|
| Total Gross Margin | | 12 | % | | 17 | % | |
|
|
Total Gross Profit
Gross profit decreased $8.2 million in 2019, as compared to 2018. During 2018, gross profit included a one-time benefit of $36.1 million associated with the 2017 retroactive ITC benefit and 2019 included an adjustment in connection with the adoption of ASC 606 of $27.4 million. Excluding the one-time retroactive ITC benefit in 2018 and the adjustment in connection with the adoption of ASC 606 in 2019, gross profit increased approximately $55.4 million, or 79.5% in 2019, as compared to 2018. This increase was generally due to the increase in product acceptances and lower product cost driven by ongoing cost reduction activities.
Product Gross Profit
Product gross profit increased $2.5 million in 2019, as compared to 2018. Excluding the one-time retroactive ITC benefit of $36.1 million in 2018 and the adjustment in connection with the adoption of ASC 606 in 2019 of $43.9 million, gross profit increased approximately $82.5 million, or 99.1% in 2019, as compared to 2018. This increase was generally due to the increase in product acceptances and lower product cost driven by ongoing cost reduction activities.
Installation Gross Loss
Installation gross loss decreased $11.5 million in 2019, as compared to 2018. Excluding the adjustment in connection with the adoption of ASC 606 in 2019 of $6.1 million, installation gross loss decreased by $5.4 million, or 19.7%. This improvement was due to lower installation costs due to a higher mix of international customer sites accepted in 2019, as compared to 2018. Our installation costs are driven by the complexity of each site at which we are installing an Energy Server, including personalized applications, the size of each installation, which can cause variability in installation costs, and whether we or our international partners perform the installation.
Service Gross Loss
Service gross loss decreased $13.0 million in 2019, as compared to 2018. Excluding the adjustment in connection with the adoption of ASC 606 in 2019 of $10.4 million, service gross loss decreased by $2.6 million, or 14.8%. This improvement was primarily due to an increase in service revenue outpacing the increase in service cost required for maintaining the fleet of installed Energy Servers.
Electricity Gross Profit
Electricity gross profit decreased $35.1 million, or 113.4% in 2019, as compared to 2018, mainly due to charges related to the decommissioning and deconsolidation of Energy Servers associated with the PPA II and PPA IIIb upgrades of Energy Servers.
Operating Expenses
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | As Restated | | | | |
| | | (dollars in thousands) |
| Research and development | | $ | 104,168 |
| | $ | 89,135 |
| | $ | 15,033 |
| | 16.9 | % |
| Sales and marketing | | 73,573 |
| | 62,807 |
| | 10,766 |
| | 17.1 | % |
| General and administrative | | 152,650 |
| | 118,817 |
| | 33,833 |
| | 28.5 | % |
| Total operating expenses | | $ | 330,391 |
| | $ | 270,759 |
| | $ | 59,632 |
| | 22.0 | % |
Total Operating Expenses
Total operating expenses increased $59.6 million, or 22.0%, in 2019, as compared to 2018. Included as a component of total operating expenses, stock-based compensation expenses increased approximately $12.1 million for 2019, as compared to 2018. The increase in stock-based compensation expense is primarily attributable to a one-time employee grant of restricted stock units ("RSUs") awarded prior to IPO with a performance condition of an IPO of the Company's securities. These RSUs have a two-year vesting period starting on the day of IPO and were issued as an employee retention vehicle to bring our stock-based compensation in line with our peer group. In addition to the one-time grant, the stock-based compensation includes some previously granted RSUs with vesting beginning upon the completion of our IPO. Total operating expenses, excluding stock-based compensation, increased approximately $47.6 million, or 36.1%, in 2019, as compared to 2018. This increase was primarily due to compensation related expenses associated with hiring new employees, investments for next generation servers and customer personalized application technology development, expenses related to our demand generation functions, expenses related to our public company readiness and a $5.9 million debt payoff make-whole penalty associated with the PPA II upgrade of Energy Servers.
Research and Development
Research and development expenses increased by approximately $15.0 million, or 16.9%, in 2019, as compared to 2018. Included as a component of research and development expenses, stock-based compensation expenses increased by approximately $1.9 million for 2019, as compared to 2018. Total research and development expenses, excluding stock-based compensation, increased by approximately $13.1 million, or 26.2%, for 2019, as compared to 2018. This increase was primarily due to compensation-related expenses for hiring new employees and investments made for our next generation technology development, sustaining engineering projects for the current Energy Server platform, and investments made for customer personalized applications, such as microgrid and storage solutions, and new fuel solutions utilizing biogas.
Sales and Marketing
Sales and marketing expenses increased by approximately $10.8 million, or 17.1%, in 2019, as compared to 2018. Included as a component of sales and marketing expenses, stock-based compensation expenses increased by approximately $0.2 million for 2019, as compared to 2018. Total sales and marketing expenses, excluding stock-based compensation, increased by approximately $10.6 million, or 34.6%, for 2019, as compared to 2018. This increase was primarily due to compensation expenses related to hiring new employees and expenses related to efforts to increase demand and raise market awareness of our Energy Server solutions, expanding outbound communications, as well as efforts to attract new customer financing partners.
General and Administrative
General and administrative expenses increased by approximately $33.8 million, or 28.5%, in 2019, as compared to 2018. Included as a component of general and administrative expenses, stock-based compensation expenses increased by approximately $9.9 million for 2019, as compared to 2018. The majority of this increase was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total general and administrative expenses, excluding stock-based compensation, increased by approximately $23.9 million, or 46.5% for 2019, as compared to 2018. The increase in general and administrative expenses was due to an increase in compensation related expenses associated with hiring new employees to support public company readiness across accounting and legal functions, expenses related to becoming a public company and information technology related expenses for infrastructure and security support, as well as $5.9 million for a debt payoff make-whole penalty associated with the PPA II upgrade of Energy Servers and a production insurance write-off of $1.8 million associated with the PPA IIIb upgrade of Energy Servers.
Stock-Based Compensation
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | As Restated | | | | |
| | | (dollars in thousands) |
| Cost of revenue | | $ | 45,429 |
| | $ | 29,680 |
| | $ | 15,749 |
| | 53.1 | % |
| Research and development | | 40,949 |
| | 39,029 |
| | 1,920 |
| | 4.9 | % |
| Sales and marketing | | 32,478 |
| | 32,284 |
| | 194 |
| | 0.6 | % |
| General and administrative | | 77,435 |
| | 67,489 |
| | 9,946 |
| | 14.7 | % |
| Total stock-based compensation | | $ | 196,291 |
| | $ | 168,482 |
| | $ | 27,809 |
| | 16.5 | % |
Total stock-based compensation increased $27.8 million, or 16.5%, in 2019, as compared to 2018. Of the $196.3 million in stock-based compensation for 2019, approximately $91.3 million was related to one-time employee grants of RSUs that were issued at the time of our IPO and that have a two-year vesting period. These RSUs provided us an employee retention vehicle to bring our stock-based compensation in line with our peer group. In addition, the stock-based compensation included some previously granted RSUs that vested upon the completion of our IPO.
Other Income and Expense
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | |
| | | | | As Restated | | |
| | | (in thousands) |
| Interest income | | $ | 5,661 |
| | $ | 4,322 |
| | $ | 1,339 |
|
| Interest expense | | (87,480 | ) | | (97,021 | ) | | 9,541 |
|
| Interest expense, related parties | | (6,756 | ) | | (8,893 | ) | | 2,137 |
|
| Other income (expense), net | | 706 |
| | (999 | ) | | 1,705 |
|
| Loss on revaluation of warrant liabilities and embedded derivatives | | (2,160 | ) | | (22,139 | ) | | 19,979 |
|
| Total | | $ | (90,029 | ) | | $ | (124,730 | ) | | $ | 34,701 |
|
Total Other Expense
Total other expense decreased $34.7 million in 2019, as compared to 2018. This decrease was primarily due to the change in accounting for warrant liabilities and embedded derivatives that occurred at the time of the IPO removing the re-measurement requirement for these instruments, as well as due to a decrease in interest expense following the conversion of a portion of our debt into equity at the time of the IPO and the reduction of debt due to the PPA II and PPA IIIb upgrades.
Interest Income
Interest income increased $1.3 million in 2019, as compared to 2018. This increase was primarily due to the increase in interest on the cash and short-term investment balances which increased from proceeds from the IPO.
Interest Expense
Interest expense decreased $9.5 million in 2019, as compared to 2018. This decrease was primarily due to lower amortization expense of our debt derivatives and a decrease in interest expense with the debt buy-out due to the PPA II and PPA IIIb upgrades.
Interest Expense, Related Parties
Interest expense, related parties decreased $2.1 million due to the conversion of $40.1 million of our 8% Notes from related parties into equity at the time of the IPO.
Other Income (Expense), net
Other income (expense), net increased $1.7 million in 2019, as compared to 2018, due to changes in foreign currency translation expense.
Loss on Revaluation of Warrant Liabilities and Embedded Derivatives
Upon the IPO in 2018, the final valuation of the embedded derivatives related to the 6% Notes was reclassified from a derivative liability to additional paid-in capital and as a result, we did not record any valuation adjustments in 2019. In 2018, we recognized net loss of $22.1 million primarily due to an increase in the value of our derivatives of $31.2 million, which was partially offset by gains recognized from the revaluation of the preferred warrant liability of $9.1 million.
Provision for Income Taxes
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Income tax provision | | $ | 633 |
| | $ | 1,537 |
| | $ | (904 | ) | | (58.8 | )% |
Income tax provision decreased in 2019, as compared to 2018, and was primarily due to fluctuations in the effective tax rates on income earned by international entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | $ | (19,052 | ) | | $ | (17,736 | ) | | $ | (1,316 | ) | | (7.4 | )% |
Total loss attributable to noncontrolling interests increased $1.3 million, or 7.4%, in 2019, as compared to 2018. The net loss increased due to increased losses in our PPA Entities, which are allocated to our noncontrolling interests.
Comparison of the Years Ended December 31, 2018 and 2017Revenue
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
| | | As Restated | | As Revised | | | | |
| | | (dollars in thousands) |
| Product | | $ | 400,638 |
| | $ | 157,192 |
| | $ | 243,446 |
| | 154.9 | % |
| Installation | | 68,195 |
| | 57,937 |
| | 10,258 |
| | 17.7 | % |
| Service | | 83,267 |
| | 74,892 |
| | 8,375 |
| | 11.2 | % |
| Electricity | | 80,548 |
| | 75,602 |
| | 4,946 |
| | 6.5 | % |
| Total revenue | | $ | 632,648 |
| | $ | 365,623 |
| | $ | 267,025 |
| | 73.0 | % |
Total Revenue
Total revenue increased by approximately $267.0 million, or 73.0%, for 2018, as compared to 2017. There were four principal drivers of this revenue increase.
First, product acceptances increased by approximately 187 systems, or 30.1%, for 2018, as compared to 2017.
Second, we achieved a higher mix of orders from customers where revenue is recognized on acceptance compared to orders where revenue is recognized ratably over the term of the agreement. In 2018, we recognized 89.6% of our orders at acceptance, whereas only 77.4% of total acceptances in 2017 were recognized at acceptance.
Third, the Federal Investment Tax Credit ("ITC") was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, however, our revenue in 2018 includes the benefit of the reinstatement.
Lastly, the adoption of customer personalized applications, such as batteries and grid-independent solutions, increased in 2018, as compared to 2017. Customer orders that include these personalized applications generated, on average, higher revenue than our standard orders that do not include these personalized applications.
Product Revenue
Product revenue increased by approximately $243.4 million, or 154.9%, for 2018, as compared to 2017. This increase was driven by the increase in acceptances, higher mix of orders where revenue is recognized on acceptance, the ITC reinstatement, and an increase in the sales of customer personalized applications.
Installation Revenue
Installation revenue increased by approximately $10.3 million, or 17.7%, for 2018, as compared to 2017. This increase was driven by the increase in acceptances, higher mix of orders where revenue is recognized on acceptance, and an increase in the sales of customer personalized applications, partially offset by the lower installation revenue associated with one large customer in 2018 where the installation was performed by the customer and as a result, we did not have any installation revenue for that customer. In general, when a customer or, in the case of SK E&C in the Republic of Korea, a partner performs the installation service, we do not generate significant revenue for the installation.
Service Revenue
Service revenue increased by approximately $8.4 million, or 11.2% for 2018, as compared to 2017. This was primarily due to the increase in the number of annual maintenance contract renewals driven by our growing fleet of installed Energy Servers.
Electricity Revenue
Electricity revenue increased by approximately $4.9 million, or 6.5%, for 2018, as compared to 2017, due primarily to a growing fleet of installed Energy Servers related to our managed service customers where revenue is recognized over the term of the agreement, as well as Bloom Electrons customers whose contracts were initiated in 2017 and therefore only recognized revenue for a partial year versus a full year in 2018.
Cost of Revenue
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
| | | As Restated | | As Revised | | | | |
| | | (dollars in thousands) |
| Cost of revenue: | | | | | | | | |
| Product | | $ | 281,275 |
| | $ | 192,361 |
| | $ | 88,914 |
| | 46.2 | % |
| Installation | | 95,306 |
| | 54,970 |
| | 40,336 |
| | 73.4 | % |
| Service | | 100,689 |
| | 85,128 |
| | 15,561 |
| | 18.3 | % |
| Electricity | | 49,628 |
| | 49,475 |
| | 153 |
| | 0.3 | % |
| Total cost of revenue | | $ | 526,898 |
| | $ | 381,934 |
| | $ | 144,964 |
| | 38.0 | % |
Total Cost of Revenue
Total cost of revenue increased by approximately $145.0 million, or 38.0%, for 2018, as compared to 2017. Included as a component of total cost of revenue, stock-based compensation increased approximately $23.3 million for 2018, as compared to 2017. Total cost of revenue, excluding stock-based compensation, increased approximately $121.6 million, or 32.4%, to $497.2 million for 2018, as compared to $375.6 million for 2017. This increase in total cost of revenue was primarily attributable to higher product and install cost of revenue which was driven by an increase in the volume of product acceptances and a higher mix of orders with customers in which cost of revenue is recognized on acceptance, instead of ratably over the life of the agreement. Additionally there was an increase in the sales of customer personalized applications for 2018. These applications generally have a cost associated with them and therefore cause an increase in the cost of revenue.
Cost of Product Revenue
Cost of product revenue increased by approximately $88.9 million, or 46.2%, for 2018, as compared to 2017. This increase was driven by the increase in acceptances, higher mix of orders where cost of revenue is recognized on acceptance, increased costs from the sales of customer personalized applications, and an increase in stock-based compensation. Additionally, as a result of the reinstatement of the ITC program in February 2018, we were required to repay certain suppliers for previously negotiated contractual discounts. This payment of $9.4 million was recorded to cost of product revenue.
Cost of Installation Revenue
Cost of installation revenue increased by approximately $40.3 million, or 73.4%, for 2018, as compared to 2017. This increase was driven by the increase in acceptances, higher mix of orders where cost of revenue is recognized on acceptance, and increased costs from the sales of customer personalized applications where the installation is more complex, partially offset by the lower cost of installation associated with one large customer in 2018 where the installation was performed by the customer and as a result, we did not have any installation cost for that customer. In general, when we do not perform the installation function for a customer, such as in SK E&C in the Republic of Korea, we do not incur any significant installation costs on those orders.
Cost of Service Revenue
Cost of service revenue increased by approximately $15.6 million, or 18.3%, for 2018, as compared to 2017. This increase in service cost was primarily due to more power module replacements required in the fleet as a result of a larger fleet of installed Energy Servers, as well as replacing older generation power modules during the normal service process.
Cost of Electricity Revenue
Cost of electricity revenue increased by approximately $0.2 million, or 0.3%, for 2018, as compared to 2017, due to a growing fleet of installed Energy Servers related to our managed service customers where cost is recognized over the term of the agreement, as well as Bloom Electrons customers whose contracts were initiated in 2017 and therefore, we only recognized cost for a partial year versus a full year in 2018. These increases were offset by a gain recorded as a result of the fair value adjustment on our natural gas fixed price forward contract.
Gross Profit (Loss)
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | |
| | | As Restated | | As Revised | | |
| | | (dollars in thousands) |
| Gross Profit (Loss): | | | | | | |
| Product | | $ | 119,363 |
| | $ | (35,169 | ) | | $ | 154,532 |
|
| Installation | | (27,111 | ) | | 2,967 |
| | (30,078 | ) |
| Service | | (17,422 | ) | | (10,236 | ) | | (7,186 | ) |
| Electricity | | 30,920 |
| | 26,127 |
| | 4,793 |
|
| Total Gross Profit (Loss) | | $ | 105,750 |
| | $ | (16,311 | ) | | $ | 122,061 |
|
| | | | | | | |
| Gross Margin | | | | | | |
| Product | | 30 | % | | (22 | )% | | |
| Installation | | (40 | )% | | 5 | % | | |
| Service | | (21 | )% | | (14 | )% | | |
| Electricity | | 38 | % | | 35 | % | | |
| Total Gross Margin | | 17 | % | | (4 | )% | | |
Total Gross Profit
Gross profit improved $122.1 million in 2018, as compared to 2017. This improvement was generally as a result of higher product margins due to the increase in product acceptances which drove higher volume, a higher mix of orders recognized at acceptance versus ratably over the life of the agreement, and the reinstatement of the ITC.
Product Gross Profit
Product gross profit improved $154.5 million in 2018, as compared to 2017. This increase was due to the increase in product acceptances which drove higher volume, a higher mix of orders recognized at acceptance versus ratably over the life of the Bloom Electrons' or managed service contracts and the reinstatement of the ITC.
Installation Gross Loss
Installation gross amount worsened $30.1 million in 2018, as compared to 2017. This decrease from profit to a loss was due to higher installation costs associated with the initial installations for the new customer personalized applications. Our installation costs are driven by the complexity of each site at which we are installing an Energy Server, including personalized applications, as well as the size of each installation, which can cause variability in installation costs from year-to-year.
Service Gross Loss
Service gross loss worsened $7.2 million in 2018, as compared to 2017. This increased loss was primarily due to more power module replacements required in the fleet as a result of a larger fleet of installed Energy Servers, as well as replacing older power modules during the normal service process.
Electricity Gross Profit
Electricity gross profit increased $4.8 million, or 18.3%, in 2018, as compared to 2017 due to a gain recorded as a result of the fair value adjustment on a natural gas fixed price forward contract and a growing fleet of installed Energy Servers related to our managed service customers.
Operating Expenses
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
| | | As Restated | | As Revised | | | | |
| | | (dollars in thousands) |
| Research and development | | $ | 89,135 |
| | $ | 51,146 |
| | $ | 37,989 |
| | 74.3 | % |
| Sales and marketing | | 62,807 |
| | 31,926 |
| | 30,881 |
| | 96.7 | % |
| General and administrative | | 118,817 |
| | 55,689 |
| | 63,128 |
| | 113.4 | % |
| Total operating expenses | | $ | 270,759 |
| | $ | 138,761 |
| | $ | 131,998 |
| | 95.1 | % |
Total Operating Expenses
Total operating expenses increased $132.0 million, or 95.1%, in 2018, as compared to 2017. Included as a component of total operating expenses, stock-based compensation expenses increased approximately $116.1 million for 2018, as compared to 2017, accounting for much of the year-over-year increase. The increase in stock-based compensation is primarily attributable to a one-time employee grant of restricted stock units ("RSUs") at the time of our IPO and that have a two-year vesting period. These RSUs provided us with a market equity employee retention vehicle to help us compete for talent across our peer group. Additionally, the stock-based compensation included some previously granted RSUs that vested upon the completion of our IPO. Total operating expenses, excluding stock-based compensation, increased approximately $15.9 million, or 13.7%, in 2018, as compared to 2017. This increase was primarily due to compensation related expenses associated with hiring new employees, investments for next generation servers and customer personalized application technology development, and expenses related to our efforts to increase demand and raise market awareness of our Energy Server solutions, as well as to drive new customer financing partners.
Research and Development
Research and development expenses increased by approximately $38.0 million, or 74.3%, in 2018, as compared to 2017. Included as a component of research and development expenses, stock-based compensation expenses increased by approximately $33.5 million for 2018, as compared to 2017. The majority of this increase was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total research and development expenses, excluding stock-based compensation, increased by approximately $4.5 million, or 9.9%, for 2018, as compared to 2017. This increase was primarily due to compensation-related expenses related to hiring new employees and investments made for customer personalized applications, such as a battery solution, sustaining engineering projects for the current Energy Server platform and investments made for our next generation technology development.
Sales and Marketing
Sales and marketing expenses increased by approximately $30.9 million, or 96.7%, in 2018, as compared to 2017. Included as a component of sales and marketing expenses, stock-based compensation expenses increased by approximately $27.6 million for 2018, as compared to 2017. The majority of this increase was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total sales and marketing expenses, excluding stock-based compensation, increased by approximately $3.3 million, or 12.0%, for 2018, as compared to 2017. This increase was primarily due to compensation expenses related to hiring new employees and expenses related to efforts to increase demand and raise market awareness of our Energy Server solutions, expanding outbound communications, as well as efforts to attract new customer financing partners.
General and Administrative
General and administrative expenses increased by approximately $63.1 million, or 113.4%, in 2018, as compared to 2017. Included as a component of general and administrative expenses, stock-based compensation expenses increased by approximately $55.0 million for 2018, as compared to 2017. The majority of this increase was due to stock-based compensation expenses related to the RSU grants made at the time of our IPO. Total general and administrative expenses, excluding stock-based compensation, increased by approximately $8.1 million, or 18.8%, for 2018, as compared to 2017. The increase in general and administrative expenses was due to an increase in compensation related expenses associated with hiring new employees to support public company readiness across accounting and legal functions, expenses related to becoming a public company and information technology related expenses for infrastructure and security support.
Stock-Based Compensation
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
| | | As Restated | | As Revised | | | | |
| | | (dollars in thousands) |
| Cost of revenue | | $ | 29,680 |
| | $ | 6,355 |
| | $ | 23,325 |
| | 367 | % |
| Research and development | | 39,029 |
| | 5,560 |
| | 33,469 |
| | 602 | % |
| Sales and marketing | | 32,284 |
| | 4,685 |
| | 27,599 |
| | 589 | % |
| General and administrative | | 67,489 |
| | 12,501 |
| | 54,988 |
| | 440 | % |
| Total stock-based compensation | | $ | 168,482 |
| | $ | 29,101 |
| | $ | 139,381 |
| | 479 | % |
Total stock-based compensation increased $139.4 million, or 479%, in 2018, as compared to 2017. Of the $168.5 million in stock-based compensation for 2018, approximately $139.1 million was related to one-time employee grant of RSUs that were issued at the time of our IPO and that have a two-year vesting period. These RSUs provided us with a market equity employee retention vehicle necessary to compete for talent across our peer group. In addition, the stock-based compensation included some previously granted RSUs that vested upon completion of our IPO.
Other Income and Expense
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | |
| | | As Restated | | As Revised | | |
| | | (in thousands) |
| Interest income | | $ | 4,322 |
| | $ | 759 |
| | $ | 3,563 |
|
| Interest expense | | (97,021 | ) | | (112,039 | ) | | 15,018 |
|
| Interest expense, related parties | | (8,893) |
| | (12,265 | ) | | 3,372 |
|
| Other expense, net | | (999 | ) | | (491 | ) | | (508 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | (22,139 | ) | | (15,284 | ) | | (6,855 | ) |
| Total | | $ | (124,730 | ) | | $ | (139,320 | ) | | $ | 14,590 |
|
Total Other Expense
Total other expense decreased $14.6 million in 2018, as compared to 2017. This decrease was primarily due to the decrease in interest expense following the conversion of a portion of our debt into equity at the time of the IPO.
Interest Income
Interest income increased $3.6 million in 2018, as compared to 2017. This increase was primarily due to the increase in interest on the short-term investment balances which increased from proceeds from the IPO.
Interest Expense
Interest expense decreased $15.0 million in 2018, as compared to 2017. This decrease was primarily due to lower amortization expense of our debt derivatives and due to the conversion of a portion of our debt into equity at the time of the IPO.
Interest Expense, Related Parties
Interest expense, related parties decreased $3.4 million due to the conversion of $40.1 million of our 8% Notes from related parties into equity at the time of the IPO.
Other Income (Expense), net
Other expense decreased $0.5 million in 2018, as compared to 2017. This change was primarily due to an increase in interest income, partially offset by foreign currency translation.
Revaluation of Warrant Liabilities and Embedded Derivatives
For 2018, we recognized net loss of $22.1 million primarily due to an increase in the value of our derivatives of $31.2 million, which was partially offset by gains recognized from the revaluation of the preferred warrant liability of $9.1 million. The loss on revaluation of warrant liabilities and embedded derivatives increased $6.9 million when compared to 2017.
Provision for Income Taxes
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Income tax provision | | $ | 1,537 |
| | $ | 636 |
| | $ | 901 |
| | 141.7 | % |
Income tax provision increased in 2018, as compared to 2017 and was primarily due to fluctuations in the effective tax rates on income earned by international entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
|
| | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | Change |
| | | 2018 | | 2017 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | $ | (17,736 | ) | | $ | (18,666 | ) | | $ | 930 |
| | 5.0 | % |
Total loss attributable to noncontrolling interests decreased $0.9 million, or 5.0%, in 2018, as compared to 2017. The net loss decreased due to the allocation of our lower net loss using HLBV allocation methodology.
Liquidity and Capital Resources
As of December 31, 2019,2021, we had an accumulated deficit of approximately $2.9 billion. We have financed our operations, including the costs of acquisition and installation of Energy Servers, mainly through a variety of financing arrangements and PPA Entities, credit facilities from banks, sales of our common stock, debt financingscash and cash generated fromequivalents of $396.0 million. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with high credit quality counterparties, continually monitor the amount of credit exposure to any one issuer and diversify our operations. investments in order to minimize our credit risk.
In October 2021, we entered into a Securities Purchase Agreement with SK ecoplant Co., Ltd. in connection with a strategic partnership. On December 29, 2021, we consummated the transactions related to the First Closing by issuing and selling to SK ecoplant 10,000,000 shares of RCPS, at a purchase price of $25.50 per share or an aggregate purchase price of $255 million. In November 2021, PPA V entered into a $136 million term loan, which replaces the LIBOR + 2.5% Term Loan due December 2021.
As of December 31, 2019,2021, we had $401.4$291.8 million of total outstanding recourse debt, $235.4$234.9 million of non-recourse debt and $28.0$16.8 million of other long termlong-term liabilities. See Note 7, Outstanding Loans and Security Agreements forFor a complete description of our outstanding debt. As of December 31, 2019debt, please see Note 7 - Outstanding Loans and 2018, we had cashSecurity Agreements in Part II, Item 8, Financial Statements and cash equivalents and short-term investments of $202.8 million and $325.1 million, respectively. In July 2018, we successfully completed an initial public offering ("IPO") of our securities with the sale of 20,700,000 shares of our Class A common stock at a price of 15.00 per share, resulting in cash proceeds of $282.3 million, net of underwriting discounts, commissions and estimated offering costs.
We believe that our existing cash and cash equivalents will be sufficient to meet our operating and capital cash flow requirements and other cash flow needs for at least the next 12 months from the date of this Annual Report on Form 10-K. As of December 31, 2019, the current portion of our total debt is $337.6 million, which would require cash payments of $353.5 million in the next 12 months. On March 31, 2020, we extended the maturity for all but $70.0 million of current debt as follows:
We entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the beneficial owners (the “Noteholders”) of our outstanding 6.0% Convertible Notes due 2020 (the “Convertible Notes”) pursuant to which such Noteholders have agreed, subject to certain conditions set forth therein, to consent to, among other things, certain amendments to the indenture (the “Proposed Amendments”) dated as of December 15, 2015, as supplemental by the First Supplemental Indenture dated as of September 20, 2016, the Second Supplemental Indenture dated as of June 29, 2017 and the Third Supplemental Indenture dated as of January 18, 2018, each among us, the guarantor party thereto and U.S. Bank National Association, as trustee and collateral agent (as so supplemented, the “Original Indenture”), pursuant to which the Convertible Notes were issued to extend the maturity date of the Convertible Notes to December 1, 2021.
In connection with the execution and delivery of the Amendment Documents, on March 31, 2020, we entered into an Amended and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”) pursuant to which certain terms of our outstanding Amended and Restated Subordinated Secured Convertible Note issued to Constellation were modified to extend the maturity date to December 31, 2021.
Furthermore, on March 31, 2020, we entered into a note purchase agreement and convertible note purchase agreement, as follows:
We entered into a note purchase agreement (the “Note Purchase Agreement”) with certain investors pursuant to which such investors have agreed to purchase, and we have agreed to issue, $70.0 million of 10.25% Senior Secured Notes due 2027 (the “Senior Secured Notes”) in a private placement (the “Senior Secured Notes Private Placement”)Supplementary Data. The funding of the Note Purchase Agreement is subject to certain conditions including obtaining a rating from a rating agency.
We entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with Foris Ventures, LLC and New Enterprise Associates 10, Limited Partnership (together, the “Purchasers”), pursuant to which such Purchasers were issued $30.0 million aggregate principal amount of additional Convertible Notes (the “Additional Convertible Notes”) under the Amended and Restated Indenture.
The combination of our existing cash and cash equivalents the extension of the Convertible Notes and Constellation Note Modification to December 2021, the proceeds from the convertible note agreement and operating cash flows areis expected to be sufficient to meet our operational and capitalanticipated cash flow requirements and other cash flowsneeds for the next 12 months and thereafter for the foreseeable future. If these sources of cash are insufficient to satisfy our near-term or future cash needs, we may require additional capital from the dateequity or debt financings to fund our operations, in particular, our manufacturing capacity, product development and market expansion requirements, to timely respond to competitive market pressures or strategic opportunities, or otherwise. We may, from time to time, engage in a variety of this Annual Reportfinancing transactions for such purposes, including factoring our accounts receivable. We may not be able to secure timely additional financing on Form 10-K, including the current portionfavorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our total debt.common stock.
Our future cash flowcapital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our Energy Servers, the timing of receipt by us of distributions from our PPA Entitiesinstallations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through an equity or debt financing. Failure to obtain this financing or financing in future quarters will affect our results of operations, including revenue and cash flows.
As of December 31, 2021, the current portion of our total debt is $25.8 million, of which $17.5 million is outstanding non-recourse debt. We do not expect a certain portion of the non-recourse debt would be refinanced by the applicable PPA Entity prior to receive significant cash distributions from our PPA Entities. During June 2019, we completed a transaction for the PPA II upgrade of Energy Servers and we repaid all the PPA II outstanding debt of $76.8 million. During November 2019, we
completed a transaction for the PPA IIIb upgrade of Energy Servers and we repaid all the PPA IIIb outstanding debt of $23.9 million. For additional information refer to Note 13, Power Purchase Agreement Programs.
Cash Flowsmaturity.
A summary of our consolidated sources and uses of cash, cash equivalents and restricted cash iswas as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | | | |
| | | 2021 | | 2020 | | | | | |
| | | | | | | | | | | |
| Net cash provided by (used in): | | | | | | | | | | |
| Operating activities | | $ | (60,681) | | | $ | (98,796) | | | | | | | |
| Investing activities | | (46,696) | | | (37,913) | | | | | | | |
| Financing activities | | 306,375 | | | 176,031 | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | As Restated | | As Revised |
| Net cash provided by (used in): | | | | | | |
| Operating activities | | $ | 163,770 |
| | $ | (91,948 | ) | | $ | (91,966 | ) |
| Investing activities | | 53,447 |
| | (125,375 | ) | | (88,247 | ) |
| Financing activities | | (120,314 | ) | | 317,196 |
| | 142,910 |
|
Net cash provided by (used in) our variable interest entities (the PPA Entities)Entities, which are incorporated into the consolidated statements of cash flows, for December 31, 2019, 2018 and 2017, iswas as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended
December 31, | | | | |
| | | 2021 | | 2020 | | | | | |
| | | | | | | | | | |
| PPA Entities ¹ | | | | | | | | |
| Net cash provided by PPA operating activities | | $ | 3,188 | | | $ | 26,039 | | | | | | | |
| Net cash provided by (used in) PPA financing activities | | 3,231 | | | (23,784) | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | | | |
| PPA Entities ¹ | | | | |
| Net cash provided by PPA operating activities | | $ | 279,402 |
| | $ | 30,612 |
| | $ | 24,797 |
|
| Net cash used in PPA financing activities | | (167,259 | ) | | (38,813 | ) | | (30,525 | ) |
| | | | | | | |
1 The PPA Entities' operating and financing cash flows are a subset of our consolidated cash flows and representsrepresent the stand-alone cash flows prepared in accordance with U.S. GAAP. Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase of Energy Servers from us and principal reductions in loan balances. Financing activities consist primarily of changes in debt carried by our PPAs, and payments from and distributions to noncontrolllingnoncontrolling partnership interests. We believe this presentation of net cash provided by (used in) PPA activities is useful to provide the reader with the impact to consolidated cash flows of the PPA Entities in which we have only a minority interest.
Operating Activities
Net cash provided byOur operating activities have consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. The increase in cash used in operating activities during the twelve monthsyear ended December 31, 2019 was $163.8 million and2021 as compared to the prior year period was primarily the result of an increase in our net cash earnings of $67.3 million plus the net decrease in working capital of $96.5 million. Net cash earnings is primarily comprised of a net loss of $323.5$18.8 million adjusted for non-cash benefit items including: (i) depreciation and amortization of $78.6 million; (ii) PPA II and PPA IIIb decommissioning costs of $70.5 million; (iii) write-off of property, plant and equipment net of $3.1 million; (iv) impairment of assets of $11.3 million; (v) a loss on revaluation of derivative contracts of $2.8 million; (vi) stock-based compensation of $196.3 million; (vii) amortization of debt issuance cost of $22.1 million, plus (viii) an expense reclass to financing activities related to a debt make-whole expense of $5.9 million. Net cash provided from changes in working capital consisted primarily of decreases in: (i) accounts receivable of $52.0 million; (ii) inventories of $18.4 million; (iii) customer financing receivable of $5.5 million; (iv) prepaid expenses and other current assets of $8.6 million; and (v) other long-term assets of $3.6 million; plus increases in: (vi) accrued expenses and other current liabilities of $6.7 million; and (vii) other long-term liabilities of $4.4 million, and (viii) deferred revenue and contract liabilities of $37.1 million. These sources of cash from working capital were partially offset by increases in: (i) deferred cost of revenue of $22.0 million; and (ii) decreases in: accounts payable of $11.3 million and (iii) accrued warranty of $6.6 million.
Net cash used in operating activities for the twelve monthsyear ended December 31, 2018 was $91.9 million2021 due to the timing of revenue transactions and was the result of net cash loss of $22.4 millioncorresponding collections and the net increase in working capital of $69.5 million. Net cash loss is primarily comprised of a net loss of $291.3 million, adjusted for non-cash benefit items including: (i) depreciation and amortization of approximately $53.9 million; (ii) write-off of property, plant and equipment net of $0.9 million; (iii) a loss on revaluation of derivative contracts of $29.0 million; (iv) stock-based compensation of $168.5 million; and (v) amortization of debt issuance cost of $25.4 million; partially offset by (vi) a gain on revaluation of stock warrants of $9.1 million. Net cash used by changes in working capital consisted primarily of increases in: (i) accounts receivable of $55.0 million; (ii) inventory of $37.0 million; and (iii) prepaid expenses and other current assets of $8.0 million; plus a decrease in: (iv) accrued expenses and other current liabilities of $6.0 million; and (v) deferred revenue
and contract liabilities of $21.8 million. These uses of cash for working capital were partially offset by decreases in: (i) deferred cost of revenue of $14.2 million; and (ii) customer financing receivable and other of $4.9 million; plus increases in: (iv) accounts payable of $18.3 million; (v) accrued warranty of $1.5 million; and (vi) other long term liabilities of $19.6 million.
Net cash used in operating activities for the twelve months ended December 31, 2017 was $92.0 million and was the result of net cash loss of $152.2 million partially offset by the net increase in working capital of $60.2 million. Net cash loss is primarily comprised of a net loss of $295.0 million, adjusted for non-cash benefit items including: (i) depreciation and amortization of approximately $54.4 million; (ii) a loss on revaluation of derivative contracts of $15.0 million; (iii) stock-based compensation of $29.1 million; and (iv) amortization of debt issuance cost of $47.3 million; partially offset by (v) a gain on revaluation of stock warrants of $3.0 million. Net cash provided by changes in working capital consisted primarily of decreases in: (i) accounts receivable of $3.2 million; (ii) customer financing receivable and other of $5.5 million, and (iii) other long-term assets of $0.8 million; plus an increase in: (iv) accrued expenses and other current liabilities of $8.0 million; (v) deferred revenue and contract liabilities of $48.3 million; and (vi) other long term liabilities of $37.6 million. These sources of cash from working capital were partially offset by increases in: (i) inventory of $10.6 million; (ii) deferred cost of revenue of $31.3 million; and (iii) prepaid expenses and other current assets of $1.0 million; plus decrease in: (iv) accrued warranty of $7.4 million.levels to support future demand.
Investing Activities
Net cash provided byOur investing activities in the twelve months ended December 31, 2019 was $53.4 million which included proceeds from maturityhave consisted of marketable securities of $104.5 million, partially offset by $51.1 million used for the purchase of long-lived assets. Our use of cash in the twelve months ended December 31, 2019 for the purchase of property, plant and equipment increased,capital expenditures that include investment to increase our production capacity. We expect to continue such activities as compared to the same period in 2018, due to completing a move to our new corporate headquarters which is used for administration, research and development, and sales and marketing.
Net cashbusiness grows. Cash used in investing activities inof $46.7 million during the twelve monthsyear ended December 31, 2018 was $125.4 million which2021 was primarily the result of net purchase of marketable securities of $76.9 million, plus $48.5 million usedexpenditures on tenant improvements for a newly leased engineering building in Fremont, California. We expect to continue to make capital expenditures over the next few quarters to prepare our new manufacturing facility in Fremont, California for production, which includes the purchase of long-lived assets.
Netnew equipment and other tenant improvements. We intend to fund these capital expenditures from cash used in investing activities in the twelve months ended December 31, 2017 was $88.2 million which was primarily the result of net purchase of marketable securities of $26.8 million, plus $61.5 million used for the purchase of long-lived assets.on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures.
Financing Activities
Net cash used inHistorically, our financing activities in the twelve months ended December 31, 2018 was $120.3 million which included paymentshave consisted of borrowings and repayments of debt including to related parties, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests and redeemable noncontrolling interest of $56.5 million, distributions paid to our PPA Equity Investors of $12.5 million, repayments of debt of $121.5 million,interests, and a debt make-whole payment of $5.9 million related to our PPA II upgrade of Energy Servers, partially offset bythe proceeds from the issuance of our common stock of $12.7 million.
stock. Net cash provided by financing activities in the twelve months ended December 31, 2018 was $317.2 million resulted primarily from our initial public offering netting $292.5 million plus proceeds from the issuance of common stock of $1.5 million, partially offset by distributions paid to our PPA Equity Investors of $15.3 million, repayments of long-term debt of $20.2 million, and payments of initial public offering issuance costs of $5.5 million.
Net cash provided by financing activities in the twelve months ended December 31, 2017 was $142.9 million resulted from net proceeds from the issuance of debt of $93.9 million and net proceeds from noncontrolling and redeemable noncontrolling interests of $13.7 million, partially offset by distributions paid to our PPA Equity Investors of $23.7 million, repayments of long-term debt of $21.4 million, and costs related to our initial public offering of $1.1 million.
Outstanding Loans and Security Agreements
The following is a summary of our debt as of December 31, 2019 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Net Carrying Value | | Unused
Borrowing
Capacity |
| | | Current | | Long-
Term | | Total | |
| | | | | | | | | | | |
| LIBOR + 4% term loan due November 2020 | | $ | 1,571 |
| | $ | 1,536 |
| | $ | — |
| | $ | 1,536 |
| | $ | — |
|
| 5% convertible promissory note due December 2020 | | 33,104 |
| | 36,482 |
| | — |
| | 36,482 |
| | — |
|
| 6% convertible promissory notes due December 2020 | | 289,299 |
| | 273,410 |
| | — |
| | 273,410 |
| | — |
|
| 10% notes due July 2024 | | 93,000 |
| | 14,000 |
| | 75,962 |
| | 89,962 |
| | — |
|
| Total recourse debt | | 416,974 |
| | 325,428 |
| | 75,962 |
| | 401,390 |
| | — |
|
| 7.5% term loan due September 2028 | | 38,338 |
| | 3,882 |
| | 31,088 |
| | 34,970 |
| | — |
|
| 6.07% senior secured notes due March 2030 | | 80,988 |
| | 3,151 |
| | 76,865 |
| | 80,016 |
| | — |
|
| LIBOR + 2.5% term loan due December 2021 | | 121,784 |
| | 5,122 |
| | 115,315 |
| | 120,437 |
| | — |
|
| Available letters of credit, expires December 2021 | | — |
| | — |
| | — |
| | — |
| | 1,220 |
|
| Total non-recourse debt | | 241,110 |
| | 12,155 |
| | 223,268 |
| | 235,423 |
| | 1,220 |
|
| Total debt | | $ | 658,084 |
| | $ | 337,583 |
| | $ | 299,230 |
| | $ | 636,813 |
| | $ | 1,220 |
|
Recourse debt refers to debt that Bloom Energy Corporation has an obligation to pay. Non-recourse debt refers to debt that is recourse to only specified assets or our subsidiaries. The differences between the unpaid principal balances and the net carrying values are due to debt discounts and deferred financing costs. We were in compliance with all of our financial covenants as of December 31, 2019 and 2018.
Recourse Debt Facilities
LIBOR + 4% Term Loan due November 2020 - In May 2013, we entered into a $5.0 million credit agreement and a $12.0 million financing agreement to help fund the building of a new facility in Newark, Delaware. The $5.0 million credit agreement expired in December 2016. The $12.0 million financing agreement has a term of 90 months, payable monthly at a variable rate equal to one month LIBOR plus the applicable margin. The year-to-date weighted average interest rate as of December 31, 2019 and 2018 was 6.3% and 5.9%, respectively. The loan requires monthly payments and is secured by the manufacturing facility. In addition, the credit agreement includes a cross-default provision which provides that the remaining balance of borrowing under the agreement will be due and payable immediately if a lien is placed on the Newark facility in the event we default on any indebtedness in excess of $100,000 individually or $300,000 in the aggregate. Under the terms of the financing agreement, we are required to comply with various restrictive covenants. As of December 31, 2019 and 2018, the debt outstanding was $1.6 million and $3.3 million, respectively.
5% Convertible Promissory Notes due 2020 (Originally 8% Convertible Promissory Notes due December 2018) - Between December 2014 and June 2016, we issued $193.2 million of three-year convertible promissory notes ("8% Notes") to certain investors. The 8% Notes had a fixed interest rate of 8% compounded monthly, due at maturity or at the election of the investor with accrued interest due in December of each year.
On January 18, 2018, amendments were finalized to extend the maturity dates for all the 8% Notes to December 2019. At the same time, the portion of the notes that was held by Constellation NewEnergy, Inc. ("Constellation") was extended to December 2020 and the interest rate decreased from 8% to 5% ("5% Notes").
Investors held the right to convert the unpaid principal and accrued interest of both the 8% Notes and 5% Notes to Series G convertible preferred stock at any time at the price of $38.64 per share. In July 2018, upon our IPO, the $221.6 million of principal and accrued interest of outstanding 8% Notes automatically converted into additional paid-in capital, the conversion of which included all the related-party noteholders. The 8% Notes converted to shares of Series G convertible preferred stock and, concurrently, each such share of Series G convertible preferred stock converted automatically into one share of Class B common stock. Upon our IPO, 5,734,440.0 shares of Class B common stock were issued from conversions and the 8% Notes were retired. Constellation, the holder of the 5% Notes, has not elected to convert as of December 31, 2019. The outstanding unpaid principal and accrued interest debt balance of the 5% Notes of $36.5 million was classified as current as of December 31, 2019, and the outstanding unpaid principal and accrued interest debt balance of the 5% Notes of $36.5 million was classified as non-current as of December 31, 2018.
6% Convertible Promissory Notes due December 2020 - Between December 2015 and September 2016, we issued $260.0 million convertible promissory notes due December 2020, ("6% Notes") to investors. The 6% Notes bore a 5% fixed interest rate, payable monthly either in cash or in kind, at our election. We amended the terms of the 6% Notes in June 2017 to reduce the collateral securing the notes and to increase the interest rate from 5% to 6%.
As of December 31, 2019 and 2018, the amount outstanding on the 6% Notes, which includes interest paid in kind through the IPO date, was $289.3 million and $296.2 million, respectively. Upon the IPO, the debt was convertible at the option of the holders at the conversion price of $11.25 per share into common stock at any time through the maturity date. In January 2018, we amended the terms of the 6% Notes to extend the convertible put option, which investors could elect only if the IPO did not occur prior to December 2019. After the IPO, we paid the interest in cash when due and no additional interest accrued on the consolidated balance sheet on the 6% Notes. In November 2019, one note holder exchanged a portion of their 6% Notes at the conversion price of $11.25 per share into 616,302 shares of common stock.
On or after July 27, 2020, we may redeem, at our option, all or part of the 6% Notes if the last reported sale price of our common stock has been at least $22.50 for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the three trading days immediately preceding the date on which we provide written notice of redemption In certain circumstances, the 6% Notes are also redeemable at our option in connection with a change of control.
Under the terms of the indenture governing the 6% Notes, we are required to comply with various restrictive covenants, including meeting reporting requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on investments. In addition, we are required to maintain collateral which secures the 6% Notes in an amount equal to 200% of the principal amount of and accrued and unpaid interest on the outstanding notes. This minimum collateral test is not a negative covenant and does not result in a default if not met. However, the minimum collateral test does restrict us with respect to investing in non-PPA subsidiaries. If we do not meet the minimum collateral test, we cannot invest cash into any non-PPA subsidiary that is not a guarantor of the notes. The 6% Notes also include a cross-acceleration provision which provides that the holders of at least 25% of the outstanding principal amount of the 6% Notes may cause such notes to become immediately due and payable if we or any of our subsidiaries default on any indebtedness in excess of $15.0 million such that the repayment of such indebtedness is accelerated.
In connection with the issuance of the 6% Notes, we agreed to issue to J.P. Morgan and CPPIB, upon the occurrence of certain conditions, warrants to purchase our common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. On August 31, 2017, J.P. Morgan transferred its rights to CPPIB. Upon completion of the IPO, the 312,888 warrants were net exercised for 312,575 shares of Class B Common stock.
10% Notes due July 2024 - In June 2017, we issued $100.0 million of senior secured notes ("10% Notes"). The 10% Notes mature in 2024 and bear a 10.0% fixed rate of interest and with principal amortization started July 2019, payable semi-annually. The 10% Notes have a continuing security interest in the cash flows payable to us as servicing, operations and maintenance fees and administrative fees from certain active power purchase agreements. Under the terms of the indenture governing the notes, we are required to comply with various restrictive covenants including, among other things, to maintain certain financial ratios such as debt service coverage ratios, to incur additional debt, issue guarantees, incur liens, make loans or investments, make asset dispositions, issue or sell share capital of our subsidiaries and pay dividends, meet reporting requirements, including the preparation and delivery of audited consolidated financial statements, or maintain certain restrictions on investments and requirements in incurring new debt. As of December 31, 2019, we were in compliance with all of such covenants. In addition, we are required to maintain collateral which secures the 10% Notes based on debt ratio analyses. This minimum collateral test is not a negative covenant and does not result in a default if not met. However, the minimum debt service coverage ratio test does restrict our access to the excess cash escrowed in a collection account which would otherwise be released to us on a bi-annual basis after principal amortization and interest payment. The outstanding unpaid principal and accrued interest debt balance of the 10% Notes of $14.0 million and $7.0 million were classified as current as of December 31, 2019 and 2018, respectively and the outstanding unpaid principal and accrued interest debt balances of the 10% Notes of $76.0 million and $88.6 million were classified as non-current as of December 31, 2019 and 2018, respectively.
Non-recourse Debt Facilities
5.22% Senior Secured Term Notes - In March 2013, PPA Company II refinanced its existing debt by issuing 5.22% Senior Secured Notes due March 30, 2025 (the "5.22% Notes"). During the year ended December 31, 2019, there2021 was a decommissioning in PPA II, including$306.4 million, an increase of $130.3 million compared to the retirementprior year period, primarily due to the issuance of the 5.22% Notes outstanding unpaid debt and interest of $77.6 million, which included the accumulated unpaid interest on the debt. See Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers for additional information.
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreementRCPS to help fund the purchase and installation of Energy Servers. The loan bears a fixed interest rate of 7.5% payable quarterly. The loan requires quarterly principal payments which began in March 2014. The credit agreement requires us to maintain a debt service reserve for all funded systems, the balance of which was $3.8 million and $3.7 million as of December 31, 2019 and 2018, respectively, and which was included as part of long-term restricted cash in the consolidated balance sheets. The loan is secured by all assets of PPA IIIa.
LIBOR + 5.25% Term Loan due October 2020 - In September 2013, PPA IIIb entered into a credit agreement to help fund the purchase and installation of Energy Servers. The aggregate amount of the debt facility was $32.5 million. During the year ended December 31, 2019, there was a decommissioning in PPA IIIb, including the retirement of this outstanding unpaid debt of $24.2 million, which included the accumulated unpaid interest on the debt. See Note 13, Power Purchase Agreement Programs - PPA IIIb Upgrade of Energy Servers for additional information.
6.07% Senior Secured Notes - In July 2014, PPA IV issued senior secured notes amounting to $99.0 million to third parties to help fund the purchase and installation of Energy Servers. The notes bear a fixed interest rate of 6.07% payable quarterly which beganSK ecoplant in December 2015 and ends2021, combined with proceeds in March 2030. The notes are secured by all the assets of the PPA IV. The Note Purchase Agreement requires us to maintain a debt service reserve, the balance of which was $8.0 million as of December 31, 2019 and $6.5 million as of December 31, 2018, and which was included as part of long-term restricted cash in the consolidated balance sheets.
LIBOR + 2.5% Term Loan due December 2021 - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of Energy Servers. The lenders are a group of five financial institutionsfrom stock option exercises and the terms included commitments to a lettersale of credit (LC) facility (see below). The loan was initially advanced as a construction loan during the development of the PPA V Project and converted into a term loan on February 28, 2017 (the “Term Conversion Date”). As part of the term loan’s conversion, the LC facility commitments were adjusted.
In accordance with the credit agreement, PPA V was issued a floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. The loan is secured by all the assets of the PPA V and requires quarterly principal payments which began in March 2017. In connection with the floating-rate credit agreement, in July 2015 the PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.
Letters of credit due December 2021 - In June 2015, PPA V entered into a $131.2 million term loan due December 2021. The agreement also included commitments to a letter of credit ("LC") facility, with the characteristics of a line of credit, with the aggregate principal amount of $6.4 million, later adjusted down to $6.2 million. The amount reservedshares under the letter of credit as of December 31, 2019 andour 2018 was $5.0 million. The unused capacity as of December 31, 2019 and 2018 was $1.2 million.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations and the debt of our consolidated PPA entities that is non-recourse to Bloom as of December 31, 2019:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period |
| | | Total | | Less than
1 Year | | 1-3 Years | | 3-5 Years | | More than
5 Years |
| | | (in thousands) |
| Contractual Obligations and Other Commitments: | | | | | | | | | | |
Recourse debt1 | | $ | 416,974 |
| | $ | 337,974 |
| | $ | 34,000 |
| | $ | 45,000 |
| | $ | — |
|
Non-recourse debt2 | | 241,110 |
| | 12,155 |
| | 131,416 |
| | 20,391 |
| | 77,148 |
|
| Operating leases | | 43,411 |
| | 7,250 |
| | 9,662 |
| | 8,586 |
| | 17,913 |
|
| Service arrangements | | 3,255 |
| | 1,397 |
| | 1,858 |
| | — |
| | — |
|
| Financing obligations | | 312,862 |
| | 37,840 |
| | 78,406 |
| | 79,024 |
| | 117,592 |
|
| Natural gas fixed price forward contracts | | 6,968 |
| | 4,052 |
| | 2,916 |
| | — |
| | — |
|
| Grant for Delaware facility | | 10,469 |
| | — |
| | 10,469 |
| | — |
| | — |
|
| Interest rate swap | | 9,130 |
| | 782 |
| | 2,384 |
| | 2,486 |
| | 3,478 |
|
| Supplier purchase commitments | | 2,324 |
| | 1,225 |
| | 1,099 |
| | — |
| | — |
|
| Renewable energy credit obligations | | 1,109 |
| | 761 |
| | 348 |
| | — |
| | — |
|
| Asset retirement obligations | | 500 |
| | 500 |
| | — |
| | — |
| | — |
|
| Total | | $ | 1,048,112 |
| | $ | 403,936 |
| | $ | 272,558 |
| | $ | 155,487 |
| | $ | 216,131 |
|
| |
1
| Our 6% Notes and our credit agreements related to the building of our facility in Newark, Delaware each contain cross-default or cross-acceleration provisions. See “Recourse Debt Facilities” above for more details. |
| |
2
| Each of the debt facilities entered into by PPA IIIa, PPA IV and PPA V contain cross-default provisions. See “Non-recourse Debt Facilities” above for more details. |
Employee Stock Purchase Plan. Off-Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities and results of operations of our PPA Entities that we have entered into and over which we have substantial control. For additional information, see Note 13 Power Purchase Agreement Programs.-Portfolio Financingsin Part II, Item 8, Financial Statements and Supplementary Data. We have not entered into any other transactions that have generated relationships with unconsolidated entities or financial partnerships or special purpose entities. Accordingly, as of December 31, 20192021 and 2018,2020 we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S. GAAP") The preparation of the consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations above are based on our audited results of operations, which we have prepared in accordance with U.S. GAAP. In preparing these consolidated financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are representative of estimation uncertainty, and are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating the consolidated financial condition and results of operations.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, include:
Discussion of Earliest Year of Changes in Financial Condition and Results of Operations
We include discussion of the earliest year of changes in financial condition and results of operations, as deemed appropriate, even when such information has been previously disclosed in our prior EDGAR filings. We consider the total mix of available information, including the impact of any recastable events when determining whether to omit discussion of the earliest year and the most appropriate form of presentation. We determine to limit the discussion to the information that has changed or has been determined to be significant to our operations or financial condition.
Revenue Recognition
We apply Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. We identify our contracts with Customers, determine our performance obligations and the transaction price, and after allocating the transaction price to the performance obligations, we recognize revenue as we satisfy our performance obligations and transfer control of our products and services to our customers. Most of our contracts with customers contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate the total transaction price to each performance obligation based on the relative standalone selling price.
We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance which typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system is shipped and delivered to our customers, when the system is shipped and delivered and is physically ready for start up and commissioning, or when the system is shipped and delivered and is turned on and producing power.
We recognize installation revenue when the system has been installed and is running at full power.
Service revenue is recognized ratably over the term of the first or renewed one-year service period. Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price may be less than the standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right. We estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for
maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable historical industry service margins. As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance service agreements based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method.
For successful sales-leaseback arrangements, we recognize product and installation revenue upon meeting criteria demonstrating we have transferred control to the customer (the Buyer-Lessor). When control of the Energy Server is transferred to the financier, and we determine the leaseback qualifies as an operating lease in accordance with ASC 842, Leases ("ASC 842"), we record a ROU asset and a lease liability, and recognize revenue based on the fair value of the Energy Servers with an allocation to product revenue and installations revenue based on the relative standalone selling prices. We recognize as financing obligations any proceeds received to finance our ongoing costs to operate the Energy Servers.
Valuation of Escalator Protection Plan Agreements ("EPP")
We have entered into agreements with certain customers which require us to recognize a liability in compliance with the financial accounting and reporting requirements of ASC Topic 820, Fair Value Measurement ("ASC 820"). We use third party valuation experts to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject liabilities using inputs of forecasted avoided costs and the cost of electricity. We determine our final estimate of liability based on internal reviews and in consideration of the estimates received. Although measured each reporting period, our estimates may vary from the actual payments made under the contractual agreements, as the estimates include current known liability and estimates of potential future payments. We use valuation methodology including using a Monte Carlo simulation model, with estimated inputs of beginning value, growth rate and volatility, and further discount our estimate of liability based on our cost of debt commensurate with the payment period.
Valuation of Certain Financial Instruments and Customer Financing Receivables
We have entered into certain Customer Financing Receivables with our PPA 3a arrangement, and debt financings that include Redeemable Senior Secured Notes, Convertible Senior Notes, Senior Secured Notes, Term Loans and Fixed Rate Notes. We are required to determine the fair value of the assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC Topic 840, Leases, and ASC Topic 815, Derivatives and Hedging ("ASC 815"). We use third party valuation experts to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of principal to be received or paid, maturity dates, coupon rates, selected discount rate based on implied rating and comparable yield curves in Energy and Non-Financial markets. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation of Assets and Liabilities of the SK ecoplant Strategic Investment
We have entered into an agreement with SK ecoplant that provides the opportunity, but does not require, an additional investment in common stock Class A, subject to a cap on the total potential share purchase, and as a component of transaction, includes a purchase commitment by the investor for future product purchases.
We are required to determine the fair value of the assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC 815and ASC Topic 480 Distinguishing Liabilities from Equity. We use third party valuation experts that are recognized as financial instrument accounting specialists to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of number of shares,
underlying prices of Bloom Energy stock, rights and obligations of the counterparties, valuation assumptions related to options, and the assessed value of our product revenue streams and the timing of expected revenue recognition. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We determine the reasonableness of our valuation methodology, assumptions on the timing and probability of a redemption event, and the expected number of shares to be exercised with the Option, and review the mathematical accuracy of the calculations before recording in our consolidated statement of operations and consolidated balance sheets. See Note 18 - SK ecoplant Strategic Investment.
Incremental Borrowing Rate ("IBR") by Lease Class
We adopted ASC 842 on January 1, 2020 on a modified retrospective basis. This guidance requires that, for all our leases, we recognize ROU assets representing our right to use the underlying asset for the lease term, and lease liabilities related to the rights and obligations created by those leases, on the balance sheet regardless of whether they are classified as finance or operating leases, with classification affecting the pattern and presentation of expenses and cash flows on the consolidated financial statements. Lease liabilities are measured at the lease commencement date as the present value of future minimum lease payments over the reasonably certain lease term. Lease ROU assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, we used our collateralized incremental borrowing rate as our leases do not generally provide an implicit rate. The determination of the incremental borrowing rate considers qualitative and quantitative factors as well as the estimated impact that the collateral has on the rate. We determine our incremental borrowing rate based on the lease class of assets which relates to those supporting of manufacturing and general operations, and those supporting electricity revenue transactions.
For successful sale-leasebacks, as Seller-Lessee, we determine the collateralized IBR on our leased equipment based on a fair value assessment provided by third-party valuation experts.
Stock-Based Compensation
We account for stock options and other equity awards, such as restricted stock units and performance-based stock units, to employees and non-employee directors under the provisions of ASC 718, Compensation-Stock Compensation. Accordingly, the stock-based compensation expense for these awards is measured based on the fair value on the date of grant. For stock options, we recognize the expense, net of estimated forfeitures, under the straight-line attribution over the requisite service period which is generally the vesting term. The fair value of the stock options is estimated using the Black-Scholes valuation model. For options with a vesting condition tied to the attainment of service and market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. In addition, we use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach.
The Black-Scholes valuation model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of the stock options and the expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options as well as expected forfeiture rates based on the historical settlement experience and after giving consideration to vesting schedules.
Income Taxes
We account for income taxes using the liability method under ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. This determination is based on expected future results and the future reversals of existing taxable temporary differences. Furthermore, uncertain tax positions are evaluated by management and amounts are recorded when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits. Significant judgement is required throughout management's process in evaluating each uncertain tax position including future taxable income expectations and tax-planning strategies to determine whether the more likely than not recognition threshold has been met. We have provided a full valuation allowance on our domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
Principles of Consolidation
Our consolidated financial statements include the operations of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirements for each of our PPA Entities that are variable interest entities ("VIEs"). This approach focuses on determining whether we have the power to direct those activities that significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits that could potentially be significant to the PPA Entities. The considerations for VIE consolidation is a complex analysis that requires us to determine whether we are the primary beneficiary and therefore have the power to direct activities which are most significant to those PPA Entities.
Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests and Redeemable Noncontrolling Interests
We generally allocate profits and losses to noncontrolling interests under the HLBV method. The HLBV method is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities.
The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks as part of our ongoing business operations, primarily by exposure to changes in interest rates, in commodity fuel prices and in foreign currency.
Interest Rate Risk
Our cash is maintained in interest-bearing accounts and our cash equivalents are invested in money market funds and our short-term investments are invested in U.S. Treasury Bills.funds. Lower interest rates would have an adverse impact on our interest income.income or potentially incur other expenses if a negative interest rate environment was to exist. Due to the short-term investment nature of our cash and cash equivalents, and short-term investments, we believe that we do not have material financial statement exposure to changes in fair value as a result of changes in interest rates. Since we believe we have the ability to liquidate substantially all of this portfolio, we do not expect our operating results or cash flows to be materially affected to any significant degree by a sudden change in market interest rates on our investment portfolio.
To provide a meaningful assessment of the interest rate risk associated with our cash and cash equivalents, and short-term investments, we performed a sensitivity analysis to determine the impact a change in interest rates would have on income statement and in investment fair values assuming a 1% decline in yield. Based on the investment positions in both December 31, 20192021 and 2018,2020, a hypothetical 1% decrease in interest rates across all maturities would result in a $3.8$5.8 million declineand $4.1 million declines in interest income and/or increase in other expenses on an annualized basis.basis, respectively. As these investments have maturities of less than twelve months, changes with respect to the portfolio fair value would be limited to these amounts and only be realized if we were to terminate the investments prior to maturity.
We are exposed to interest rate risk related tohad refinanced our indebtedness that bears interest based ononly LIBOR-based floating-rate loan with a floating LIBOR rate. We generally hedge such interest rate risks with the use of hedging instruments, and for these loans, changesfixed-rate loan in interest rates are generally offset by interest rate derivative swap contracts. For2021. As our debt is fixed-rate debt, interest rate changes do not affect our earnings or cash flows.
To provide a meaningful assessment of the interest rate risk for that portion of our outstanding loans associated with floating LIBOR and not covered by interest rate derivative swaps, we performed a sensitivity analysis to determine the impact a change in interest rates would have on our consolidated statements of operations assuming a 1% interest rate increase. Based on monthly floating-rate loan positions for the years ended December 31, 2019 and 2018, a hypothetical 1% increase in LIBOR would have resulted in a $0.3 million and a $0.2 million increase to our interest expense, respectively. These losses would be directly attributable to our PPA Entities.
Commodity Price Risk
We are subject to commodity price risk arising from price movements for natural gas that we supply to customers to operate our Energy Servers under certain power purchase agreements. While we entered into a natural gas fixed price forward contract with our gas supplier in 2011, the fuel forward contract meets the definition of a derivative under U.S. GAAP and accordingly, any changes in its fair value is recorded within cost of revenue in the consolidated statements of operations. The fair value of the contract is determined using a combination of factors including our credit rating and future natural gas prices.
To provide a meaningful assessment of the commodity price risk arising from price movements in the commodity futures contracts for natural gas, we performed a sensitivity analysis to determine the impact a change in natural gas commodity pricing would have on our consolidated statements of operations assuming a 10% change in the commodity contracts held. Based on monthly commodity positions for the years ended December 31, 20192021 and 2018,2020, a hypothetical 10% increase in the price of natural gas futures would have resulted in a $0.6 millionno change and a $1.0$0.3 million adjustment to their balance sheet fair values, respectively.
Foreign Currency Risk
Our sales contracts are primarily denominated in U.S. dollars and, therefore, substantially all of our revenue is not subject to foreign currency market risk. Our supply contracts are primarily denominated in U.S. dollars and our corporate operations are domiciled in the U.S.United States. However, we conduct some internationally domiciled field operations and therefore, find it necessary to transact in foreign currencies for limited operational purposes, necessitating that we hold foreign currency bank accounts.
To provide a meaningful assessment of the risk associated with our foreign currency holdings, we performed a sensitivity analysis to determine the impact a currency devaluation would have on our balance sheet assuming a 20% decline in the value of the U.S. dollar. Based on our foreign currency holdings as of December 31, 20192021 and 2018,2020, a hypothetical 20% devaluation of the U.S. dollar against foreign currencies would not be material to our reported cash position.
However, an increasing portion of our operating expenses are incurred outside the United States, are denominated in foreign currencies and are subject to such risk. Although not yet material, if we are not able to successfully hedge against the risks associated with currency fluctuations in our future activities, our financial condition and operating results could be adversely affected.
Actual future gains and losses associated with our investment portfolio, debt and derivative positions and foreign currency may differ materially from the sensitivity analyses performed as of December 31, 20192021 and 20182020 due to the inherent limitations associated with predicting the timing and amount of changes in interest rates, foreign currency exchange rates and our actual commodity derivative exposures and positions.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors and Stockholders of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bloom Energy Corporation and its subsidiaries (the “Company”"Company") as of December 31, 20192021 and 2018, and2020, the related consolidated statements of operations, of comprehensive loss, ofredeemable convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficitequity (deficit) and noncontrolling interest, and of cash flows, for each of the threetwo years in the period ended December 31, 2019, including2021, and the related notes (collectively referred to as the “consolidated financial statements”"financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 20192021, in conformity with accounting principles generally accepted in the United States of America.
RestatementWe have also audited, in accordance with the standards of Previously Issued Financial Statementsthe Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
As discussed in Note 2These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the consolidatedCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Managed Services Sale and Leaseback Revenue – Refer to Notes 2 and 9 to the financial statements
Critical Audit Matter Description
During the year ended December 31, 2021, the Company has restated its consolidated financial statementscompleted several sale and leaseback transactions to sell Energy Servers to financiers and lease them back. The Company recognizes revenue for such transactions when control of the Energy Servers transfers to the financier and the leaseback qualifies as an operating lease in accordance with ASC 842 - Leases (“ASC 842”). Revenue is recognized based on the fair value of the Energy Servers, which is allocated to product revenue and installation revenue based on the relative standalone selling prices. Any proceeds to finance the Company’s ongoing costs to operate the Energy Servers during the term of the leaseback are recognized as financing obligations.
The Company recognized $35.1 million of product revenue and $20.9 million of installation revenue for the year ended December 31, 20182021 and $10 million of financing obligations from such sale and leaseback transactions.
We identified accounting for revenue recognition under sale and leaseback transactions as a critical audit matter because of the complexity in applying the accounting framework. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to correct misstatements.evaluate the appropriateness of the accounting framework and to audit the revenue recognized during the year.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for revenue recognition for sale and leaseback transactions included the following:
•We tested the effectiveness of internal controls over the Company’s accounting for sale and leaseback transactions, including those over management’s evaluation of revenue recognition and the existence and completeness of financing obligations.
•For each sale and leaseback transaction executed during the year ended December 31, 2021, we performed the following:
•We inspected the executed contracts to identify the relevant terms and conditions which would impact the Company’s accounting conclusions, including (i) the transfer of control of the Energy Servers to the financier, (ii) the classification of the leaseback as an operating lease in accordance with ASC 842, and (iii) the existence of financing obligations.
•With the assistance of our revenue and lease accounting specialists, we evaluated the Company’s conclusions regarding the accounting treatment applied to the sale and leaseback transactions, including the recognition of revenue and the identification of financing obligations.
Securities Purchase Agreement – Refer to Note 18 to the financial statements
Critical Audit Matter Description
On October 23, 2021, the Company entered into a Securities Purchase Agreement with SK ecoplant Co., Ltd. (“SK ecoplant”), to sell 10,000,000 shares of Redeemable Convertible Series A preferred stock (the “RCPS”) for a purchase price of $255 million. The agreement included an option for SK ecoplant to purchase additional shares of the Company’s Class A Common stock (“the Option”).
We identified the accounting and the valuation of the Securities Purchase Agreement as a critical audit matter because of the complexity in applying the accounting framework and the significant estimates and assumptions made by management in the determination of the fair values of both the RCPS and the Option (collectively, the “Financial Instruments”). This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the accounting framework and the reasonableness of the fair value estimates and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for the Securities Purchase Agreement, including the Company’s determination of the fair values of the financial instruments, included the following:
•We tested the effectiveness of controls over the Company’s accounting for the Securities Purchase Agreement and over the determination of the fair values of the Financial Instruments.
•With the assistance of our financial instrument accounting specialists, we evaluated the Company’s conclusions regarding the accounting treatment applied to the Securities Purchase Agreement.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the following:
–Valuation methodologies applied to determine the fair values of the Financial Instruments
–Assumptions used by the Company in the valuation of the Financial Instruments, including the expected timing and the probability of a redemption event for the RCPS, and the expected number of shares to be exercised with the Option
–Accuracy, completeness, and relevancy of the source information underlying the fair value of the Financial Instruments and the mathematical accuracy of the calculations.
•With the assistance of our fair value specialists, we developed independent estimates and compared them to the fair values of the Financial Instruments determined by management.
/s/ Deloitte & Touche LLP
San Jose, California
February 25, 2022
We have served as the Company's auditor since 2020.
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Stockholders of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the consolidated statements of operations, of comprehensive loss, of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders’ equity (deficit) and noncontrolling interest and of cash flows of Bloom Energy Corporation and its subsidiaries (the “Company”) for the year ended December 31, 2019, including the related notes (collectively referred to as the “consolidatedfinancial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2019in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 12 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2019.
Basis for Opinion
These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit of these consolidatedfinancial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
Our audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 31, 2020
We have served as the Company’s auditor since 2009.from 2009 to 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Bloom Energy Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Bloom Energy Corporation and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 25, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
San Jose, California
February 25, 2022
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands, except share data and per share data)par values)
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Assets | | | | |
| Current assets: | | | | |
Cash and cash equivalents1 | | $ | 396,035 | | | $ | 246,947 | |
Restricted cash1 | | 92,540 | | | 52,470 | |
| | | | |
Accounts receivable1 | | 87,789 | | | 96,186 | |
| Contract assets | | 25,201 | | | 3,327 | |
| Inventories | | 143,370 | | | 142,059 | |
| Deferred cost of revenue | | 25,040 | | | 41,469 | |
Customer financing receivable1 | | 5,784 | | | 5,428 | |
Prepaid expenses and other current assets1 | | 30,661 | | | 30,718 | |
| Total current assets | | 806,420 | | | 618,604 | |
Property, plant and equipment, net1 | | 604,106 | | | 600,628 | |
| Operating lease right-of-use assets | | 106,660 | | | 35,621 | |
Customer financing receivable, non-current1 | | 39,484 | | | 45,268 | |
Restricted cash, non-current1 | | 126,539 | | | 117,293 | |
| Deferred cost of revenue, non-current | | 1,289 | | | 2,462 | |
| Goodwill | | 1,957 | | | — | |
Other long-term assets1 | | 39,116 | | | 34,511 | |
| Total assets | | $ | 1,725,571 | | | $ | 1,454,387 | |
| Liabilities, Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interest, Stockholders’ (Deficit) Equity and Noncontrolling Interest | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 72,967 | | | $ | 58,334 | |
| Accrued warranty | | 11,746 | | | 10,263 | |
Accrued expenses and other current liabilities1 | | 114,138 | | | 112,004 | |
Deferred revenue and customer deposits1 | | 89,975 | | | 114,286 | |
| | | | |
| Operating lease liabilities | | 13,101 | | | 7,899 | |
| Financing obligations | | 14,721 | | | 12,745 | |
| Recourse debt | | 8,348 | | | — | |
Non-recourse debt1 | | 17,483 | | | 120,846 | |
| | | | |
| | | | |
| Total current liabilities | | 342,479 | | | 436,377 | |
| | | | |
| | | | |
Deferred revenue and customer deposits, non-current1 | | 90,310 | | | 87,463 | |
| Operating lease liabilities, non-current | | 106,187 | | | 41,849 | |
| | | | |
| Financing obligations, non-current | | 461,900 | | | 459,981 | |
| Recourse debt, non-current | | 283,483 | | | 168,008 | |
Non-recourse debt, non-current1 | | 217,416 | | | 102,045 | |
| | | | |
| | | | |
| Other long-term liabilities | | 16,772 | | | 17,268 | |
| Total liabilities | | 1,518,547 | | | 1,312,991 | |
| | | | |
| Commitments and contingencies (Note 13) | | 0 | | 0 |
| Redeemable convertible preferred stock, Series A: 10,000,000 shares authorized and 10,000,000 shares and no shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | | 208,551 | | | — | |
| Redeemable noncontrolling interest | | 300 | | | 377 | |
| Stockholders’ (deficit) equity: | | | | |
| | | | |
| Common stock: $0.0001 par value; Class A shares - 600,000,000 shares authorized and 160,627,544 shares and 140,094,633 shares issued and outstanding and Class B shares - 600,000,000 shares authorized and 15,832,863 shares and 27,908,093 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | | 18 | | | 17 | |
| Additional paid-in capital | | 3,219,081 | | | 3,182,753 | |
| Accumulated other comprehensive loss | | (350) | | | (9) | |
| Accumulated deficit | | (3,263,075) | | | (3,103,937) | |
| Total stockholders’ (deficit) equity | | (44,326) | | | 78,824 | |
| Noncontrolling interest | | 42,499 | | | 62,195 | |
| Total liabilities, redeemable noncontrolling interest, stockholders' (deficit) equity and noncontrolling interest | | $ | 1,725,571 | | | $ | 1,454,387 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| | | | | As Restated |
| Assets |
| Current assets: | | | | |
Cash and cash equivalents1 | | $ | 202,823 |
| | $ | 220,728 |
|
Restricted cash1 | | 30,804 |
| | 28,657 |
|
| Short-term investments | | — |
| | 104,350 |
|
Accounts receivable1 | | 37,828 |
| | 88,784 |
|
| Inventories | | 109,606 |
| | 135,265 |
|
| Deferred cost of revenue | | 58,470 |
| | 43,809 |
|
Customer financing receivable1 | | 5,108 |
| | 5,594 |
|
Prepaid expenses and other current assets1 | | 28,068 |
| | 36,747 |
|
| Total current assets | | 472,707 |
| | 663,934 |
|
Property, plant and equipment, net1 | | 607,059 |
| | 716,751 |
|
Customer financing receivable, non-current1 | | 50,747 |
| | 67,082 |
|
Restricted cash, non-current1 | | 143,761 |
| | 31,100 |
|
| Deferred cost of revenue, non-current | | 6,665 |
| | 45 |
|
Other long-term assets1 | | 41,652 |
| | 42,882 |
|
| Total assets | | $ | 1,322,591 |
| | $ | 1,521,794 |
|
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | |
| Current liabilities: | | | | |
Accounts payable1 | | $ | 55,579 |
| | $ | 66,889 |
|
| Accrued warranty | | 10,333 |
| | 17,968 |
|
Accrued expenses and other current liabilities1 | | 70,284 |
| | 66,838 |
|
Deferred revenue and customer deposits1 | | 89,192 |
| | 67,632 |
|
| Financing obligations | | 10,993 |
| | 8,128 |
|
| Current portion of recourse debt | | 304,627 |
| | 8,686 |
|
Current portion of non-recourse debt1 | | 8,273 |
| | 18,962 |
|
| Current portion of recourse debt from related parties | | 20,801 |
| | — |
|
Current portion of non-recourse debt from related parties1 | | 3,882 |
| | 2,200 |
|
| Total current liabilities | | 573,964 |
| | 257,303 |
|
Derivative liabilities1 | | 17,551 |
| | 14,143 |
|
Deferred revenue and customer deposits, net of current portion1 | | 125,529 |
| | 87,308 |
|
| Financing obligations, non-current | | 446,165 |
| | 385,650 |
|
| Long-term portion of recourse debt | | 75,962 |
| | 360,339 |
|
Long-term portion of non-recourse debt1 | | 192,180 |
| | 289,241 |
|
| Long-term portion of recourse debt from related parties | | — |
| | 27,734 |
|
Long-term portion of non-recourse debt from related parties1 | | 31,087 |
| | 34,119 |
|
Other long-term liabilities1 | | 28,013 |
| | 26,196 |
|
| Total liabilities | | 1,490,451 |
| | 1,482,033 |
|
| | | | | |
| Commitments and contingencies (Note 14) | |
|
| |
|
|
| Redeemable noncontrolling interest | | 443 |
| | 57,261 |
|
| Stockholders’ deficit: | | | | |
| Common stock: $0.0001 par value; Class A shares, 600,000,000 shares authorized at both December 31, 2019 and 2018, and 84,549,511 shares and 20,868,286 shares issued and outstanding at December 31, 2019 and 2018, respectively; Class B shares, 600,000,000 shares authorized at both December 31, 2019 and 2018, and 36,486,778 shares and 88,552,897 shares issued and outstanding at December 31, 2019 and 2018, respectively. | | 12 |
| | 11 |
|
| Additional paid-in capital | | 2,686,759 |
| | 2,481,352 |
|
| Accumulated other comprehensive income | | 19 |
| | 131 |
|
| Accumulated deficit | | (2,946,384 | ) | | (2,624,104 | ) |
| Total stockholders’ deficit | | (259,594 | ) | | (142,610 | ) |
| Noncontrolling interest | | 91,291 |
| | 125,110 |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,322,591 |
| | $ | 1,521,794 |
|
1We have variable interest entities, which represent a portion of the consolidated balances are recorded within these financial statement line items in the Consolidated Balance Sheetsconsolidated balance sheets (see Note 13, Power Purchase Agreement Programs11 - Portfolio Financings).
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | As Restated | | As Revised |
| Revenue: | | | | | | |
| Product | | $ | 557,336 |
| | $ | 400,638 |
| | $ | 157,192 |
|
| Installation | | 60,826 |
| | 68,195 |
| | 57,937 |
|
| Service | | 95,786 |
| | 83,267 |
| | 74,892 |
|
| Electricity | | 71,229 |
| | 80,548 |
| | 75,602 |
|
| Total revenue | | 785,177 |
| | 632,648 |
| | 365,623 |
|
| Cost of revenue: | | | | | | |
| Product | | 435,479 |
| | 281,275 |
| | 192,361 |
|
| Installation | | 76,487 |
| | 95,306 |
| | 54,970 |
|
| Service | | 100,238 |
| | 100,689 |
| | 85,128 |
|
| Electricity | | 75,386 |
| | 49,628 |
| | 49,475 |
|
| Total cost of revenue | | 687,590 |
| | 526,898 |
| | 381,934 |
|
| Gross profit (loss) | | 97,587 |
| | 105,750 |
| | (16,311 | ) |
| Operating expenses: | | | | | | |
| Research and development | | 104,168 |
| | 89,135 |
| | 51,146 |
|
| Sales and marketing | | 73,573 |
| | 62,807 |
| | 31,926 |
|
| General and administrative | | 152,650 |
| | 118,817 |
| | 55,689 |
|
| Total operating expenses | | 330,391 |
| | 270,759 |
| | 138,761 |
|
| Loss from operations | | (232,804 | ) | | (165,009 | ) | | (155,072 | ) |
| Interest income | | 5,661 |
| | 4,322 |
| | 759 |
|
| Interest expense | | (87,480 | ) | | (97,021 | ) | | (112,039 | ) |
| Interest expense to related parties |
| (6,756 | ) |
| (8,893 | ) | | (12,265 | ) |
| Other income (expense), net | | 706 |
| | (999 | ) | | (491 | ) |
| Gain (loss) on revaluation of warrant liabilities and embedded derivatives | | (2,160 | ) | | (22,139 | ) | | (15,284 | ) |
| Loss before income taxes | | (322,833 | ) | | (289,739 | ) | | (294,392 | ) |
| Income tax provision | | 633 |
| | 1,537 |
| | 636 |
|
| Net loss | | (323,466 | ) | | (291,276 | ) | | (295,028 | ) |
| Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (19,052 | ) | | (17,736 | ) | | (18,666 | ) |
| Net loss attributable to Class A and Class B common stockholders | | (304,414 | ) | | (273,540 | ) | | (276,362 | ) |
| Less: deemed dividend to noncontrolling interest | | (2,454 | ) | | — |
| | — |
|
| Net loss available to Class A and Class B common stockholders | | $ | (306,868 | ) | | $ | (273,540 | ) | | $ | (276,362 | ) |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | $ | (2.67 | ) | | $ | (5.14 | ) | | $ | (26.97 | ) |
| Weighted average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted | | 115,118 |
| | 53,268 |
| | 10,248 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | As Restated | | As Revised |
| Net loss | | $ | (323,466 | ) | | $ | (291,276 | ) | | $ | (295,028 | ) |
| Other comprehensive income (loss), net of taxes: | | | | | | |
| Unrealized gain (loss) on available-for-sale securities | | 14 |
| | 26 |
| | (13 | ) |
| Change in effective portion of interest rate swap | | (295 | ) | | 267 |
| | 393 |
|
| Other comprehensive income | | (281 | ) | | 293 |
| | 380 |
|
| Comprehensive loss | | $ | (323,747 | ) | | $ | (290,983 | ) | | $ | (294,648 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Revenue: | | | | | | | | | | |
| Product | | | | | | $ | 663,512 | | | $ | 518,633 | | | $ | 557,336 | |
| Installation | | | | | | 96,059 | | | 101,887 | | | 60,826 | |
| Service | | | | | | 144,184 | | | 109,633 | | | 95,786 | |
| Electricity | | | | | | 68,421 | | | 64,094 | | | 71,229 | |
| Total revenue | | | | | | 972,176 | | | 794,247 | | | 785,177 | |
| Cost of revenue: | | | | | | | | | | |
| Product | | | | | | 471,654 | | | 332,724 | | | 435,479 | |
| Installation | | | | | | 110,214 | | | 116,542 | | | 76,487 | |
| Service | | | | | | 148,286 | | | 132,329 | | | 100,238 | |
| Electricity | | | | | | 44,441 | | | 46,859 | | | 75,386 | |
| Total cost of revenue | | | | | | 774,595 | | | 628,454 | | | 687,590 | |
| Gross profit | | | | | | 197,581 | | | 165,793 | | | 97,587 | |
| Operating expenses: | | | | | | | | | | |
| Research and development | | | | | | 103,396 | | | 83,577 | | | 104,168 | |
| Sales and marketing | | | | | | 86,499 | | | 55,916 | | | 73,573 | |
| General and administrative | | | | | | 122,188 | | | 107,085 | | | 152,650 | |
| Total operating expenses | | | | | | 312,083 | | | 246,578 | | | 330,391 | |
| Loss from operations | | | | | | (114,502) | | | (80,785) | | | (232,804) | |
| Interest income | | | | | | 262 | | | 1,475 | | | 5,661 | |
| Interest expense | | | | | | (69,025) | | | (76,276) | | | (87,480) | |
| Interest expense - related parties | | | | | | — | | | (2,513) | | | (6,756) | |
| Other income (expense), net | | | | | | (8,139) | | | (8,318) | | | 706 | |
| Gain (loss) on extinguishment of debt | | | | | | — | | | (12,878) | | | — | |
| (Loss) gain on revaluation of embedded derivatives | | | | | | (919) | | | 464 | | | (2,160) | |
| Loss before income taxes | | | | | | (192,323) | | | (178,831) | | | (322,833) | |
| Income tax provision | | | | | | 1,046 | | | 256 | | | 633 | |
| Net loss | | | | | | (193,369) | | | (179,087) | | | (323,466) | |
| Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | | | | | | (28,924) | | | (21,534) | | | (19,052) | |
| Net loss attributable to Class A and Class B common stockholders | | | | | | (164,445) | | | (157,553) | | | (304,414) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Less: deemed dividend to noncontrolling interest | | | | | | — | | | — | | | (2,454) | |
| Net loss available to Class A and Class B common stockholders | | | | | | $ | (164,445) | | | $ | (157,553) | | | $ | (306,868) | |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | | | | | $ | (0.95) | | | $ | (1.14) | | | $ | (2.67) | |
| Weighted average shares used to compute net loss per share available to Class A and Class B common stockholders, basic and diluted | | | | | | 173,438 | | | 138,722 | | | 115,118 | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Deficit and Noncontrolling InterestComprehensive Loss
(in thousands, except shares)thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Net loss | | | | | | $ | (193,369) | | | $ | (179,087) | | | $ | (323,466) | |
| Other comprehensive loss, net of taxes: | | | | | | | | | | |
| Unrealized loss on available-for-sale securities | | | | | | — | | | (23) | | | 14 | |
| Change in derivative instruments designated and qualifying as cash flow hedges | | | | | | 15,243 | | | (6,896) | | | (6,085) | |
| Foreign currency translation adjustment | | | | | | (595) | | | — | | | 0 |
| Other comprehensive (loss) income, net of taxes | | | | | | 14,648 | | | (6,919) | | | (6,071) | |
| Comprehensive loss | | | | | | (178,721) | | | (186,006) | | | (329,537) | |
| Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interest | | | | | | (13,935) | | | (28,425) | | | (24,842) | |
| Comprehensive loss attributable to Class A and Class B stockholders | | | | | | $ | (164,786) | | | $ | (157,581) | | | $ | (304,695) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible Redeemable Preferred Stock | | Redeemable
Noncontrolling
Interest | | | Class A and Class B
Common Stock¹ | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Deficit | | Noncontrolling
Interest |
| | Shares | | Amount | | | | | Shares | | Amount | | | | | |
| Balances at December 31, 2016 (as Reported) | 71,740,162 |
| | $ | 1,465,841 |
| | $ | 59,320 |
| | | 10,132,220 |
| | $ | 1 |
| | $ | 108,647 |
| | $ | (542 | ) | | $ | (2,068,048 | ) | | $ | (1,959,942 | ) | | $ | 175,668 |
|
| Adjustments to accumulated deficit and total stockholders' deficit | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | (6,154 | ) | | (6,154 | ) | | — |
|
| Balances at December 31, 2016 (as Revised) | 71,740,162 |
| | 1,465,841 |
| | 59,320 |
| | | 10,132,220 |
| | 1 |
| | 108,647 |
| | (542 | ) | | (2,074,202 | ) | | (1,966,096 | ) | | 175,668 |
|
| Contributions from noncontrolling interests | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,652 |
|
| Issuance of common stock warrant | — |
| | — |
| | — |
| | | — |
| | — |
| | 9,410 |
| | — |
| | — |
| | 9,410 |
| | — |
|
| Issuance of common stock | — |
| | — |
| | — |
| | | 64,000 |
| | — |
| | 1,981 |
| | — |
| | — |
| | 1,981 |
| | — |
|
| Exercise of stock options | — |
| | — |
| | — |
| | | 123,153 |
| | — |
| | 432 |
| | — |
| | — |
| | 432 |
| | — |
|
| Issuance of restricted stock awards | — |
| | — |
| | — |
| | | 33,896 |
| | — |
| | 1,254 |
| | — |
| | — |
| | 1,254 |
| | — |
|
| Stock-based compensation | — |
| | — |
| | — |
| | | — |
| | — |
| | 29,080 |
| | — |
| | — |
| | 29,080 |
| | — |
|
| Unrealized gain on available-for-sale securities | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) | | — |
|
| Change in effective portion of interest rate swap agreement | — |
| | — |
| | 1 |
| | | — |
| | — |
| | — |
| | 393 |
| | — |
| | 393 |
| | 500 |
|
| Distributions to noncontrolling interests | — |
| | — |
| | (5,104 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (11,845 | ) |
| Net income (loss) (as revised) | — |
| | — |
| | 3,937 |
| | | — |
| | — |
| | — |
| | — |
| | (276,362 | ) | | (276,362 | ) | | (22,603 | ) |
| Balances at December 31, 2017 (as Revised) | 71,740,162 |
| | 1,465,841 |
| | 58,154 |
| | | 10,353,269 |
| | 1 |
| | 150,804 |
| | (162 | ) | | (2,350,564 | ) | | (2,199,921 | ) | | 155,372 |
|
| Issuance of Class A common stock upon public offering, net | — |
| | — |
| | — |
| | | 20,700,000 |
| | 2 |
| | 282,274 |
| | — |
| | — |
| | 282,276 |
| | — |
|
| Issuance of Class B common stock on convertible notes | — |
| | — |
| | — |
| | | 5,734,440 |
| | 1 |
| | 221,579 |
| | — |
| | — |
| | 221,580 |
| | — |
|
| Issuance of Class A and B common stock upon exercise of warrants | — |
| | — |
| | — |
| | | 312,575 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Conversion of redeemable convertible preferred stock Series A-G | (71,740,162 | ) | | (1,465,841 | ) | | — |
| | | 71,740,162 |
| | 7 |
| | 1,465,834 |
| | — |
| | — |
| | 1,465,841 |
| | — |
|
| Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital | — |
| | — |
| | — |
| | | — |
| | — |
| | 882 |
| | — |
| | — |
| | 882 |
| | — |
|
| Reclassification of derivative liability into additional paid-in capital (as restated) | — |
| | — |
| | — |
| | | — |
| | — |
| | 177,963 |
| | — |
| | — |
| | 177,963 |
| | — |
|
| Issuance of common stock | — |
| | — |
| | — |
| | | 166,667 |
| | — |
| | 2,500 |
| | — |
| | — |
| | 2,500 |
| | — |
|
| Issuance of restricted stock awards | — |
| | — |
| | — |
| | | 17,793 |
| | — |
| | 349 |
| | — |
| | — |
| | 349 |
| | — |
|
| Exercise of stock options | — |
| | — |
| | — |
| | | 396,277 |
| | — |
| | 1,521 |
| | — |
| | — |
| | 1,521 |
| | — |
|
| Stock-based compensation | — |
| | — |
| | — |
| | | — |
| | — |
| | 177,646 |
| | — |
| | — |
| | 177,646 |
| | — |
|
| Unrealized loss on available-for-sale securities | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | 26 |
| | — |
| | 26 |
| | — |
|
| Change in effective portion of interest rate swap agreement | — |
| | — |
| | 2 |
| | | — |
| | — |
| | — |
| | 267 |
| | — |
| | 267 |
| | 1,829 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible Redeemable Preferred Stock | | Redeemable
Noncontrolling
Interest | | | Class A and Class B
Common Stock¹ | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Deficit | | Noncontrolling
Interest |
| | Shares | | Amount | | | | | Shares | | Amount | | | | | |
| Distributions to noncontrolling interests | — |
| | — |
| | (6,788 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,462 | ) |
| Net loss (as restated) | — |
| | — |
| | 5,893 |
| | | — |
| | — |
| | — |
| | — |
| | (273,540 | ) | | (273,540 | ) | | (23,629 | ) |
| Balances at December 31, 2018 (as Restated) | — |
| | — |
| | 57,261 |
| | | 109,421,183 |
| | 11 |
| | 2,481,352 |
| | 131 |
| | (2,624,104 | ) | | (142,610 | ) | | 125,110 |
|
| Cumulative effect upon adoption of new accounting standard (Note 3) | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | (17,996 | ) | | (17,996 | ) | | — |
|
| Buyout of equity investors in PPA IIIb (Note 13) | — |
| | — |
| | — |
| | | — |
| | — |
| | (2,454 | ) | | 169 |
| | — |
| | (2,285 | ) | | — |
|
| Conversion of Notes | — |
| | — |
| | — |
| | | 616,302 |
| | — |
| | 6,933 |
| | — |
| | — |
| | 6,933 |
| | — |
|
| Issuance of restricted stock awards | — |
| | — |
| | — |
| | | 8,921,807 |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
| ESPP purchase | — |
| | — |
| | — |
| | | 1,718,433 |
| | — |
| | 11,183 |
| | — |
| | — |
| | 11,183 |
| | — |
|
| Exercise of stock options | — |
| | — |
| | — |
| | | 358,564 |
| | — |
| | 1,529 |
| | — |
| | — |
| | 1,529 |
| | — |
|
| Stock-based compensation | — |
| | — |
| | — |
| | | — |
| | — |
| | 188,114 |
| | — |
| | — |
| | 188,114 |
| | — |
|
| Unrealized loss on available-for-sale securities | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
| | — |
|
| Change in effective portion of interest rate swap agreement | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | (295 | ) | | — |
| | (295 | ) | | (5,790 | ) |
| Distributions to noncontrolling interests | — |
| | — |
| | (4,011 | ) | | | — |
| | — |
| | 102 |
| |
|
| | — |
| | 102 |
| | (5,970 | ) |
| Mandatory redemption of noncontrolling interests | — |
| | — |
| | (55,684 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Cumulative effect of hedge accounting | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| |
|
| | 130 |
| | 130 |
| | (130 | ) |
| Net income (loss) | — |
| | — |
| | 2,877 |
| | | — |
| | — |
| | — |
| | — |
| | (304,414 | ) | | (304,414 | ) | | (21,929 | ) |
| Balances at December 31, 2019 | — |
| | — |
| | $ | 443 |
| | | 121,036,289 |
| | $ | 12 |
| | $ | 2,686,759 |
| | $ | 19 |
| | $ | (2,946,384 | ) | | $ | (259,594 | ) | | $ | 91,291 |
|
¹ Common Stock issued and converted to Class A Common and Class B Common effective July 2018.
² Amounts are less than $0.5 thousand and round down to zero.
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Equity (Deficit) and Noncontrolling Interest
(in thousands, except shares)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable Convertible Preferred Stock | | Redeemable Noncontrolling Interest | | | | | Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Equity (Deficit) | | Noncontrolling
Interest |
| | Shares | | Amount | | | | | Shares | | Amount | | | | | |
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| Balances at December 31, 2018 | | — | | $ | — | | | $ | 57,261 | | | | | | 109,421,183 | | | $ | 11 | | | $ | 2,481,352 | | | $ | 131 | | | $ | (2,624,104) | | | $ | (142,610) | | | $ | 125,110 | |
| Cumulative effect upon adoption of new accounting standard | | — | | — | | | — | | | | | | — | | | — | | | — | | | — | | | (17,996) | | | (17,996) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Buyout of equity investors in PPA IIIb (Note 13) | | — | | — | | | — | | | | | | — | | | — | | | (2,454) | | | 169 | | | — | | | (2,285) | | | — | |
| Conversion of Notes | | — | | — | | | — | | | | | | 616,302 | | | — | | | 6,933 | | | — | | | — | | | 6,933 | | | — | |
| Issuance of restricted stock awards | | — | | — | | | — | | | | | | 8,921,807 | | | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| ESPP purchase | | — | | — | | | — | | | | | | 1,718,433 | | | — | | | 11,183 | | | — | | | — | | | 11,183 | | | — | |
| Exercise of stock options | | — | | — | | | — | | | | | | 358,564 | | | — | | | 1,529 | | | — | | | — | | | 1,529 | | | — | |
| Stock-based compensation | | — | | — | | | — | | | | | | — | | | — | | | 188,114 | | | — | | | — | | | 188,114 | | | — | |
| Unrealized loss on available-for-sale securities | | — | | — | | | — | | | | | | — | | | — | | | — | | | 14 | | | — | | | 14 | | | — | |
| Change in effective portion of interest rate swap agreement | | — | | — | | | — | | | | | | — | | | — | | | — | | | (295) | | | — | | | (295) | | | (5,790) | |
| Distributions to noncontrolling interests | | — | | — | | | (4,011) | | | | | | — | | | — | | | 102 | | | | | — | | | 102 | | | (5,970) | |
| Mandatory redemption of noncontrolling interests | | — | | — | | | (55,684) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Cumulative effect of hedge accounting | | — | | — | | | — | | | | | | — | | | — | | | — | | | | | 130 | | | 130 | | | (130) | |
| Net income (loss) | | — | | — | | | 2,877 | | | | | | — | | | — | | | — | | | — | | | (304,414) | | | (304,414) | | | (21,929) | |
| Balances at December 31, 2019 | | — | | — | | | 443 | | | | | | 121,036,289 | | | $ | 12 | | | 2,686,759 | | | 19 | | | (2,946,384) | | | (259,594) | | | 91,291 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Conversion of Notes | | — | | — | | | — | | | | | | 35,881,250 | | | 4 | | | 300,848 | | | — | | | — | | | 300,852 | | | — | |
| Issuance of convertible notes | | — | | — | | | — | | | | | | — | | | — | | | 126,799 | | | — | | | — | | | 126,799 | | | — | |
| Adjustment of embedded derivative for debt modification | | — | | — | | | — | | | | | | — | | | — | | | (24,071) | | | — | | | — | | | (24,071) | | | — | |
| Issuance of restricted stock awards | | — | | — | | | — | | | | | | 7,806,038 | | | 1 | | | | | — | | | — | | | 1 | | | — | |
| ESPP purchase | | — | | — | | | — | | | | | | 1,937,825 | | | — | | | 8,499 | | | — | | | — | | | 8,499 | | | — | |
| Exercise of stock options | | — | | — | | | — | | | | | | 1,341,324 | | | — | | | 14,988 | | | — | | | — | | | 14,988 | | | — | |
| Stock-based compensation | | — | | — | | | — | | | | | | — | | | — | | | 68,931 | | | — | | | — | | | 68,931 | | | — | |
| Unrealized loss on available-for-sale securities | | — | | — | | | — | | | | | | — | | | — | | | — | | | (23) | | | — | | | (23) | | | — | |
| Change in effective portion of interest rate swap agreement | | — | | — | | | — | | | | | | — | | | — | | | — | | | (5) | | | — | | | (5) | | | (6,891) | |
| Distributions to noncontrolling interests | | — | | — | | | (45) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,205) | |
| Contribution from noncontrolling interest | | — | | — | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,513 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | — | | — | | | (21) | | | | | | — | | | — | | | — | | | — | | | (157,553) | | | (157,553) | | | (21,513) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable Convertible Preferred Stock | | Redeemable Noncontrolling Interest | | | | | Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Equity (Deficit) | | Noncontrolling
Interest |
| | Shares | | Amount | | | | | Shares | | Amount | | | | | |
| Balances at December 31, 2020 | | — | | — | | | 377 | | | | | | 168,002,726 | | | 17 | | | 3,182,753 | | | (9) | | | (3,103,937) | | | 78,824 | | | 62,195 | |
| Issuance of redeemable convertible preferred stock (Note 18) | | 10,000,000 | | 208,551 | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Cumulative effect upon adoption of new accounting standard (Note 2) | | — | | | — | | | — | | | | | | — | | | — | | | (126,799) | | | — | | | 5,308 | | | (121,491) | | | — | |
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| Issuance of restricted stock awards | | — | | | — | | | — | | | | | | 3,052,012 | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | — | | | — | | | — | | | | | | 1,945,305 | | | — | | | 10,045 | | | — | | | — | | | 10,045 | | | — | |
| Exercise of stock options | | — | | | — | | | — | | | | | | 3,460,364 | | | 1 | | | 79,744 | | | — | | | — | | | 79,745 | | | — | |
| Stock-based compensation | | — | | | — | | | — | | | | | | — | | | — | | | 73,338 | | | — | | | — | | | 73,338 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Change in effective portion of interest rate swap agreement | | — | | | — | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,243 | |
| Distributions to noncontrolling interests | | — | | | — | | | (49) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,789) | |
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| Cumulative foreign currency translation adjustment | | — | | | — | | | — | | | | | | — | | | — | | | — | | | (341) | | | (1) | | | (342) | | | (254) | |
| Net loss | | — | | | — | | | (28) | | | | | | — | | | — | | | — | | | — | | | (164,445) | | | (164,445) | | | (28,896) | |
| Balances at December 31, 2021 | | 10,000,000 | | | $ | 208,551 | | | $ | 300 | | | | | | 176,460,407 | | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
| | | | | Years Ended December 31, | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 | | | Years Ended December 31, |
| | | | | As Restated | | As Revised | | | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | | | Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (323,466 | ) | | $ | (291,276 | ) | | $ | (295,028 | ) | Net loss | | $ | (193,369) | | | $ | (179,087) | | | $ | (323,466) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Depreciation and amortization | | 78,584 |
| | 53,887 |
| | 54,376 |
| Depreciation and amortization | | 53,454 | | | 52,279 | | | 78,584 | |
| Non-cash lease expense | | Non-cash lease expense | | 9,708 | | | 5,328 | | | — | |
| Write-off of property, plant and equipment, net | | 3,117 |
| | 939 |
| | 48 |
| Write-off of property, plant and equipment, net | | — | | | 38 | | | 3,117 | |
| Write-off of customer financing receivable | | 11,302 |
| | — |
| | — |
| Write-off of customer financing receivable | | — | | | — | | | 11,302 | |
| Impairment of equity method investment | | Impairment of equity method investment | | — | | | 4,236 | | | — | |
| Write-off of PPA II and PPA IIIb decommissioned assets | | 70,543 |
| | — |
| | — |
| Write-off of PPA II and PPA IIIb decommissioned assets | | — | | | — | | | 70,543 | |
| Debt make-whole expense | | 5,934 |
| | — |
| | — |
| Debt make-whole expense | | — | | | — | | | 5,934 | |
| | Revaluation of derivative contracts | | 2,779 |
| | 29,021 |
| | 15,042 |
| Revaluation of derivative contracts | | 17,532 | | | (497) | | | 2,779 | |
| Stock-based compensation | | 196,291 |
| | 168,482 |
| | 29,101 |
| |
| Loss (gain) on long-term REC purchase contract | | 53 |
| | 200 |
| | (70 | ) | |
| Revaluation of stock warrants | | — |
| | (9,108 | ) | | (2,975 | ) | |
| Amortization of debt issuance cost | | 22,130 |
| | 25,437 |
| | 47,312 |
| |
| Stock-based compensation expense | | Stock-based compensation expense | | 73,274 | | | 73,893 | | | 196,291 | |
| Gain on long-term REC purchase contract | | Gain on long-term REC purchase contract | | — | | | 72 | | | 53 | |
| Gain on remeasurement of investment | | Gain on remeasurement of investment | | (1,966) | | | — | | | — | |
| Contingent consideration remeasurement | | Contingent consideration remeasurement | | (3,623) | | | — | | | — | |
| Interest Expense on Interest Rate Swap Settlement | | Interest Expense on Interest Rate Swap Settlement | | (641) | | | — | | | — | |
| | Loss on extinguishment of debt | | Loss on extinguishment of debt | | — | | | 11,785 | | | — | |
| Amortization of debt issuance costs and premium, net | | Amortization of debt issuance costs and premium, net | | 3,797 | | | 6,455 | | | 22,130 | |
| Changes in operating assets and liabilities: | | | | | | | Changes in operating assets and liabilities: | |
| Accounts receivable | | 51,952 |
| | (55,023 | ) | | 3,242 |
| Accounts receivable | | 8,570 | | | (61,685) | | | 51,952 | |
| Contract assets | | Contract assets | | (21,874) | | | — | | | — | |
| Inventories | | 18,425 |
| | (36,974 | ) | | (10,636 | ) | Inventories | | (885) | | | (33,004) | | | 18,425 | |
| Deferred cost of revenue | | (21,992 | ) | | 14,223 |
| | (31,278 | ) | Deferred cost of revenue | | 17,567 | | | 19,910 | | | (21,992) | |
| Customer financing receivable and other | | 5,520 |
| | 4,878 |
| | 5,459 |
| |
| Customer financing receivable | | Customer financing receivable | | 5,428 | | | 5,159 | | | 5,520 | |
| Prepaid expenses and other current assets | | 8,643 |
| | (8,032 | ) | | (982 | ) | Prepaid expenses and other current assets | | 1,520 | | | (3,124) | | | 8,643 | |
| Other long-term assets | | 3,618 |
| | (202 | ) | | 756 |
| Other long-term assets | | (2,854) | | | 2,904 | | | 3,618 | |
| Accounts payable | | (11,310 | ) | | 18,307 |
| | 7,076 |
| Accounts payable | | 13,132 | | | (620) | | | (11,310) | |
| Accrued warranty | | (6,603 | ) | | 1,498 |
| | (7,365 | ) | Accrued warranty | | 1,481 | | | (241) | | | (6,603) | |
| Accrued expenses and other current liabilities | | 6,728 |
| | (5,984 | ) | | 7,997 |
| Accrued expenses and other current liabilities | | (2,144) | | | 17,753 | | | 6,728 | |
| Operating lease right-of-use assets and operating lease liabilities | | Operating lease right-of-use assets and operating lease liabilities | | (12,953) | | | (2,855) | | | — | |
| Financing cash flows from finance leases | | Financing cash flows from finance leases | | 1,142 | | | — | | | — | |
| Deferred revenue and customer deposits | | 37,146 |
| | (21,774 | ) | | 48,322 |
| Deferred revenue and customer deposits | | (22,677) | | | (12,972) | | | 37,146 | |
| Other long-term liabilities | | 4,376 |
| | 19,553 |
| | 37,637 |
| Other long-term liabilities | | (4,300) | | | (4,523) | | | 4,376 | |
| Net cash provided by (used in) operating activities | | 163,770 |
| | (91,948 | ) | | (91,966 | ) | |
| Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | | (60,681) | | | (98,796) | | | 163,770 | |
| Cash flows from investing activities: | | | | | | | Cash flows from investing activities: | | | | | | |
| Purchase of property, plant and equipment | | (51,053 | ) | | (45,205 | ) | | (61,454 | ) | Purchase of property, plant and equipment | | (49,810) | | | (37,913) | | | (51,053) | |
| Payments for acquisition of intangible assets | | — |
| | (3,256 | ) | | — |
| |
| Purchase of marketable securities | | — |
| | (103,914 | ) | | (29,043 | ) | |
| Net cash acquired from step acquisition | | Net cash acquired from step acquisition | | 3,114 | | | — | | | — | |
| | Proceeds from maturity of marketable securities | | 104,500 |
| | 27,000 |
| | 2,250 |
| Proceeds from maturity of marketable securities | | — | | | — | | | 104,500 | |
| Net cash provided by (used in) investing activities | | 53,447 |
| | (125,375 | ) | | (88,247 | ) | |
| Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | | (46,696) | | | (37,913) | | | 53,447 | |
| Cash flows from financing activities: | | | | | | | Cash flows from financing activities: | | | | | | |
| Borrowings from issuance of debt | | — |
| | — |
| | 100,000 |
| |
| Proceeds from issuance of debt | | Proceeds from issuance of debt | | 135,989 | | | 300,000 | | | — | |
| Proceeds from issuance of debt to related parties | | Proceeds from issuance of debt to related parties | | — | | | 30,000 | | | — | |
| Repayment of debt | | (119,277 | ) | | (18,770 | ) | | (20,507 | ) | Repayment of debt | | (123,374) | | | (176,522) | | | (119,277) | |
| Repayment of debt to related parties | | (2,200 | ) | | (1,390 | ) | | (912 | ) | |
| Repayment of debt - related parties | | Repayment of debt - related parties | | — | | | (2,105) | | | (2,200) | |
| Debt make-whole payment | | (5,934 | ) | | — |
| | — |
| Debt make-whole payment | | — | | | — | | | (5,934) | |
| Debt issuance costs | | — |
| | — |
| | (6,108 | ) | Debt issuance costs | | (1,950) | | | (13,247) | | | — | |
| Proceeds from financing obligations | | 72,334 |
| | 70,265 |
| | 84,314 |
| Proceeds from financing obligations | | 16,849 | | | 26,279 | | | 72,334 | |
| Repayment of financing obligations | | (8,954 | ) | | (6,188 | ) | | (3,210 | ) | Repayment of financing obligations | | (13,642) | | | (10,756) | | | (8,954) | |
| Proceeds from noncontrolling and redeemable noncontrolling interests | | — |
| | — |
| | 13,652 |
| |
| Contribution from noncontrolling interest | | Contribution from noncontrolling interest | | — | | | 6,513 | | | — | |
| Payments to noncontrolling and redeemable noncontrolling interests | | (56,459 | ) | | — |
| | — |
| Payments to noncontrolling and redeemable noncontrolling interests | | — | | | — | | | (56,459) | |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (12,537 | ) | | (15,250 | ) | | (23,659 | ) | |
| Distributions to noncontrolling interests and redeemable noncontrolling interests | | Distributions to noncontrolling interests and redeemable noncontrolling interests | | (5,838) | | | (7,622) | | | (12,537) | |
| Proceeds from issuance of common stock | | 12,713 |
| | 1,521 |
| | 432 |
| Proceeds from issuance of common stock | | 89,790 | | | 23,491 | | | 12,713 | |
| Proceeds from public offerings, net of underwriting discounts and commissions | | — |
| | 292,529 |
| | — |
| |
| Payments of initial public offering issuance costs | | — |
| | (5,521 | ) | | (1,092 | ) | |
| Proceeds from issuance of redeemable convertible preferred stock, net | | Proceeds from issuance of redeemable convertible preferred stock, net | | 208,551 | | | — | | | — | |
| | Net cash provided by (used in) financing activities | | (120,314 | ) | | 317,196 |
| | 142,910 |
| Net cash provided by (used in) financing activities | | 306,375 | | | 176,031 | | | (120,314) | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | 96,903 |
| | 99,873 |
| | (37,303 | ) | |
| Effect of exchange rate changes on cash, cash equivalent and restricted cash | | Effect of exchange rate changes on cash, cash equivalent and restricted cash | | (594) | | | — | | | — | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | | 198,404 | | | 39,322 | | | 96,903 | |
| Cash, cash equivalents, and restricted cash: | | | | | | | Cash, cash equivalents, and restricted cash: | |
| Beginning of period | | 280,485 |
| | 180,612 |
| | 217,915 |
| Beginning of period | | 416,710 | | | 377,388 | | | 280,485 | |
| End of period | | $ | 377,388 |
| | $ | 280,485 |
| | $ | 180,612 |
| End of period | | $ | 615,114 | | | $ | 416,710 | | | $ | 377,388 | |
| | | | | | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | Supplemental disclosure of cash flow information: | |
| Cash paid during the period for interest | | $ | 69,851 |
| | $ | 59,549 |
| | $ | 37,628 |
| Cash paid during the period for interest | | $ | 68,739 | | | $ | 71,651 | | | $ | 69,851 | |
| Cash paid during the period for taxes | | 860 |
| | 1,748 |
| | 616 |
| |
| Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash flows from operating leases | | Operating cash flows from operating leases | | 17,416 | | | 2,855 | | | — | |
| Operating cash flows from financing leases | | Operating cash flows from financing leases | | 878 | | | 61 | | | — | |
| Cash paid during the period for income taxes | | Cash paid during the period for income taxes | | 576 | | | 371 | | | 860 | |
| Non-cash investing and financing activities: | | | | | | | Non-cash investing and financing activities: | |
| | Increase in recourse debt, non-current upon adoption of ASU 2020-06, net (Note 2) | | Increase in recourse debt, non-current upon adoption of ASU 2020-06, net (Note 2) | | $ | 121,491 | | | $ | — | | | $ | — | |
| Liabilities recorded for property, plant and equipment | | 1,745 |
| | 12,236 |
| | 975 |
| Liabilities recorded for property, plant and equipment | | 6,095 | | | 7,175 | | | $ | 1,745 | |
| Liabilities recorded for intangible assets | | — |
| | 3,180 |
| | 2,138 |
| |
| Issuance of common stock warrant | | — |
| | — |
| | 9,410 |
| |
| Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital | | — |
| | 882 |
| | — |
| |
| Conversion of redeemable convertible preferred stock into additional paid-in capital | | — |
| | 1,465,841 |
| | — |
| |
| Conversion of 8% convertible promissory notes into additional paid-in capital | | — |
| | 181,469 |
| | — |
| |
| Operating lease liabilities arising from obtaining right-of-use assets upon adoption of new lease guidance | | Operating lease liabilities arising from obtaining right-of-use assets upon adoption of new lease guidance | | — | | | 39,775 | | | — | |
| Recognition of operating lease right-of-use asset during the year-to-date period | | Recognition of operating lease right-of-use asset during the year-to-date period | | 82,802 | | | 12,829 | | | — | |
| Recognition of financing lease right-of-use asset during the year-to-date period | | Recognition of financing lease right-of-use asset during the year-to-date period | | 2,210 | | | 385 | | | — | |
| | Conversion of 6% and 8% convertible promissory notes into additional paid-in capital to related parties | | 6,933 |
| | 40,110 |
| | — |
| Conversion of 6% and 8% convertible promissory notes into additional paid-in capital to related parties | | — | | | — | | | 6,933 | |
| Reclassification of derivative liability into additional paid-in capital | | — |
| | 177,208 |
| | — |
| |
| Reclassification of prior year prepaid initial public offering costs to additional paid-in capital | | — |
| | 4,732 |
| | — |
| |
| Issuance of common stock | | — |
| | — |
| | 1,981 |
| |
| Issuance of restricted stock | | — |
| | — |
| | 1,254 |
| |
| Accrued distributions to Equity Investors | | 373 |
| | 576 |
| | 576 |
| |
| Conversion of 10% convertible promissory notes into Class A common stock | | Conversion of 10% convertible promissory notes into Class A common stock | | — | | | 252,797 | | | — | |
| Conversion of 10% convertible promissory notes to related party into Class A common stock | | Conversion of 10% convertible promissory notes to related party into Class A common stock | | — | | | 50,800 | | | — | |
| | Accrued distributions to equity investors | | Accrued distributions to equity investors | | — | | | — | | | 373 | |
| Accrued interest for notes | | 1,812 |
| | 19,041 |
| | 29,705 |
| Accrued interest for notes | | — | | | 1,298 | | | 1,812 | |
| Accrued interest for notes to related parties | | — |
| | 2,733 |
| | 4,368 |
| |
| | Adjustment of embedded derivative related to debt extinguishment | | Adjustment of embedded derivative related to debt extinguishment | | — | | | 24,071 | | | — | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Notes to Consolidated Financial Statements
1. Nature of Business, Liquidity and Basis of Presentation and Summary of Significant Accounting Policies
Nature of BusinessRevenue Recognition
We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Our Energy Servers utilize an innovative fuel cell technology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence. We were originally incorporated in Delaware under the name of Ion America Corporation on January 18, 2001 and on September 16, 2006, we changed our name to Bloom Energy Corporation.
Liquidity
We have incurred operating losses and negative cash flows from operations since our inception. Additionally, as disclosed in Note 17, Subsequent Events, the impact of COVID-19 on our ability to execute our business strategy and on our financial position and results of operations is uncertain. Additionally, as of December 31, 2019, the current portion of our total debt was $337.6 million, which would require cash payments of $353.5 million in the next 12 months. Cash and cash equivalents and other liquidity was insufficient to satisfy the above current debt obligations as well as operating cash flow requirements as of December 31, 2019. As a result, on March 31, 2020, we extended the maturity for our current debt as follows:
We entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the beneficial owners (the “Noteholders”) of its outstanding 6.0% Convertible Notes due 2020 (the “Convertible Notes”) pursuant to which such Noteholders have agreed, to extend the maturity date of the Convertible Notes to December 1, 2021. In connection with the extension, the interest rate was increased to 10% and the strike price on the conversion feature was reduced to $8/share. The Amendment Support Agreement requires that we repay at least $70.0 million of the Convertible Notes on or before September 1, 2020.
On March 31, 2020, we entered into an Amended and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”) pursuant to which certain terms of our outstanding Amended and Restated Subordinated Secured Convertible Note issued to Constellation were modified to extend the maturity date to December 31, 2021.
On March 31, 2020, we entered into a note purchase agreement pursuant to which certain investors have agreed to purchase, and we have agreed to issue, $70.0 million of 10.25% Senior Secured Notes due 2027 (the “Senior Secured Notes”) in a private placement (the “Senior Secured Notes Private Placement”). The funding of the Note Purchase Agreement, which is expected to occur no later than May 29, 2020, is subject to certain conditions, including obtaining a rating from a rating agency which is dependent upon providing audited financial statements as of and for the year ended December 31, 2019. Upon funding by the purchasers, 100% of any funds received is required to be utilized to pay one holder of the Convertible Notes discussed above. This payment will be used to extinguish the $70.0 million due as of September 1, 2020.
Also on March 31, 2020, we entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with Foris Ventures, LLC and New Enterprise Associates 10, Limited Partnership (together, the “Purchasers”), pursuant to which such Purchasers were issued $30.0 million aggregate principal amount of additional Convertible Notes.
Our future cash flow requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds, the expansion of sales and marketing activities, market acceptance of our products, the timing of receipt by us of distributions from our PPA Entities and overall economic conditions including the impact of COVID-19 on our future operations. However, in the opinion of management, the combination of our existing cash and cash equivalents, the extension of the Convertible Notes and Constellation Note Modification to December 2021, the proceeds from the convertible note agreement, and operating cash flows is expected to be sufficient to meet our operational and capital cash flow requirements and other cash flow needs for the next 12 months from the date of this Annual Report on Form 10-K.
For additional information on the terms of the amended Notes and the terms and provision of the new notes obtained, see Note 17, Subsequent Events.
Basis of Presentation
We have prepared the consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
The consolidated balance sheets as of December 31, 2019 and 2018, the consolidated statements of operations, the consolidated statements of comprehensive loss, the consolidated statements of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest, and the consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017, as well as other information disclosed in the accompanying notes have been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S. GAAP").
Restatement and Revision of Previously Issued Consolidated Financial Statements
In this Annual Report on Form 10-K, we have restated our consolidated financial statements for the year ended December 31, 2018, as well as the unaudited financial statements for the three month period ended March 31, 2019, the three and six month periods ended June 30, 2019 and 2018 and the three and nine month periods ended September 30, 2019 and 2018, to correct misstatements in those prior periods primarily related to (i) misstatements identified in improperly applying accounting guidance on certain managed services and similar transactions and recognizing them as sales, rather than financing transactions, under the guidance ofapply Accounting Standards Codification ("ASC") Topic 840 - Leases, (ii) misstatements606, Revenue from Contracts with Customers. We identify our contracts with Customers, determine our performance obligations and the transaction price, and after allocating the transaction price to the performance obligations, we recognize revenue as we satisfy our performance obligations and transfer control of our products and services to our customers. Most of our contracts with customers contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate the total transaction price to each performance obligation based on the relative standalone selling price.
We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance which typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system is shipped and delivered to our customers, when the system is shipped and delivered and is physically ready for start up and commissioning, or when the system is shipped and delivered and is turned on and producing power.
We recognize installation revenue when the system has been installed and is running at full power.
Service revenue is recognized ratably over the term of the first or renewed one-year service period. Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price may be less than the standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right. We estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to not capitalizing stock-based compensation expenses directly associatedEnergy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the product manufacturing operations processsize of the customer, geographic region and expensed when the capitalized assetscale of the Energy Server deployment. Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for
maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable historical industry service margins. As a result, our estimate of our selling price is useddriven primarily by our expected margin on both the Energy Server and the maintenance service agreements based on their respective costs or, in the normal coursecase of maintenance service agreements, the estimated costs to be incurred.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the salesperformance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or services processusing the portfolio method.
For successful sales-leaseback arrangements, we recognize product and installation revenue upon meeting criteria demonstrating we have transferred control to the customer (the Buyer-Lessor). When control of the Energy Server is transferred to the financier, and we determine the leaseback qualifies as an operating lease in accordance with ASC 842, Leases ("ASC 842"), we record a ROU asset and a lease liability, and recognize revenue based on the fair value of the Energy Servers with an allocation to product revenue and installations revenue based on the relative standalone selling prices. We recognize as financing obligations any proceeds received to finance our ongoing costs to operate the Energy Servers.
Valuation of Escalator Protection Plan Agreements ("EPP")
We have entered into agreements with certain customers which require us to recognize a liability in compliance with the financial accounting and reporting requirements of ASC Topic 820, Fair Value Measurement ("ASC 820"). We use third party valuation experts to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject liabilities using inputs of forecasted avoided costs and the cost of electricity. We determine our final estimate of liability based on internal reviews and in consideration of the estimates received. Although measured each reporting period, our estimates may vary from the actual payments made under the contractual agreements, as the estimates include current known liability and estimates of potential future payments. We use valuation methodology including using a Monte Carlo simulation model, with estimated inputs of beginning value, growth rate and volatility, and further discount our estimate of liability based on our cost of debt commensurate with the payment period.
Valuation of Certain Financial Instruments and Customer Financing Receivables
We have entered into certain Customer Financing Receivables with our PPA 3a arrangement, and debt financings that include Redeemable Senior Secured Notes, Convertible Senior Notes, Senior Secured Notes, Term Loans and Fixed Rate Notes. We are required to determine the fair value of the assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC Topic 840, Leases, and ASC Topic 815, Derivatives and Hedging ("ASC 815"). We use third party valuation experts to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of principal to be received or paid, maturity dates, coupon rates, selected discount rate based on implied rating and comparable yield curves in Energy and Non-Financial markets. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation of Assets and Liabilities of the SK ecoplant Strategic Investment
We have entered into an agreement with SK ecoplant that provides the opportunity, but does not require, an additional investment in common stock Class A, subject to a cap on the total potential share purchase, and as a component of transaction, includes a purchase commitment by the investor for future product purchases.
We are required to determine the fair value of the assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC 815and ASC Topic 480 Distinguishing Liabilities from Equity. We use third party valuation experts that are recognized as financial instrument accounting specialists to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of number of shares,
underlying prices of Bloom Energy stock, rights and obligations of the counterparties, valuation assumptions related to options, and the assessed value of our product revenue streams and the timing of expected revenue recognition. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We determine the reasonableness of our valuation methodology, assumptions on the timing and probability of a redemption event, and the expected number of shares to be exercised with the Option, and review the mathematical accuracy of the calculations before recording in our consolidated statement of operations and consolidated balance sheets. See Note 18 - SK ecoplant Strategic Investment.
Incremental Borrowing Rate ("IBR") by Lease Class
We adopted ASC 842 on January 1, 2020 on a modified retrospective basis. This guidance requires that, for all our leases, we recognize ROU assets representing our right to use the underlying asset for the lease term, and lease liabilities related to the rights and obligations created by those leases, on the balance sheet regardless of whether they are classified as finance or operating leases, with classification affecting the pattern and presentation of expenses and cash flows on the consolidated financial statements. Lease liabilities are measured at the lease commencement date as the present value of future minimum lease payments over the reasonably certain lease term. Lease ROU assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, we used our collateralized incremental borrowing rate as our leases do not generally provide an implicit rate. The determination of the incremental borrowing rate considers qualitative and quantitative factors as well as the estimated impact that the collateral has on the rate. We determine our incremental borrowing rate based on the lease class of assets which relates to those supporting of manufacturing and general operations, and those supporting electricity revenue transactions.
For successful sale-leasebacks, as Seller-Lessee, we determine the collateralized IBR on our leased equipment based on a fair value assessment provided by third-party valuation experts.
Stock-Based Compensation
We account for stock options and other equity awards, such as restricted stock units and performance-based stock units, to employees and non-employee directors under the provisions of SEC Staff Accounting Bulletin Topic 14, (iii) misstatements relatedASC 718, Compensation-Stock Compensation. Accordingly, the stock-based compensation expense for these awards is measured based on the fair value on the date of grant. For stock options, we recognize the expense, net of estimated forfeitures, under the straight-line attribution over the requisite service period which is generally the vesting term. The fair value of the stock options is estimated using the Black-Scholes valuation model. For options with a vesting condition tied to not recording derivative liabilities for embedded derivatives in certain revenue agreements for an escalator price protection (“EPP”) feature given to our customers,the attainment of service and (iv) certain other identified misstatements which were not material individually or in the aggregate.
market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. In addition, we use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach.
The Black-Scholes valuation model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of the stock options and the expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options as well as expected forfeiture rates based on the historical settlement experience and after giving consideration to vesting schedules.
Income Taxes
We account for income taxes using the liability method under ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. This determination is based on expected future results and the future reversals of existing taxable temporary differences. Furthermore, uncertain tax positions are evaluated by management determinedand amounts are recorded when it is more likely than not that the impactposition will be sustained upon examination, including resolution of these misstatementsany related appeals or litigation processes, based on the technical merits. Significant judgement is required throughout management's process in evaluating each uncertain tax position including future taxable income expectations and tax-planning strategies to periods prior todetermine whether the three months ended June 30, 2018 wasmore likely than not material to warrant restatement of reported figures; however,recognition threshold has been met. We have provided a full valuation allowance on our consolidated financial statements as of and for the year ended December 31, 2017 and the unaudited interim condensed consolidated financial information for the three month period ended March 31, 2018 are revised to correct these misstatements.domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements for additional information regarding the errors identified in this Annual Report on Form 10-K and the restatement and revision adjustments made to the Consolidated Financial Statements.
Principles of Consolidation
TheseOur consolidated financial statements reflect our accounts andinclude the operations and those of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirementrequirements for each of our PPA Entities that are variable interest entities ("VIE"), which we refer to as our power purchase agreement entities ("PPA Entities"VIEs"). This approach focuses on determining whether we haveshave the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits that could potentially be significant to the PPA Entities. For all periods presented, we have determinedThe considerations for VIE consolidation is a complex analysis that requires us to determine whether we are the primary beneficiary and therefore have the power to direct activities which are most significant to those PPA Entities.
Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests and Redeemable Noncontrolling Interests
We generally allocate profits and losses to noncontrolling interests under the HLBV method. The HLBV method is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities.
The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks as part of our ongoing business operations, primarily by exposure to changes in interest rates, in commodity fuel prices and in foreign currency.
Interest Rate Risk
Our cash is maintained in interest-bearing accounts and our cash equivalents are invested in money market funds. Lower interest rates would have an adverse impact on our interest income or potentially incur other expenses if a negative interest rate environment was to exist. Due to the short-term investment nature of our cash and cash equivalents, we believe that we do not have material financial statement exposure to changes in fair value as a result of changes in interest rates. Since we believe we have the ability to liquidate substantially all of this portfolio, we do not expect our operational PPA Entitiesoperating results or cash flows to be materially affected to any significant degree by a sudden change in market interest rates on our investment portfolio.
To provide a meaningful assessment of the interest rate risk associated with our cash and cash equivalents, we performed a sensitivity analysis to determine the impact a change in interest rates would have on income statement and in investment fair values assuming a 1% decline in yield. Based on the investment positions in both December 31, 2021 and 2020, a hypothetical 1% decrease in interest rates across all maturities would result in $5.8 million and $4.1 million declines in interest income and/or increase in other expenses on an annualized basis, respectively. As these investments have maturities of less than twelve months, changes with respect to the PPA II Entity, as discussed below.portfolio fair value would be limited to these amounts and only be realized if we were to terminate the investments prior to maturity.
We evaluatehad refinanced our relationshipsonly LIBOR-based floating-rate loan with the PPA Entities on an ongoing basisa fixed-rate loan in 2021. As our debt is fixed-rate debt, interest rate changes do not affect our earnings or cash flows.
Commodity Price Risk
We are subject to ensurecommodity price risk arising from price movements for natural gas that we continuesupply to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. On June 14, 2019,customers to operate our Energy Servers under certain power purchase agreements. While we entered into a transactionnatural gas fixed price forward contract with SP Diamond State Class B Holdings, LLC (“SPDS”our gas supplier in 2011, the fuel forward contract meets the definition of a derivative under U.S. GAAP and accordingly, any changes in its fair value is recorded within cost of revenue in the consolidated statements of operations. The fair value of the contract is determined using a combination of factors including our credit rating and future natural gas prices.
To provide a meaningful assessment of the commodity price risk arising from price movements in the commodity futures contracts for natural gas, we performed a sensitivity analysis to determine the impact a change in natural gas commodity pricing would have on our consolidated statements of operations assuming a 10% change in the commodity contracts held. Based on monthly commodity positions for the years ended December 31, 2021 and 2020, a hypothetical 10% increase in the price of natural gas futures would have resulted in no change and a $0.3 million adjustment to their balance sheet fair values, respectively.
Foreign Currency Risk
Our sales contracts are primarily denominated in U.S. dollars and, therefore, substantially all of our revenue is not subject to foreign currency market risk. Our supply contracts are primarily denominated in U.S. dollars and our corporate operations are domiciled in the United States. However, we conduct some internationally domiciled field operations and therefore, find it necessary to transact in foreign currencies for limited operational purposes, necessitating that we hold foreign currency bank accounts.
To provide a meaningful assessment of the risk associated with our foreign currency holdings, we performed a sensitivity analysis to determine the impact a currency devaluation would have on our balance sheet assuming a 20% decline in the value of the U.S. dollar. Based on our foreign currency holdings as of December 31, 2021 and 2020, a hypothetical 20% devaluation of the U.S. dollar against foreign currencies would not be material to our reported cash position.
However, an increasing portion of our operating expenses are incurred outside the United States, are denominated in foreign currencies and are subject to such risk. Although not yet material, if we are not able to successfully hedge against the risks associated with currency fluctuations in our future activities, our financial condition and operating results could be adversely affected.
Actual future gains and losses associated with our investment portfolio, debt and derivative positions and foreign currency may differ materially from the sensitivity analyses performed as of December 31, 2021 and 2020 due to the inherent limitations associated with predicting the timing and amount of changes in interest rates, foreign currency exchange rates and our actual commodity derivative exposures and positions.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bloom Energy Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock, redeemable noncontrolling interest, stockholders' equity (deficit) and noncontrolling interest, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a wholly owned subsidiary of Southern Powerpublic accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which SPDS will purchase a majority interestthey relate.
Managed Services Sale and Leaseback Revenue – Refer to Notes 2 and 9 to the financial statements
Critical Audit Matter Description
During the year ended December 31, 2021, the Company completed several sale and leaseback transactions to sell Energy Servers to financiers and lease them back. The Company recognizes revenue for such transactions when control of the Energy Servers transfers to the financier and the leaseback qualifies as an operating lease in PPA II, which operates in Delaware providing alternative energy generation for state tariff rate payers (the "PPA II upgrade of Energy Servers"accordance with ASC 842 - Leases (“ASC 842”). PPA II will useRevenue is recognized based on the funds receivedfair value of the Energy Servers, which is allocated to product revenue and installation revenue based on the relative standalone selling prices. Any proceeds to finance the Company’s ongoing costs to operate the Energy Servers during the term of the leaseback are recognized as financing obligations.
The Company recognized $35.1 million of product revenue and $20.9 million of installation revenue for the year ended December 31, 2021 and $10 million of financing obligations from such sale and leaseback transactions.
We identified accounting for revenue recognition under sale and leaseback transactions as a critical audit matter because of the complexity in applying the accounting framework. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the accounting framework and to audit the revenue recognized during the year.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for revenue recognition for sale and leaseback transactions included the following:
•We tested the effectiveness of internal controls over the Company’s accounting for sale and leaseback transactions, including those over management’s evaluation of revenue recognition and the existence and completeness of financing obligations.
•For each sale and leaseback transaction executed during the year ended December 31, 2021, we performed the following:
•We inspected the executed contracts to identify the relevant terms and conditions which would impact the Company’s accounting conclusions, including (i) the transfer of control of the Energy Servers to the financier, (ii) the classification of the leaseback as an operating lease in accordance with ASC 842, and (iii) the existence of financing obligations.
•With the assistance of our revenue and lease accounting specialists, we evaluated the Company’s conclusions regarding the accounting treatment applied to the sale and leaseback transactions, including the recognition of revenue and the identification of financing obligations.
Securities Purchase Agreement – Refer to Note 18 to the financial statements
Critical Audit Matter Description
On October 23, 2021, the Company entered into a Securities Purchase Agreement with SK ecoplant Co., Ltd. (“SK ecoplant”), to sell 10,000,000 shares of Redeemable Convertible Series A preferred stock (the “RCPS”) for a purchase price of $255 million. The agreement included an option for SK ecoplant to purchase current generationadditional shares of the Company’s Class A Common stock (“the Option”).
We identified the accounting and the valuation of the Securities Purchase Agreement as a critical audit matter because of the complexity in applying the accounting framework and the significant estimates and assumptions made by management in the determination of the fair values of both the RCPS and the Option (collectively, the “Financial Instruments”). This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the accounting framework and the reasonableness of the fair value estimates and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for the Securities Purchase Agreement, including the Company’s determination of the fair values of the financial instruments, included the following:
•We tested the effectiveness of controls over the Company’s accounting for the Securities Purchase Agreement and over the determination of the fair values of the Financial Instruments.
•With the assistance of our financial instrument accounting specialists, we evaluated the Company’s conclusions regarding the accounting treatment applied to the Securities Purchase Agreement.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the following:
–Valuation methodologies applied to determine the fair values of the Financial Instruments
–Assumptions used by the Company in the valuation of the Financial Instruments, including the expected timing and the probability of a redemption event for the RCPS, and the expected number of shares to be exercised with the Option
–Accuracy, completeness, and relevancy of the source information underlying the fair value of the Financial Instruments and the mathematical accuracy of the calculations.
•With the assistance of our fair value specialists, we developed independent estimates and compared them to the fair values of the Financial Instruments determined by management.
/s/ Deloitte & Touche LLP
San Jose, California
February 25, 2022
We have served as the Company's auditor since 2020.
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Stockholders of Bloom Energy ServersCorporation
Opinion on the Financial Statements
We have audited the consolidated statements of operations, of comprehensive loss, of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders’ equity (deficit) and noncontrolling interest and of cash flows of Bloom Energy Corporation and its subsidiaries (the “Company”) for the year ended December 31, 2019, including the related notes (collectively referred to as the “consolidatedfinancial statements”). In our opinion, the consolidated financial statements present fairly, in connectionall material respects, the results of operations and cash flows of the Company for the year ended December 31, 2019in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2019.
Basis for Opinion
These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the upgrade of its energy generation assets fleet. In connectionPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the closing of this transaction, SPDS was admitted as a member of Diamond State Generation Partners, LLC ("DSGP"). DSGP, an operating company, is now owned by Diamond State Generation Holdings, LLC ("DSGH")U.S. federal securities laws and SPDS. As a resultthe applicable rules and regulations of the PPA II upgradeSecurities and Exchange Commission and the PCAOB.
We conducted our audit of Energy Servers, we determinedthese consolidatedfinancial statements in accordance with the standards of the PCAOB. Those standards require that we no longer retainplan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a controlling interesttest basis, evidence regarding the amounts and disclosures in PPA IIthe consolidatedfinancial statements. Our audit also included evaluating the accounting principles used and therefore DSGP was no longersignificant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 31, 2020
We served as a VIE intothe Company’s auditor from 2009 to 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Bloom Energy Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Bloom Energy Corporation and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of June 30, 2019. On November 27, 2019, we entered into a PPA IIIb upgrade of Energy Servers transaction such that the Project Company became indirectly wholly-owned by us and therefore, it was no longer a VIE.
For additional information, see Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. The most significant estimates include the determination of the best estimate of selling price under ASC 605, and stand-alone selling price under ASC 606, including material rights estimates, inventory valuation, specifically excess and obsolescence provisions for obsolete or unsellable inventory and, in relation to property, plant and equipment (specifically Energy Servers), assumptions relating to economic useful lives and impairment assessments.
Other accounting estimates include variable consideration relating to product performance guaranties, assumptions to compute the fair value of lease and non-lease components and related financing obligations such as incremental borrowing rates, estimated output, efficiency and residual value of the Energy Servers, warranty, product performance guaranties and extended maintenance, derivative valuations, estimates for recapture of U.S. Treasury grants and similar grants, estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, and stock-based compensation costs . Actual results could differ materially from these estimates under different assumptions and conditions.
Concentration of Risk
Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. Additionally, we sell our Energy Servers in Japan, China, India, and the Republic of Korea (collectively, our "Asia Pacific region"). In the year ended December 31, 2019 and 2018, total revenue in the Asia Pacific region was 23% and 14%, respectively, of our total revenue.
Credit Risk - At December 31, 2019, two customers, Costco Wholesale Corporation and The Kraft Group LLC accounted for approximately 19% and 17%, respectively, of accounts receivable. At December 31, 2018, SK (Korea) accounted for approximately 64% of accounts receivable. At December 31, 2019 and 2018, we did not maintain any allowances for doubtful accounts as we deemed all of our receivables fully collectible. To date, we have neither provided an allowance for uncollectible accounts nor experienced any credit loss.
Customer Risk - In the year ended December 31, 2019, revenue from two customers, The Southern Company and SK (Korea) accounted for approximately 34% and 23%, respectively, of our total revenue. In the year ended December 31, 2018, revenue from customer The Southern Company accounted for approximately 51% of our total revenue. The Southern Company wholly owns a Third-Party PPA which purchases Energy Servers from us, however such purchases and resulting revenue are made on behalf of various customers of this Third-Party PPA.
Cybersecurity Risk
All of our installed Energy Servers are connected to and controlled and monitored by our centralized remote monitoring service. Additionally, we rely on internal computer networks for many2021, of the systems usedCompany and our report dated February 25, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to operateexpress an opinion on the business generally.Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may be vulnerablenot prevent or detect misstatements. Also, projections of any evaluation of effectiveness to breaches, unauthorized access, misuse, computer virusesfuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or other malicious codethat the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
San Jose, California
February 25, 2022
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands, except share data and cyber-attacks. par values)
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Assets | | | | |
| Current assets: | | | | |
Cash and cash equivalents1 | | $ | 396,035 | | | $ | 246,947 | |
Restricted cash1 | | 92,540 | | | 52,470 | |
| | | | |
Accounts receivable1 | | 87,789 | | | 96,186 | |
| Contract assets | | 25,201 | | | 3,327 | |
| Inventories | | 143,370 | | | 142,059 | |
| Deferred cost of revenue | | 25,040 | | | 41,469 | |
Customer financing receivable1 | | 5,784 | | | 5,428 | |
Prepaid expenses and other current assets1 | | 30,661 | | | 30,718 | |
| Total current assets | | 806,420 | | | 618,604 | |
Property, plant and equipment, net1 | | 604,106 | | | 600,628 | |
| Operating lease right-of-use assets | | 106,660 | | | 35,621 | |
Customer financing receivable, non-current1 | | 39,484 | | | 45,268 | |
Restricted cash, non-current1 | | 126,539 | | | 117,293 | |
| Deferred cost of revenue, non-current | | 1,289 | | | 2,462 | |
| Goodwill | | 1,957 | | | — | |
Other long-term assets1 | | 39,116 | | | 34,511 | |
| Total assets | | $ | 1,725,571 | | | $ | 1,454,387 | |
| Liabilities, Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interest, Stockholders’ (Deficit) Equity and Noncontrolling Interest | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 72,967 | | | $ | 58,334 | |
| Accrued warranty | | 11,746 | | | 10,263 | |
Accrued expenses and other current liabilities1 | | 114,138 | | | 112,004 | |
Deferred revenue and customer deposits1 | | 89,975 | | | 114,286 | |
| | | | |
| Operating lease liabilities | | 13,101 | | | 7,899 | |
| Financing obligations | | 14,721 | | | 12,745 | |
| Recourse debt | | 8,348 | | | — | |
Non-recourse debt1 | | 17,483 | | | 120,846 | |
| | | | |
| | | | |
| Total current liabilities | | 342,479 | | | 436,377 | |
| | | | |
| | | | |
Deferred revenue and customer deposits, non-current1 | | 90,310 | | | 87,463 | |
| Operating lease liabilities, non-current | | 106,187 | | | 41,849 | |
| | | | |
| Financing obligations, non-current | | 461,900 | | | 459,981 | |
| Recourse debt, non-current | | 283,483 | | | 168,008 | |
Non-recourse debt, non-current1 | | 217,416 | | | 102,045 | |
| | | | |
| | | | |
| Other long-term liabilities | | 16,772 | | | 17,268 | |
| Total liabilities | | 1,518,547 | | | 1,312,991 | |
| | | | |
| Commitments and contingencies (Note 13) | | 0 | | 0 |
| Redeemable convertible preferred stock, Series A: 10,000,000 shares authorized and 10,000,000 shares and no shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | | 208,551 | | | — | |
| Redeemable noncontrolling interest | | 300 | | | 377 | |
| Stockholders’ (deficit) equity: | | | | |
| | | | |
| Common stock: $0.0001 par value; Class A shares - 600,000,000 shares authorized and 160,627,544 shares and 140,094,633 shares issued and outstanding and Class B shares - 600,000,000 shares authorized and 15,832,863 shares and 27,908,093 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | | 18 | | | 17 | |
| Additional paid-in capital | | 3,219,081 | | | 3,182,753 | |
| Accumulated other comprehensive loss | | (350) | | | (9) | |
| Accumulated deficit | | (3,263,075) | | | (3,103,937) | |
| Total stockholders’ (deficit) equity | | (44,326) | | | 78,824 | |
| Noncontrolling interest | | 42,499 | | | 62,195 | |
| Total liabilities, redeemable noncontrolling interest, stockholders' (deficit) equity and noncontrolling interest | | $ | 1,725,571 | | | $ | 1,454,387 | |
1We take protective measureshave variable interest entities, which represent a portion of the consolidated balances recorded within these financial statement line items in the consolidated balance sheets (see Note 11 - Portfolio Financings).
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
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| | | | | Years Ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Revenue: | | | | | | | | | | |
| Product | | | | | | $ | 663,512 | | | $ | 518,633 | | | $ | 557,336 | |
| Installation | | | | | | 96,059 | | | 101,887 | | | 60,826 | |
| Service | | | | | | 144,184 | | | 109,633 | | | 95,786 | |
| Electricity | | | | | | 68,421 | | | 64,094 | | | 71,229 | |
| Total revenue | | | | | | 972,176 | | | 794,247 | | | 785,177 | |
| Cost of revenue: | | | | | | | | | | |
| Product | | | | | | 471,654 | | | 332,724 | | | 435,479 | |
| Installation | | | | | | 110,214 | | | 116,542 | | | 76,487 | |
| Service | | | | | | 148,286 | | | 132,329 | | | 100,238 | |
| Electricity | | | | | | 44,441 | | | 46,859 | | | 75,386 | |
| Total cost of revenue | | | | | | 774,595 | | | 628,454 | | | 687,590 | |
| Gross profit | | | | | | 197,581 | | | 165,793 | | | 97,587 | |
| Operating expenses: | | | | | | | | | | |
| Research and development | | | | | | 103,396 | | | 83,577 | | | 104,168 | |
| Sales and marketing | | | | | | 86,499 | | | 55,916 | | | 73,573 | |
| General and administrative | | | | | | 122,188 | | | 107,085 | | | 152,650 | |
| Total operating expenses | | | | | | 312,083 | | | 246,578 | | | 330,391 | |
| Loss from operations | | | | | | (114,502) | | | (80,785) | | | (232,804) | |
| Interest income | | | | | | 262 | | | 1,475 | | | 5,661 | |
| Interest expense | | | | | | (69,025) | | | (76,276) | | | (87,480) | |
| Interest expense - related parties | | | | | | — | | | (2,513) | | | (6,756) | |
| Other income (expense), net | | | | | | (8,139) | | | (8,318) | | | 706 | |
| Gain (loss) on extinguishment of debt | | | | | | — | | | (12,878) | | | — | |
| (Loss) gain on revaluation of embedded derivatives | | | | | | (919) | | | 464 | | | (2,160) | |
| Loss before income taxes | | | | | | (192,323) | | | (178,831) | | | (322,833) | |
| Income tax provision | | | | | | 1,046 | | | 256 | | | 633 | |
| Net loss | | | | | | (193,369) | | | (179,087) | | | (323,466) | |
| Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | | | | | | (28,924) | | | (21,534) | | | (19,052) | |
| Net loss attributable to Class A and Class B common stockholders | | | | | | (164,445) | | | (157,553) | | | (304,414) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Less: deemed dividend to noncontrolling interest | | | | | | — | | | — | | | (2,454) | |
| Net loss available to Class A and Class B common stockholders | | | | | | $ | (164,445) | | | $ | (157,553) | | | $ | (306,868) | |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | | | | | $ | (0.95) | | | $ | (1.14) | | | $ | (2.67) | |
| Weighted average shares used to compute net loss per share available to Class A and Class B common stockholders, basic and diluted | | | | | | 173,438 | | | 138,722 | | | 115,118 | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Net loss | | | | | | $ | (193,369) | | | $ | (179,087) | | | $ | (323,466) | |
| Other comprehensive loss, net of taxes: | | | | | | | | | | |
| Unrealized loss on available-for-sale securities | | | | | | — | | | (23) | | | 14 | |
| Change in derivative instruments designated and qualifying as cash flow hedges | | | | | | 15,243 | | | (6,896) | | | (6,085) | |
| Foreign currency translation adjustment | | | | | | (595) | | | — | | | 0 |
| Other comprehensive (loss) income, net of taxes | | | | | | 14,648 | | | (6,919) | | | (6,071) | |
| Comprehensive loss | | | | | | (178,721) | | | (186,006) | | | (329,537) | |
| Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interest | | | | | | (13,935) | | | (28,425) | | | (24,842) | |
| Comprehensive loss attributable to Class A and Class B stockholders | | | | | | $ | (164,786) | | | $ | (157,581) | | | $ | (304,695) | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Equity (Deficit) and endeavorsNoncontrolling Interest
(in thousands, except shares)
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| | Redeemable Convertible Preferred Stock | | Redeemable Noncontrolling Interest | | | | | Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Equity (Deficit) | | Noncontrolling
Interest |
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| Balances at December 31, 2018 | | — | | $ | — | | | $ | 57,261 | | | | | | 109,421,183 | | | $ | 11 | | | $ | 2,481,352 | | | $ | 131 | | | $ | (2,624,104) | | | $ | (142,610) | | | $ | 125,110 | |
| Cumulative effect upon adoption of new accounting standard | | — | | — | | | — | | | | | | — | | | — | | | — | | | — | | | (17,996) | | | (17,996) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Buyout of equity investors in PPA IIIb (Note 13) | | — | | — | | | — | | | | | | — | | | — | | | (2,454) | | | 169 | | | — | | | (2,285) | | | — | |
| Conversion of Notes | | — | | — | | | — | | | | | | 616,302 | | | — | | | 6,933 | | | — | | | — | | | 6,933 | | | — | |
| Issuance of restricted stock awards | | — | | — | | | — | | | | | | 8,921,807 | | | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| ESPP purchase | | — | | — | | | — | | | | | | 1,718,433 | | | — | | | 11,183 | | | — | | | — | | | 11,183 | | | — | |
| Exercise of stock options | | — | | — | | | — | | | | | | 358,564 | | | — | | | 1,529 | | | — | | | — | | | 1,529 | | | — | |
| Stock-based compensation | | — | | — | | | — | | | | | | — | | | — | | | 188,114 | | | — | | | — | | | 188,114 | | | — | |
| Unrealized loss on available-for-sale securities | | — | | — | | | — | | | | | | — | | | — | | | — | | | 14 | | | — | | | 14 | | | — | |
| Change in effective portion of interest rate swap agreement | | — | | — | | | — | | | | | | — | | | — | | | — | | | (295) | | | — | | | (295) | | | (5,790) | |
| Distributions to noncontrolling interests | | — | | — | | | (4,011) | | | | | | — | | | — | | | 102 | | | | | — | | | 102 | | | (5,970) | |
| Mandatory redemption of noncontrolling interests | | — | | — | | | (55,684) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Cumulative effect of hedge accounting | | — | | — | | | — | | | | | | — | | | — | | | — | | | | | 130 | | | 130 | | | (130) | |
| Net income (loss) | | — | | — | | | 2,877 | | | | | | — | | | — | | | — | | | — | | | (304,414) | | | (304,414) | | | (21,929) | |
| Balances at December 31, 2019 | | — | | — | | | 443 | | | | | | 121,036,289 | | | $ | 12 | | | 2,686,759 | | | 19 | | | (2,946,384) | | | (259,594) | | | 91,291 | |
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| Conversion of Notes | | — | | — | | | — | | | | | | 35,881,250 | | | 4 | | | 300,848 | | | — | | | — | | | 300,852 | | | — | |
| Issuance of convertible notes | | — | | — | | | — | | | | | | — | | | — | | | 126,799 | | | — | | | — | | | 126,799 | | | — | |
| Adjustment of embedded derivative for debt modification | | — | | — | | | — | | | | | | — | | | — | | | (24,071) | | | — | | | — | | | (24,071) | | | — | |
| Issuance of restricted stock awards | | — | | — | | | — | | | | | | 7,806,038 | | | 1 | | | | | — | | | — | | | 1 | | | — | |
| ESPP purchase | | — | | — | | | — | | | | | | 1,937,825 | | | — | | | 8,499 | | | — | | | — | | | 8,499 | | | — | |
| Exercise of stock options | | — | | — | | | — | | | | | | 1,341,324 | | | — | | | 14,988 | | | — | | | — | | | 14,988 | | | — | |
| Stock-based compensation | | — | | — | | | — | | | | | | — | | | — | | | 68,931 | | | — | | | — | | | 68,931 | | | — | |
| Unrealized loss on available-for-sale securities | | — | | — | | | — | | | | | | — | | | — | | | — | | | (23) | | | — | | | (23) | | | — | |
| Change in effective portion of interest rate swap agreement | | — | | — | | | — | | | | | | — | | | — | | | — | | | (5) | | | — | | | (5) | | | (6,891) | |
| Distributions to noncontrolling interests | | — | | — | | | (45) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,205) | |
| Contribution from noncontrolling interest | | — | | — | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,513 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | — | | — | | | (21) | | | | | | — | | | — | | | — | | | — | | | (157,553) | | | (157,553) | | | (21,513) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable Convertible Preferred Stock | | Redeemable Noncontrolling Interest | | | | | Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Equity (Deficit) | | Noncontrolling
Interest |
| | Shares | | Amount | | | | | Shares | | Amount | | | | | |
| Balances at December 31, 2020 | | — | | — | | | 377 | | | | | | 168,002,726 | | | 17 | | | 3,182,753 | | | (9) | | | (3,103,937) | | | 78,824 | | | 62,195 | |
| Issuance of redeemable convertible preferred stock (Note 18) | | 10,000,000 | | 208,551 | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Cumulative effect upon adoption of new accounting standard (Note 2) | | — | | | — | | | — | | | | | | — | | | — | | | (126,799) | | | — | | | 5,308 | | | (121,491) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of restricted stock awards | | — | | | — | | | — | | | | | | 3,052,012 | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | — | | | — | | | — | | | | | | 1,945,305 | | | — | | | 10,045 | | | — | | | — | | | 10,045 | | | — | |
| Exercise of stock options | | — | | | — | | | — | | | | | | 3,460,364 | | | 1 | | | 79,744 | | | — | | | — | | | 79,745 | | | — | |
| Stock-based compensation | | — | | | — | | | — | | | | | | — | | | — | | | 73,338 | | | — | | | — | | | 73,338 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Change in effective portion of interest rate swap agreement | | — | | | — | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,243 | |
| Distributions to noncontrolling interests | | — | | | — | | | (49) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,789) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative foreign currency translation adjustment | | — | | | — | | | — | | | | | | — | | | — | | | — | | | (341) | | | (1) | | | (342) | | | (254) | |
| Net loss | | — | | | — | | | (28) | | | | | | — | | | — | | | — | | | — | | | (164,445) | | | (164,445) | | | (28,896) | |
| Balances at December 31, 2021 | | 10,000,000 | | | $ | 208,551 | | | $ | 300 | | | | | | 176,460,407 | | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (193,369) | | | $ | (179,087) | | | $ | (323,466) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
| Depreciation and amortization | | 53,454 | | | 52,279 | | | 78,584 | |
| Non-cash lease expense | | 9,708 | | | 5,328 | | | — | |
| Write-off of property, plant and equipment, net | | — | | | 38 | | | 3,117 | |
| Write-off of customer financing receivable | | — | | | — | | | 11,302 | |
| Impairment of equity method investment | | — | | | 4,236 | | | — | |
| Write-off of PPA II and PPA IIIb decommissioned assets | | — | | | — | | | 70,543 | |
| Debt make-whole expense | | — | | | — | | | 5,934 | |
| | | | | | |
| Revaluation of derivative contracts | | 17,532 | | | (497) | | | 2,779 | |
| Stock-based compensation expense | | 73,274 | | | 73,893 | | | 196,291 | |
| Gain on long-term REC purchase contract | | — | | | 72 | | | 53 | |
| Gain on remeasurement of investment | | (1,966) | | | — | | | — | |
| Contingent consideration remeasurement | | (3,623) | | | — | | | — | |
| Interest Expense on Interest Rate Swap Settlement | | (641) | | | — | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| Loss on extinguishment of debt | | — | | | 11,785 | | | — | |
| Amortization of debt issuance costs and premium, net | | 3,797 | | | 6,455 | | | 22,130 | |
| Changes in operating assets and liabilities: | | | | | | |
| Accounts receivable | | 8,570 | | | (61,685) | | | 51,952 | |
| Contract assets | | (21,874) | | | — | | | — | |
| Inventories | | (885) | | | (33,004) | | | 18,425 | |
| Deferred cost of revenue | | 17,567 | | | 19,910 | | | (21,992) | |
| Customer financing receivable | | 5,428 | | | 5,159 | | | 5,520 | |
| Prepaid expenses and other current assets | | 1,520 | | | (3,124) | | | 8,643 | |
| Other long-term assets | | (2,854) | | | 2,904 | | | 3,618 | |
| Accounts payable | | 13,132 | | | (620) | | | (11,310) | |
| Accrued warranty | | 1,481 | | | (241) | | | (6,603) | |
| Accrued expenses and other current liabilities | | (2,144) | | | 17,753 | | | 6,728 | |
| Operating lease right-of-use assets and operating lease liabilities | | (12,953) | | | (2,855) | | | — | |
| Financing cash flows from finance leases | | 1,142 | | | — | | | — | |
| Deferred revenue and customer deposits | | (22,677) | | | (12,972) | | | 37,146 | |
| Other long-term liabilities | | (4,300) | | | (4,523) | | | 4,376 | |
| Net cash (used in) provided by operating activities | | (60,681) | | | (98,796) | | | 163,770 | |
| Cash flows from investing activities: | | | | | | |
| Purchase of property, plant and equipment | | (49,810) | | | (37,913) | | | (51,053) | |
| Net cash acquired from step acquisition | | 3,114 | | | — | | | — | |
| | | | | | |
| Proceeds from maturity of marketable securities | | — | | | — | | | 104,500 | |
| Net cash (used in) provided by investing activities | | (46,696) | | | (37,913) | | | 53,447 | |
| Cash flows from financing activities: | | | | | | |
| Proceeds from issuance of debt | | 135,989 | | | 300,000 | | | — | |
| Proceeds from issuance of debt to related parties | | — | | | 30,000 | | | — | |
| Repayment of debt | | (123,374) | | | (176,522) | | | (119,277) | |
| Repayment of debt - related parties | | — | | | (2,105) | | | (2,200) | |
| Debt make-whole payment | | — | | | — | | | (5,934) | |
| Debt issuance costs | | (1,950) | | | (13,247) | | | — | |
| Proceeds from financing obligations | | 16,849 | | | 26,279 | | | 72,334 | |
| Repayment of financing obligations | | (13,642) | | | (10,756) | | | (8,954) | |
| Contribution from noncontrolling interest | | — | | | 6,513 | | | — | |
| Payments to noncontrolling and redeemable noncontrolling interests | | — | | | — | | | (56,459) | |
| Distributions to noncontrolling interests and redeemable noncontrolling interests | | (5,838) | | | (7,622) | | | (12,537) | |
| Proceeds from issuance of common stock | | 89,790 | | | 23,491 | | | 12,713 | |
| Proceeds from issuance of redeemable convertible preferred stock, net | | 208,551 | | | — | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Net cash provided by (used in) financing activities | | 306,375 | | | 176,031 | | | (120,314) | |
| Effect of exchange rate changes on cash, cash equivalent and restricted cash | | (594) | | | — | | | — | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | | 198,404 | | | 39,322 | | | 96,903 | |
| Cash, cash equivalents, and restricted cash: | | | | | | |
| Beginning of period | | 416,710 | | | 377,388 | | | 280,485 | |
| End of period | | $ | 615,114 | | | $ | 416,710 | | | $ | 377,388 | |
| | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid during the period for interest | | $ | 68,739 | | | $ | 71,651 | | | $ | 69,851 | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows from operating leases | | 17,416 | | | 2,855 | | | — | |
| Operating cash flows from financing leases | | 878 | | | 61 | | | — | |
| Cash paid during the period for income taxes | | 576 | | | 371 | | | 860 | |
| Non-cash investing and financing activities: | | | | | | |
| | | | | | |
| Increase in recourse debt, non-current upon adoption of ASU 2020-06, net (Note 2) | | $ | 121,491 | | | $ | — | | | $ | — | |
| Liabilities recorded for property, plant and equipment | | 6,095 | | | 7,175 | | | $ | 1,745 | |
| Operating lease liabilities arising from obtaining right-of-use assets upon adoption of new lease guidance | | — | | | 39,775 | | | — | |
| Recognition of operating lease right-of-use asset during the year-to-date period | | 82,802 | | | 12,829 | | | — | |
| Recognition of financing lease right-of-use asset during the year-to-date period | | 2,210 | | | 385 | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Conversion of 6% and 8% convertible promissory notes into additional paid-in capital to related parties | | — | | | — | | | 6,933 | |
| Conversion of 10% convertible promissory notes into Class A common stock | | — | | | 252,797 | | | — | |
| Conversion of 10% convertible promissory notes to related party into Class A common stock | | — | | | 50,800 | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Accrued distributions to equity investors | | — | | | — | | | 373 | |
| Accrued interest for notes | | — | | | 1,298 | | | 1,812 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Adjustment of embedded derivative related to debt extinguishment | | — | | | 24,071 | | | — | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Notes to modify these internal systems as circumstances warrant to prevent unauthorized intrusions or disruptions.Consolidated Financial Statements
Summary
1. Nature of Significant Accounting PoliciesBusiness, Liquidity and Basis of Presentation
Revenue Recognition
We primarily earn product and installation revenue from the sale and installation of our Energy Servers, service revenue by providing services under operations and maintenance services contracts and electricity revenue by selling electricity to customers under power purchase agreements. We offer our customers several ways to finance their use of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose to purchase our Energy Servers outright. Customers may also lease our Energy Servers through one of our financing partners via our Managed Services Program or as a traditional lease. Finally, customers may purchase electricity through our Power Purchase Agreement Programs.
Prior to Adoption of ASCapply Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers
Prior. We identify our contracts with Customers, determine our performance obligations and the transaction price, and after allocating the transaction price to the adoptionperformance obligations, we recognize revenue as we satisfy our performance obligations and transfer control of ASC 606 Revenue from Contractsour products and services to our customers. Most of our contracts with Customers,customers contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we recognizedallocate the total transaction price to each performance obligation based on the relative standalone selling price.
We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance which typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system is shipped and delivered to our customers, when the system is shipped and delivered and is physically ready for start up and commissioning, or when the sales of products,system is shipped and delivered and is turned on and producing power.
We recognize installation revenue when the system has been installed and services in accordance with ASC 605-25, Revenue Recognition for Multiple-Element Arrangements.
Revenue from the sale and installation of Energy Servers was recognized when all of the following criteria are met:
Persuasive evidence of an arrangement exists. We rely upon non-cancelable sales agreements and purchase orders to determine the existence of an arrangement.
Delivery and acceptance have occurred. We use shipping documents and confirmation from our installations team that the deployed systems areis running at full power as defined in each contract to verify delivery and acceptance.power.
The feeService revenue is fixed or determinable. We assess whetherrecognized ratably over the fee is fixed or determinable based on the payment terms associated with the transaction.
Collectability is reasonably assured. We assess collectability based on the customer’s credit analysis and payment history.
When these criteria are met, we allocate revenue to each elementterm of the customer arrangement (product, installation and services) based on an estimated sellingfirst or renewed one-year service period. Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price atmay be less than the arrangement inception. The estimated selling price for each element is based upon the following hierarchy: vendor-specific objective evidence ("VSOE") of selling price, if available; third-party evidence ("TPE") of selling price, if VSOE of selling price is not available; or best estimate of selling price ("BESP") if neither VSOE of selling price nor TPE of selling price are available. We limit the amount of revenue recognized for delivered elements to an amount that is not contingent upon future delivery of additional products or services or upon meeting any specified performance conditions.
We have not been able to obtain reliable evidence of thestandalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right. We estimate the standalone Energy Server. selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, we have no evidence ofstandalone selling prices for either and virtually no customers have electedare estimated using a cost-plus approach. Costs relating to cancel their maintenance service agreements while continuing to operate the Energy Servers. Our objective is to determine the price at which we would transact business if the items were being sold separately. As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and installation based on their respective costs and, in the case of maintenance service agreements, the estimated costs to be incurred during the expected service period.
Costs for Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. Costs relating to expected installation costsinclude all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to determine the selling price to be used in our BESP model.installation. Costs for
maintenance service arrangements are estimated over the expected life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the expected period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations.expectations and comparable historical industry service margins. As a result, our business offeringsestimate of our selling price is driven primarily by our expected margin on both the Energy Server and eligibility for the Investment Tax Credit ("ITC") evolve over time, we may be required to modify our estimated selling prices in subsequent periods and our revenue could be adversely affected.
Subsequent to adoption of ASC 606 Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board "FASB" issued Accounting Standards Update "ASU" No. 2014-09, "Revenue from Contracts with Customers ("ASU 2014-09")." This standard superseded most of the previous revenue recognition guidance under U.S. GAAP and is intended to improve and converge with international standards' related financial reporting requirements for revenue recognition. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. Subsequently, the FASB issued several standards that clarified certain aspects of ASU 2014-09, but did not significantly change the original standard. We adopted ASU 2014-09 and its related amendments (collectively “ASC 606”) as of January 1, 2019 using the modified retrospective method. Under the modified retrospective method, results for reporting periods beginning after December 31, 2018 are presented under ASC 606 while prior period financial information is not adjusted and continues to be reported under prior guidance (“ASC 605”). See “Accounting Guidance Implemented in Fiscal Year 2019” below for additional information on the impact of adopting ASC 606.
In applying ASC 606, Revenue related to contracts with customers is recognized by following a five-step process:
Identify the contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller, purchase, use and maintenance agreement, maintenance service agreements based on their respective costs or, energy supply agreement.
Identify the performance obligations in the contract. Performance obligations are identified in our contracts and include transferring controlcase of an Energy Server, installation of Energy Servers, providing maintenance services and maintenance service renewal options which provide customers with material rights.
Determineagreements, the transaction price. The purchase price stated in an agreed upon purchase order or contract is generally representative of the transaction price. When determining the transaction price, we consider the effects of any variable consideration, which include performance penalties that mayestimated costs to be payable to our customers.
Allocate the transaction price to the performance obligations in the contract. The transaction price in a contract is allocated based upon the relative standalone selling price of each distinct performance obligation identified in the contract.
Recognize revenue when (or as) we satisfy a performance obligation. We satisfy performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring control of the promised products or services to a customer.
We frequently combine contracts governing the sale and installation of an Energy Server with the related maintenance service contracts and account for them as a single contract at contract inception to the extent the contracts are with the same customer. These contracts are not combined when the customer for the sale and installation of the Energy Server is different to the maintenance service contract customer. We also assess whether any contract terms including default provisions, put or call options result in components of our contracts being accounted for as financing or leasing transactions outside of the scope of ASC 606.
Most of our contracts contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate revenue to each performance obligation based on the total transaction price for each contract. Our maintenance service contracts are typically subject to renewal by customers on an annual basis. We assess these maintenance service renewal options at contract inception to determine whether they provide customers with material rights that give rise to a separate performance obligation.incurred.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a production guaranteeperformance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method.
For successful sales-leaseback arrangements, we recognize product and installation revenue upon meeting criteria demonstrating we have transferred control to the customer (the Buyer-Lessor). When control of the Energy Server is transferred to the financier, and we determine the leaseback qualifies as an operating lease in accordance with ASC 842, Leases ("ASC 842"), we record a ROU asset and a lease liability, and recognize revenue based on the fair value of the Energy Servers with an allocation to product revenue and installations revenue based on the relative standalone selling prices. We recognize as financing obligations any proceeds received to finance our ongoing costs to operate the Energy Servers.
Valuation of Escalator Protection Plan Agreements ("EPP")
We have entered into agreements with certain customers which require us to recognize a liability in compliance with the financial accounting and reporting requirements of ASC Topic 820, Fair Value Measurement ("ASC 820"). We use third party valuation experts to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject liabilities using inputs of forecasted avoided costs and the cost of electricity. We determine our final estimate of liability based on internal reviews and in consideration of the estimates received. Although measured each reporting period, our estimates may vary from the actual payments made under the contractual agreements, as the estimates include current known liability and estimates of potential future payments. We use valuation methodology including using a Monte Carlo simulation model, with estimated inputs of beginning value, growth rate and volatility, and further discount our estimate of liability based on our cost of debt commensurate with the payment period.
Valuation of Certain Financial Instruments and Customer Financing Receivables
We have entered into certain Customer Financing Receivables with our PPA 3a arrangement, and debt financings that include Redeemable Senior Secured Notes, Convertible Senior Notes, Senior Secured Notes, Term Loans and Fixed Rate Notes. We are required to determine the fair value of the assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC Topic 840, Leases, and ASC Topic 815, Derivatives and Hedging ("ASC 815"). We use third party valuation experts to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of principal to be received or paid, maturity dates, coupon rates, selected discount rate based on implied rating and comparable yield curves in Energy and Non-Financial markets. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation of Assets and Liabilities of the SK ecoplant Strategic Investment
We have entered into an agreement with SK ecoplant that provides the opportunity, but does not require, an additional investment in common stock Class A, subject to a cap on the total potential share purchase, and as a component of transaction, includes a purchase commitment by the investor for future product purchases.
We are required to determine the fair value of the assets or liabilities for financial reporting purposes under ASC 820, and as applicable, under the guidance of ASC 815and ASC Topic 480 Distinguishing Liabilities from Equity. We use third party valuation experts that are recognized as financial instrument accounting specialists to provide us with the initial Level 3 fair value measurement that estimates the fair value of the subject assets or liabilities using inputs of number of shares,
underlying prices of Bloom Energy stock, rights and obligations of the counterparties, valuation assumptions related to options, and the assessed value of our product revenue streams and the timing of expected revenue recognition. We determine our final estimate of fair value based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate is to represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We determine the reasonableness of our valuation methodology, assumptions on the timing and probability of a redemption event, and the expected number of shares to be exercised with the Option, and review the mathematical accuracy of the calculations before recording in our consolidated statement of operations and consolidated balance sheets. See Note 18 - SK ecoplant Strategic Investment.
Incremental Borrowing Rate ("IBR") by Lease Class
We adopted ASC 842 on January 1, 2020 on a modified retrospective basis. This guidance requires that, for all our leases, we recognize ROU assets representing our right to use the underlying asset for the lease term, and lease liabilities related to the rights and obligations created by those leases, on the balance sheet regardless of whether they are classified as finance or operating leases, with classification affecting the pattern and presentation of expenses and cash flows on the consolidated financial statements. Lease liabilities are measured at the lease commencement date as the present value of future minimum lease payments over the reasonably certain lease term. Lease ROU assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, we used our collateralized incremental borrowing rate as our leases do not generally provide an implicit rate. The determination of the incremental borrowing rate considers qualitative and quantitative factors as well as the estimated impact that the collateral has on the rate. We determine our incremental borrowing rate based on the lease class of assets which relates to those supporting of manufacturing and general operations, and those supporting electricity revenue transactions.
For successful sale-leasebacks, as Seller-Lessee, we determine the collateralized IBR on our leased equipment based on a fair value assessment provided by third-party valuation experts.
Stock-Based Compensation
We account for stock options and other equity awards, such as restricted stock units and performance-based stock units, to employees and non-employee directors under the provisions of ASC 718, Compensation-Stock Compensation. Accordingly, the stock-based compensation expense for these awards is measured based on the fair value on the date of grant. For stock options, we recognize the expense, net of estimated forfeitures, under the straight-line attribution over the requisite service period which is generally the vesting term. The fair value of the stock options is estimated using the Black-Scholes valuation model. For options with a vesting condition tied to the attainment of service and market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. In addition, we use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach.
The Black-Scholes valuation model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of the stock options and the expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options as well as expected forfeiture rates based on the historical settlement experience and after giving consideration to vesting schedules.
Income Taxes
We account for income taxes using the liability method under ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. This determination is based on expected future results and the future reversals of existing taxable temporary differences. Furthermore, uncertain tax positions are evaluated by management and amounts are recorded when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits. Significant judgement is required throughout management's process in evaluating each uncertain tax position including future taxable income expectations and tax-planning strategies to determine whether the more likely than not recognition threshold has been met. We have provided a full valuation allowance on our domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
Principles of Consolidation
Our consolidated financial statements include the operations of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirements for each of our PPA Entities that are variable interest entities ("VIEs"). This approach focuses on determining whether we have the power to direct those activities that significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits that could potentially be significant to the PPA Entities. The considerations for VIE consolidation is a complex analysis that requires us to determine whether we are the primary beneficiary and therefore have the power to direct activities which are most significant to those PPA Entities.
Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests and Redeemable Noncontrolling Interests
We generally allocate profits and losses to noncontrolling interests under the HLBV method. The HLBV method is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities.
The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks as part of our ongoing business operations, primarily by exposure to changes in interest rates, in commodity fuel prices and in foreign currency.
Interest Rate Risk
Our cash is maintained in interest-bearing accounts and our cash equivalents are invested in money market funds. Lower interest rates would have an adverse impact on our interest income or potentially incur other expenses if a negative interest rate environment was to exist. Due to the short-term investment nature of our cash and cash equivalents, we believe that we do not have material financial statement exposure to changes in fair value as a result of changes in interest rates. Since we believe we have the ability to liquidate substantially all of this portfolio, we do not expect our operating results or cash flows to be materially affected to any significant degree by a sudden change in market interest rates on our investment portfolio.
To provide a meaningful assessment of the interest rate risk associated with our cash and cash equivalents, we performed a sensitivity analysis to determine the impact a change in interest rates would have on income statement and in investment fair values assuming a 1% decline in yield. Based on the investment positions in both December 31, 2021 and 2020, a hypothetical 1% decrease in interest rates across all maturities would result in $5.8 million and $4.1 million declines in interest income and/or increase in other expenses on an annualized basis, respectively. As these investments have maturities of less than twelve months, changes with respect to the portfolio fair value would be limited to these amounts and only be realized if we were to terminate the investments prior to maturity.
We had refinanced our only LIBOR-based floating-rate loan with a fixed-rate loan in 2021. As our debt is fixed-rate debt, interest rate changes do not affect our earnings or cash flows.
Commodity Price Risk
We are subject to commodity price risk arising from price movements for natural gas that we supply to customers to operate our Energy Servers under certain power purchase agreements. While we entered into a natural gas fixed price forward contract with our gas supplier in 2011, the fuel forward contract meets the definition of a derivative under U.S. GAAP and accordingly, any changes in its fair value is recorded within cost of revenue in the consolidated statements of operations. The fair value of the contract is determined using a combination of factors including our credit rating and future natural gas prices.
To provide a meaningful assessment of the commodity price risk arising from price movements in the commodity futures contracts for natural gas, we performed a sensitivity analysis to determine the impact a change in natural gas commodity pricing would have on our consolidated statements of operations assuming a 10% change in the commodity contracts held. Based on monthly commodity positions for the years ended December 31, 2021 and 2020, a hypothetical 10% increase in the price of natural gas futures would have resulted in no change and a $0.3 million adjustment to their balance sheet fair values, respectively.
Foreign Currency Risk
Our sales contracts are primarily denominated in U.S. dollars and, therefore, substantially all of our revenue is not subject to foreign currency market risk. Our supply contracts are primarily denominated in U.S. dollars and our corporate operations are domiciled in the United States. However, we conduct some internationally domiciled field operations and therefore, find it necessary to transact in foreign currencies for limited operational purposes, necessitating that we hold foreign currency bank accounts.
To provide a meaningful assessment of the risk associated with our foreign currency holdings, we performed a sensitivity analysis to determine the impact a currency devaluation would have on our balance sheet assuming a 20% decline in the value of the U.S. dollar. Based on our foreign currency holdings as of December 31, 2021 and 2020, a hypothetical 20% devaluation of the U.S. dollar against foreign currencies would not be material to our reported cash position.
However, an increasing portion of our operating expenses are incurred outside the United States, are denominated in foreign currencies and are subject to such risk. Although not yet material, if we are not able to successfully hedge against the risks associated with currency fluctuations in our future activities, our financial condition and operating results could be adversely affected.
Actual future gains and losses associated with our investment portfolio, debt and derivative positions and foreign currency may differ materially from the sensitivity analyses performed as of December 31, 2021 and 2020 due to the inherent limitations associated with predicting the timing and amount of changes in interest rates, foreign currency exchange rates and our actual commodity derivative exposures and positions.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bloom Energy Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock, redeemable noncontrolling interest, stockholders' equity (deficit) and noncontrolling interest, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Managed Services Sale and Leaseback Revenue – Refer to Notes 2 and 9 to the financial statements
Critical Audit Matter Description
During the year ended December 31, 2021, the Company completed several sale and leaseback transactions to sell Energy Servers to financiers and lease them back. The Company recognizes revenue for such transactions when control of the Energy Servers transfers to the financier and the leaseback qualifies as an operating lease in accordance with ASC 842 - Leases (“ASC 842”). Revenue is recognized based on the fair value of the Energy Servers, which is allocated to product revenue and installation revenue based on the relative standalone selling prices. Any proceeds to finance the Company’s ongoing costs to operate the Energy Servers during the term of the leaseback are recognized as financing obligations.
The Company recognized $35.1 million of product revenue and $20.9 million of installation revenue for the year ended December 31, 2021 and $10 million of financing obligations from such sale and leaseback transactions.
We identified accounting for revenue recognition under sale and leaseback transactions as a critical audit matter because of the complexity in applying the accounting framework. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the accounting framework and to audit the revenue recognized during the year.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for revenue recognition for sale and leaseback transactions included the following:
•We tested the effectiveness of internal controls over the Company’s accounting for sale and leaseback transactions, including those over management’s evaluation of revenue recognition and the existence and completeness of financing obligations.
•For each sale and leaseback transaction executed during the year ended December 31, 2021, we performed the following:
•We inspected the executed contracts to identify the relevant terms and conditions which would impact the Company’s accounting conclusions, including (i) the transfer of control of the Energy Servers to the financier, (ii) the classification of the leaseback as an operating lease in accordance with ASC 842, and (iii) the existence of financing obligations.
•With the assistance of our revenue and lease accounting specialists, we evaluated the Company’s conclusions regarding the accounting treatment applied to the sale and leaseback transactions, including the recognition of revenue and the identification of financing obligations.
Securities Purchase Agreement – Refer to Note 18 to the financial statements
Critical Audit Matter Description
On October 23, 2021, the Company entered into a Securities Purchase Agreement with SK ecoplant Co., Ltd. (“SK ecoplant”), to sell 10,000,000 shares of Redeemable Convertible Series A preferred stock (the “RCPS”) for a purchase price of $255 million. The agreement included an option for SK ecoplant to purchase additional shares of the Company’s Class A Common stock (“the Option”).
We identified the accounting and the valuation of the Securities Purchase Agreement as a critical audit matter because of the complexity in applying the accounting framework and the significant estimates and assumptions made by management in the determination of the fair values of both the RCPS and the Option (collectively, the “Financial Instruments”). This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the accounting framework and the reasonableness of the fair value estimates and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for the Securities Purchase Agreement, including the Company’s determination of the fair values of the financial instruments, included the following:
•We tested the effectiveness of controls over the Company’s accounting for the Securities Purchase Agreement and over the determination of the fair values of the Financial Instruments.
•With the assistance of our financial instrument accounting specialists, we evaluated the Company’s conclusions regarding the accounting treatment applied to the Securities Purchase Agreement.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the following:
–Valuation methodologies applied to determine the fair values of the Financial Instruments
–Assumptions used by the Company in the valuation of the Financial Instruments, including the expected timing and the probability of a redemption event for the RCPS, and the expected number of shares to be exercised with the Option
–Accuracy, completeness, and relevancy of the source information underlying the fair value of the Financial Instruments and the mathematical accuracy of the calculations.
•With the assistance of our fair value specialists, we developed independent estimates and compared them to the fair values of the Financial Instruments determined by management.
/s/ Deloitte & Touche LLP
San Jose, California
February 25, 2022
We have served as the Company's auditor since 2020.
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Stockholders of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the consolidated statements of operations, of comprehensive loss, of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders’ equity (deficit) and noncontrolling interest and of cash flows of Bloom Energy Corporation and its subsidiaries (the “Company”) for the year ended December 31, 2019, including the related notes (collectively referred to as the “consolidatedfinancial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2019in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2019.
Basis for Opinion
These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidatedfinancial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 31, 2020
We served as the Company’s auditor from 2009 to 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Bloom Energy Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Bloom Energy Corporation and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 25, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
San Jose, California
February 25, 2022
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands, except share data and par values)
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Assets | | | | |
| Current assets: | | | | |
Cash and cash equivalents1 | | $ | 396,035 | | | $ | 246,947 | |
Restricted cash1 | | 92,540 | | | 52,470 | |
| | | | |
Accounts receivable1 | | 87,789 | | | 96,186 | |
| Contract assets | | 25,201 | | | 3,327 | |
| Inventories | | 143,370 | | | 142,059 | |
| Deferred cost of revenue | | 25,040 | | | 41,469 | |
Customer financing receivable1 | | 5,784 | | | 5,428 | |
Prepaid expenses and other current assets1 | | 30,661 | | | 30,718 | |
| Total current assets | | 806,420 | | | 618,604 | |
Property, plant and equipment, net1 | | 604,106 | | | 600,628 | |
| Operating lease right-of-use assets | | 106,660 | | | 35,621 | |
Customer financing receivable, non-current1 | | 39,484 | | | 45,268 | |
Restricted cash, non-current1 | | 126,539 | | | 117,293 | |
| Deferred cost of revenue, non-current | | 1,289 | | | 2,462 | |
| Goodwill | | 1,957 | | | — | |
Other long-term assets1 | | 39,116 | | | 34,511 | |
| Total assets | | $ | 1,725,571 | | | $ | 1,454,387 | |
| Liabilities, Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interest, Stockholders’ (Deficit) Equity and Noncontrolling Interest | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 72,967 | | | $ | 58,334 | |
| Accrued warranty | | 11,746 | | | 10,263 | |
Accrued expenses and other current liabilities1 | | 114,138 | | | 112,004 | |
Deferred revenue and customer deposits1 | | 89,975 | | | 114,286 | |
| | | | |
| Operating lease liabilities | | 13,101 | | | 7,899 | |
| Financing obligations | | 14,721 | | | 12,745 | |
| Recourse debt | | 8,348 | | | — | |
Non-recourse debt1 | | 17,483 | | | 120,846 | |
| | | | |
| | | | |
| Total current liabilities | | 342,479 | | | 436,377 | |
| | | | |
| | | | |
Deferred revenue and customer deposits, non-current1 | | 90,310 | | | 87,463 | |
| Operating lease liabilities, non-current | | 106,187 | | | 41,849 | |
| | | | |
| Financing obligations, non-current | | 461,900 | | | 459,981 | |
| Recourse debt, non-current | | 283,483 | | | 168,008 | |
Non-recourse debt, non-current1 | | 217,416 | | | 102,045 | |
| | | | |
| | | | |
| Other long-term liabilities | | 16,772 | | | 17,268 | |
| Total liabilities | | 1,518,547 | | | 1,312,991 | |
| | | | |
| Commitments and contingencies (Note 13) | | 0 | | 0 |
| Redeemable convertible preferred stock, Series A: 10,000,000 shares authorized and 10,000,000 shares and no shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | | 208,551 | | | — | |
| Redeemable noncontrolling interest | | 300 | | | 377 | |
| Stockholders’ (deficit) equity: | | | | |
| | | | |
| Common stock: $0.0001 par value; Class A shares - 600,000,000 shares authorized and 160,627,544 shares and 140,094,633 shares issued and outstanding and Class B shares - 600,000,000 shares authorized and 15,832,863 shares and 27,908,093 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. | | 18 | | | 17 | |
| Additional paid-in capital | | 3,219,081 | | | 3,182,753 | |
| Accumulated other comprehensive loss | | (350) | | | (9) | |
| Accumulated deficit | | (3,263,075) | | | (3,103,937) | |
| Total stockholders’ (deficit) equity | | (44,326) | | | 78,824 | |
| Noncontrolling interest | | 42,499 | | | 62,195 | |
| Total liabilities, redeemable noncontrolling interest, stockholders' (deficit) equity and noncontrolling interest | | $ | 1,725,571 | | | $ | 1,454,387 | |
1We have variable interest entities, which represent a portion of the consolidated balances recorded within these financial statement line items in the consolidated balance sheets (see Note 11 - Portfolio Financings).
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Revenue: | | | | | | | | | | |
| Product | | | | | | $ | 663,512 | | | $ | 518,633 | | | $ | 557,336 | |
| Installation | | | | | | 96,059 | | | 101,887 | | | 60,826 | |
| Service | | | | | | 144,184 | | | 109,633 | | | 95,786 | |
| Electricity | | | | | | 68,421 | | | 64,094 | | | 71,229 | |
| Total revenue | | | | | | 972,176 | | | 794,247 | | | 785,177 | |
| Cost of revenue: | | | | | | | | | | |
| Product | | | | | | 471,654 | | | 332,724 | | | 435,479 | |
| Installation | | | | | | 110,214 | | | 116,542 | | | 76,487 | |
| Service | | | | | | 148,286 | | | 132,329 | | | 100,238 | |
| Electricity | | | | | | 44,441 | | | 46,859 | | | 75,386 | |
| Total cost of revenue | | | | | | 774,595 | | | 628,454 | | | 687,590 | |
| Gross profit | | | | | | 197,581 | | | 165,793 | | | 97,587 | |
| Operating expenses: | | | | | | | | | | |
| Research and development | | | | | | 103,396 | | | 83,577 | | | 104,168 | |
| Sales and marketing | | | | | | 86,499 | | | 55,916 | | | 73,573 | |
| General and administrative | | | | | | 122,188 | | | 107,085 | | | 152,650 | |
| Total operating expenses | | | | | | 312,083 | | | 246,578 | | | 330,391 | |
| Loss from operations | | | | | | (114,502) | | | (80,785) | | | (232,804) | |
| Interest income | | | | | | 262 | | | 1,475 | | | 5,661 | |
| Interest expense | | | | | | (69,025) | | | (76,276) | | | (87,480) | |
| Interest expense - related parties | | | | | | — | | | (2,513) | | | (6,756) | |
| Other income (expense), net | | | | | | (8,139) | | | (8,318) | | | 706 | |
| Gain (loss) on extinguishment of debt | | | | | | — | | | (12,878) | | | — | |
| (Loss) gain on revaluation of embedded derivatives | | | | | | (919) | | | 464 | | | (2,160) | |
| Loss before income taxes | | | | | | (192,323) | | | (178,831) | | | (322,833) | |
| Income tax provision | | | | | | 1,046 | | | 256 | | | 633 | |
| Net loss | | | | | | (193,369) | | | (179,087) | | | (323,466) | |
| Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | | | | | | (28,924) | | | (21,534) | | | (19,052) | |
| Net loss attributable to Class A and Class B common stockholders | | | | | | (164,445) | | | (157,553) | | | (304,414) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Less: deemed dividend to noncontrolling interest | | | | | | — | | | — | | | (2,454) | |
| Net loss available to Class A and Class B common stockholders | | | | | | $ | (164,445) | | | $ | (157,553) | | | $ | (306,868) | |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | | | | | $ | (0.95) | | | $ | (1.14) | | | $ | (2.67) | |
| Weighted average shares used to compute net loss per share available to Class A and Class B common stockholders, basic and diluted | | | | | | 173,438 | | | 138,722 | | | 115,118 | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Net loss | | | | | | $ | (193,369) | | | $ | (179,087) | | | $ | (323,466) | |
| Other comprehensive loss, net of taxes: | | | | | | | | | | |
| Unrealized loss on available-for-sale securities | | | | | | — | | | (23) | | | 14 | |
| Change in derivative instruments designated and qualifying as cash flow hedges | | | | | | 15,243 | | | (6,896) | | | (6,085) | |
| Foreign currency translation adjustment | | | | | | (595) | | | — | | | 0 |
| Other comprehensive (loss) income, net of taxes | | | | | | 14,648 | | | (6,919) | | | (6,071) | |
| Comprehensive loss | | | | | | (178,721) | | | (186,006) | | | (329,537) | |
| Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interest | | | | | | (13,935) | | | (28,425) | | | (24,842) | |
| Comprehensive loss attributable to Class A and Class B stockholders | | | | | | $ | (164,786) | | | $ | (157,581) | | | $ | (304,695) | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Equity (Deficit) and Noncontrolling Interest
(in thousands, except shares)
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| | Redeemable Convertible Preferred Stock | | Redeemable Noncontrolling Interest | | | | | Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Equity (Deficit) | | Noncontrolling
Interest |
| | Shares | | Amount | | | | | Shares | | Amount | | | | | |
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| Balances at December 31, 2018 | | — | | $ | — | | | $ | 57,261 | | | | | | 109,421,183 | | | $ | 11 | | | $ | 2,481,352 | | | $ | 131 | | | $ | (2,624,104) | | | $ | (142,610) | | | $ | 125,110 | |
| Cumulative effect upon adoption of new accounting standard | | — | | — | | | — | | | | | | — | | | — | | | — | | | — | | | (17,996) | | | (17,996) | | | — | |
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| Buyout of equity investors in PPA IIIb (Note 13) | | — | | — | | | — | | | | | | — | | | — | | | (2,454) | | | 169 | | | — | | | (2,285) | | | — | |
| Conversion of Notes | | — | | — | | | — | | | | | | 616,302 | | | — | | | 6,933 | | | — | | | — | | | 6,933 | | | — | |
| Issuance of restricted stock awards | | — | | — | | | — | | | | | | 8,921,807 | | | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| ESPP purchase | | — | | — | | | — | | | | | | 1,718,433 | | | — | | | 11,183 | | | — | | | — | | | 11,183 | | | — | |
| Exercise of stock options | | — | | — | | | — | | | | | | 358,564 | | | — | | | 1,529 | | | — | | | — | | | 1,529 | | | — | |
| Stock-based compensation | | — | | — | | | — | | | | | | — | | | — | | | 188,114 | | | — | | | — | | | 188,114 | | | — | |
| Unrealized loss on available-for-sale securities | | — | | — | | | — | | | | | | — | | | — | | | — | | | 14 | | | — | | | 14 | | | — | |
| Change in effective portion of interest rate swap agreement | | — | | — | | | — | | | | | | — | | | — | | | — | | | (295) | | | — | | | (295) | | | (5,790) | |
| Distributions to noncontrolling interests | | — | | — | | | (4,011) | | | | | | — | | | — | | | 102 | | | | | — | | | 102 | | | (5,970) | |
| Mandatory redemption of noncontrolling interests | | — | | — | | | (55,684) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Cumulative effect of hedge accounting | | — | | — | | | — | | | | | | — | | | — | | | — | | | | | 130 | | | 130 | | | (130) | |
| Net income (loss) | | — | | — | | | 2,877 | | | | | | — | | | — | | | — | | | — | | | (304,414) | | | (304,414) | | | (21,929) | |
| Balances at December 31, 2019 | | — | | — | | | 443 | | | | | | 121,036,289 | | | $ | 12 | | | 2,686,759 | | | 19 | | | (2,946,384) | | | (259,594) | | | 91,291 | |
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| Conversion of Notes | | — | | — | | | — | | | | | | 35,881,250 | | | 4 | | | 300,848 | | | — | | | — | | | 300,852 | | | — | |
| Issuance of convertible notes | | — | | — | | | — | | | | | | — | | | — | | | 126,799 | | | — | | | — | | | 126,799 | | | — | |
| Adjustment of embedded derivative for debt modification | | — | | — | | | — | | | | | | — | | | — | | | (24,071) | | | — | | | — | | | (24,071) | | | — | |
| Issuance of restricted stock awards | | — | | — | | | — | | | | | | 7,806,038 | | | 1 | | | | | — | | | — | | | 1 | | | — | |
| ESPP purchase | | — | | — | | | — | | | | | | 1,937,825 | | | — | | | 8,499 | | | — | | | — | | | 8,499 | | | — | |
| Exercise of stock options | | — | | — | | | — | | | | | | 1,341,324 | | | — | | | 14,988 | | | — | | | — | | | 14,988 | | | — | |
| Stock-based compensation | | — | | — | | | — | | | | | | — | | | — | | | 68,931 | | | — | | | — | | | 68,931 | | | — | |
| Unrealized loss on available-for-sale securities | | — | | — | | | — | | | | | | — | | | — | | | — | | | (23) | | | — | | | (23) | | | — | |
| Change in effective portion of interest rate swap agreement | | — | | — | | | — | | | | | | — | | | — | | | — | | | (5) | | | — | | | (5) | | | (6,891) | |
| Distributions to noncontrolling interests | | — | | — | | | (45) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,205) | |
| Contribution from noncontrolling interest | | — | | — | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,513 | |
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| Net loss | | — | | — | | | (21) | | | | | | — | | | — | | | — | | | — | | | (157,553) | | | (157,553) | | | (21,513) | |
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| | Redeemable Convertible Preferred Stock | | Redeemable Noncontrolling Interest | | | | | Class A and Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total Stockholders' Equity (Deficit) | | Noncontrolling
Interest |
| | Shares | | Amount | | | | | Shares | | Amount | | | | | |
| Balances at December 31, 2020 | | — | | — | | | 377 | | | | | | 168,002,726 | | | 17 | | | 3,182,753 | | | (9) | | | (3,103,937) | | | 78,824 | | | 62,195 | |
| Issuance of redeemable convertible preferred stock (Note 18) | | 10,000,000 | | 208,551 | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Cumulative effect upon adoption of new accounting standard (Note 2) | | — | | | — | | | — | | | | | | — | | | — | | | (126,799) | | | — | | | 5,308 | | | (121,491) | | | — | |
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| Issuance of restricted stock awards | | — | | | — | | | — | | | | | | 3,052,012 | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | — | | | — | | | — | | | | | | 1,945,305 | | | — | | | 10,045 | | | — | | | — | | | 10,045 | | | — | |
| Exercise of stock options | | — | | | — | | | — | | | | | | 3,460,364 | | | 1 | | | 79,744 | | | — | | | — | | | 79,745 | | | — | |
| Stock-based compensation | | — | | | — | | | — | | | | | | — | | | — | | | 73,338 | | | — | | | — | | | 73,338 | | | — | |
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| Change in effective portion of interest rate swap agreement | | — | | | — | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,243 | |
| Distributions to noncontrolling interests | | — | | | — | | | (49) | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,789) | |
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| Cumulative foreign currency translation adjustment | | — | | | — | | | — | | | | | | — | | | — | | | — | | | (341) | | | (1) | | | (342) | | | (254) | |
| Net loss | | — | | | — | | | (28) | | | | | | — | | | — | | | — | | | — | | | (164,445) | | | (164,445) | | | (28,896) | |
| Balances at December 31, 2021 | | 10,000,000 | | | $ | 208,551 | | | $ | 300 | | | | | | 176,460,407 | | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
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| | | Years Ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (193,369) | | | $ | (179,087) | | | $ | (323,466) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
| Depreciation and amortization | | 53,454 | | | 52,279 | | | 78,584 | |
| Non-cash lease expense | | 9,708 | | | 5,328 | | | — | |
| Write-off of property, plant and equipment, net | | — | | | 38 | | | 3,117 | |
| Write-off of customer financing receivable | | — | | | — | | | 11,302 | |
| Impairment of equity method investment | | — | | | 4,236 | | | — | |
| Write-off of PPA II and PPA IIIb decommissioned assets | | — | | | — | | | 70,543 | |
| Debt make-whole expense | | — | | | — | | | 5,934 | |
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| Revaluation of derivative contracts | | 17,532 | | | (497) | | | 2,779 | |
| Stock-based compensation expense | | 73,274 | | | 73,893 | | | 196,291 | |
| Gain on long-term REC purchase contract | | — | | | 72 | | | 53 | |
| Gain on remeasurement of investment | | (1,966) | | | — | | | — | |
| Contingent consideration remeasurement | | (3,623) | | | — | | | — | |
| Interest Expense on Interest Rate Swap Settlement | | (641) | | | — | | | — | |
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| Loss on extinguishment of debt | | — | | | 11,785 | | | — | |
| Amortization of debt issuance costs and premium, net | | 3,797 | | | 6,455 | | | 22,130 | |
| Changes in operating assets and liabilities: | | | | | | |
| Accounts receivable | | 8,570 | | | (61,685) | | | 51,952 | |
| Contract assets | | (21,874) | | | — | | | — | |
| Inventories | | (885) | | | (33,004) | | | 18,425 | |
| Deferred cost of revenue | | 17,567 | | | 19,910 | | | (21,992) | |
| Customer financing receivable | | 5,428 | | | 5,159 | | | 5,520 | |
| Prepaid expenses and other current assets | | 1,520 | | | (3,124) | | | 8,643 | |
| Other long-term assets | | (2,854) | | | 2,904 | | | 3,618 | |
| Accounts payable | | 13,132 | | | (620) | | | (11,310) | |
| Accrued warranty | | 1,481 | | | (241) | | | (6,603) | |
| Accrued expenses and other current liabilities | | (2,144) | | | 17,753 | | | 6,728 | |
| Operating lease right-of-use assets and operating lease liabilities | | (12,953) | | | (2,855) | | | — | |
| Financing cash flows from finance leases | | 1,142 | | | — | | | — | |
| Deferred revenue and customer deposits | | (22,677) | | | (12,972) | | | 37,146 | |
| Other long-term liabilities | | (4,300) | | | (4,523) | | | 4,376 | |
| Net cash (used in) provided by operating activities | | (60,681) | | | (98,796) | | | 163,770 | |
| Cash flows from investing activities: | | | | | | |
| Purchase of property, plant and equipment | | (49,810) | | | (37,913) | | | (51,053) | |
| Net cash acquired from step acquisition | | 3,114 | | | — | | | — | |
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| Proceeds from maturity of marketable securities | | — | | | — | | | 104,500 | |
| Net cash (used in) provided by investing activities | | (46,696) | | | (37,913) | | | 53,447 | |
| Cash flows from financing activities: | | | | | | |
| Proceeds from issuance of debt | | 135,989 | | | 300,000 | | | — | |
| Proceeds from issuance of debt to related parties | | — | | | 30,000 | | | — | |
| Repayment of debt | | (123,374) | | | (176,522) | | | (119,277) | |
| Repayment of debt - related parties | | — | | | (2,105) | | | (2,200) | |
| Debt make-whole payment | | — | | | — | | | (5,934) | |
| Debt issuance costs | | (1,950) | | | (13,247) | | | — | |
| Proceeds from financing obligations | | 16,849 | | | 26,279 | | | 72,334 | |
| Repayment of financing obligations | | (13,642) | | | (10,756) | | | (8,954) | |
| Contribution from noncontrolling interest | | — | | | 6,513 | | | — | |
| Payments to noncontrolling and redeemable noncontrolling interests | | — | | | — | | | (56,459) | |
| Distributions to noncontrolling interests and redeemable noncontrolling interests | | (5,838) | | | (7,622) | | | (12,537) | |
| Proceeds from issuance of common stock | | 89,790 | | | 23,491 | | | 12,713 | |
| Proceeds from issuance of redeemable convertible preferred stock, net | | 208,551 | | | — | | | — | |
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| Net cash provided by (used in) financing activities | | 306,375 | | | 176,031 | | | (120,314) | |
| Effect of exchange rate changes on cash, cash equivalent and restricted cash | | (594) | | | — | | | — | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | | 198,404 | | | 39,322 | | | 96,903 | |
| Cash, cash equivalents, and restricted cash: | | | | | | |
| Beginning of period | | 416,710 | | | 377,388 | | | 280,485 | |
| End of period | | $ | 615,114 | | | $ | 416,710 | | | $ | 377,388 | |
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| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid during the period for interest | | $ | 68,739 | | | $ | 71,651 | | | $ | 69,851 | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows from operating leases | | 17,416 | | | 2,855 | | | — | |
| Operating cash flows from financing leases | | 878 | | | 61 | | | — | |
| Cash paid during the period for income taxes | | 576 | | | 371 | | | 860 | |
| Non-cash investing and financing activities: | | | | | | |
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| Increase in recourse debt, non-current upon adoption of ASU 2020-06, net (Note 2) | | $ | 121,491 | | | $ | — | | | $ | — | |
| Liabilities recorded for property, plant and equipment | | 6,095 | | | 7,175 | | | $ | 1,745 | |
| Operating lease liabilities arising from obtaining right-of-use assets upon adoption of new lease guidance | | — | | | 39,775 | | | — | |
| Recognition of operating lease right-of-use asset during the year-to-date period | | 82,802 | | | 12,829 | | | — | |
| Recognition of financing lease right-of-use asset during the year-to-date period | | 2,210 | | | 385 | | | — | |
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| Conversion of 6% and 8% convertible promissory notes into additional paid-in capital to related parties | | — | | | — | | | 6,933 | |
| Conversion of 10% convertible promissory notes into Class A common stock | | — | | | 252,797 | | | — | |
| Conversion of 10% convertible promissory notes to related party into Class A common stock | | — | | | 50,800 | | | — | |
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| Accrued distributions to equity investors | | — | | | — | | | 373 | |
| Accrued interest for notes | | — | | | 1,298 | | | 1,812 | |
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| Adjustment of embedded derivative related to debt extinguishment | | — | | | 24,071 | | | — | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Notes to Consolidated Financial Statements
1. Nature of Business, Liquidity and Basis of Presentation
Nature of Business
We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Our Energy Servers utilize an innovative fuel cell technology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence.
We continue to monitor and adjust as appropriate our operations in response to the COVID-19 pandemic. There have been a number of supply chain disruptions throughout the global supply chain as countries are in various stages of opening up and demand for certain components increases. Although we were able to find alternatives for many component shortages, we experienced some delays and cost increases with respect to container shortages, ocean shipping and air freight.
Liquidity
We have generally incurred operating losses and negative cash flows from operations since our inception. With the series of new debt offerings, debt extensions and conversions to equity that we completed during 2020 and 2021, we had $291.8 million of total outstanding recourse debt as of December 31, 2021, $283.5 million of which is classified as long-term debt. Our recourse debt scheduled repayments will commence in June 2022.
On October 23, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with SK ecoplant Co., Ltd. (formerly known as SK Engineering and Construction Co., Ltd.) ("SK ecoplant") in connection with a strategic partnership. Pursuant to the SPA, on December 29, 2021, SK ecoplant purchased 10,000,000 shares of zero coupon, non-voting Series A redeemable convertible preferred stock ("RCPS") in Bloom Energy, par value $0.0001 per share, at a purchase price of $25.50 per share for an aggregate purchase price of $255.0 million, including an option to purchase Class A common stock. For more information about the SPA, please see Note 18 - SK ecoplant Strategic Investment, and for more information about our joint venture with SK ecoplant, please see Note 12 - Related Party Transactions.
In November 2021, PPA V entered into $136.0 million, 3.04% Senior Secured Notes due June 30, 2031, which replaces the LIBOR + 2.5% Term Loan due December 2021.
Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our product, our ability to secure financing for customer use of our Energy Servers, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations.
In the opinion of management, the combination of our existing cash and cash equivalents and operating cash flows is expected to be sufficient to meet our operational and capital cash flow requirements and other cash flow needs for the next 12 months from the date of issuance of this Annual Report on Form 10-K.
Basis of Presentation
We have prepared the consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), and as permitted by those rules, including all disclosures required by generally accepted accounting principles as applied in the United States (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation.
Correction of Previously Issued Consolidated Financial Statements
In preparation of the condensed consolidated financial statements for the three months ended March 31, 2020, errors in our consolidated statements of comprehensive loss were discovered. In the consolidated statements of comprehensive loss for the year ended December 31, 2019, comprehensive loss as previously reported was understated by $5.8 million. In addition, the
reconciliation of comprehensive loss to comprehensive loss attributable to Class A and Class B stockholders was erroneously omitted. Management evaluated the impact of these errors to the previously issued financial statements and concluded the impacts were not material. The consolidated statements of comprehensive loss for the year ended December 31, 2019 has been revised to correct the errors described above.
Principles of Consolidation
These consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirement for each of our variable interest entities ("VIEs"), which we refer to as a tax equity partnership (each such VIE, also referred to as our power purchase agreement ("PPA") entities ("PPA Entities")). This approach focuses on determining whether we have the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPA Entities. For all periods presented, we have determined that we are the primary beneficiary in all of our operational PPA Entities, as discussed in Note 11 - Portfolio Financings. We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that we continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated upon consolidation. The sale of an operating company with a portfolio of PPAs in which we do not have an equity interest is called a “Third-Party PPA.” We have determined that, although these entities are VIEs, we do not have the power to direct those activities of the Third-Party PPAs that most significantly affect their economic performance. We also considerdo not have the customers’obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the Third-Party PPAs. Because we are not the primary beneficiary of these activities, we do not consolidate Third-Party PPAs.
Business Combinations
Acquisitions of a business are accounted by using the acquisition method of accounting. Assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at the acquisition date at their fair values. Assigning fair values requires us to make significant estimates and assumptions regarding the fair value of identifiable intangible assets, property, plant and equipment, deferred tax asset valuation allowances and liabilities, such as uncertain tax positions and contingencies. We may refine these estimates if necessary over a period not to exceed one year by taking into consideration new information that, if known at the acquisition date, would have affected the fair values ascribed to the assets acquired and liabilities assumed.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. The most significant estimates include the determination of the stand-alone selling price, including material rights estimates, inventory valuation, specifically excess and obsolescence provisions for obsolete or unsellable inventory and, in relation to property, plant and equipment (specifically Energy Servers), assumptions relating to economic useful lives and impairment assessments.
Other accounting estimates include variable consideration relating to product performance guaranties, lease and non-lease components and related financing obligations such as incremental borrowing rates, estimated output, efficiency and residual value of returnthe Energy Servers, product performance warranties and guaranties and extended maintenance, derivative valuations, estimates for recapture of the U.S. Investment Tax Credit ("ITC") and similar federal tax benefits, estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, stock-based compensation expense and the fair value of contingent consideration related to business combinations, and estimates of fair value of preferred stock and equity and non-equity items in relation to the SK ecoplant strategic investment. In addition, because the duration and severity of the COVID-19 pandemic remains uncertain, certain of such estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility. Actual results could differ materially from these estimates under different assumptions and conditions.
Concentration of Risk
Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. Additionally, we sell our Energy Servers in Japan, India and the Republic of Korea (collectively, the "Asia Pacific region"). In the years ended December 31, 2021 and 2020, total revenue in the Asia Pacific region was 38% and 35%, respectively, of our total revenue.
Credit Risk - At December 31, 2021 and 2020, SK ecoplant, accounted for approximately 60% and 56% of accounts receivable, respectively. To date, we have not experienced any credit losses.
Customer Risk - During the year ended December 31, 2021, revenue from two customers, SK ecoplant and RAD Bloom Project Holdco LLC, accounted for approximately 43% and 11% of our total revenue, respectively. In the year ended December 31, 2020, revenue from two customers, SK ecoplant and Duke Energy Corporation, accounted for approximately 34% and 28%, respectively, of our total revenue.
2. Summary of Significant Accounting Policies
Revenue Recognition
We primarily earn product and installation revenue from the sale and installation of our Energy Servers, service revenue by providing services under operations and maintenance services contracts, and electricity revenue by selling electricity to customers under PPAs and Managed Services Agreements (as defined below). We offer our customers several ways to finance their use of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose to purchase our Energy Servers outright. Customers may also enter into contracts with us for the purchase of electricity generated by our Energy Servers (a "Managed Services Agreement"), which is then financed through one of our financing partners ("Managed Services Financings"), or as a traditional lease. Finally, customers may purchase electricity through our PPA Entities ("Portfolio Financings").
Revenue Recognition under ASC 606 Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). We adopted ASU 2014-09 and its related amendments (collectively, “ASC 606”) as of January 1, 2019 using the modified retrospective method.
In applying Accounting Standards Codification 606, Revenue from Contracts with Customers, revenue is recognized by following a five-step process:
Identify the contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller, purchase, use and maintenance agreement, maintenance services agreements or energy supply agreement.
Identify the performance obligations in the contract. Performance obligations are identified in our contracts and include transferring control of an Energy Server, installation of Energy Servers, providing maintenance services and maintenance services renewal options which, in certain situations, provide customers with material rights.
Determine the transaction price. The purchase price stated in an agreed-upon purchase order or contract is generally representative of the transaction price. When determining the transaction price, where applicable.we consider the effects of any variable consideration, which include performance guarantees that may be payable to our customers.
Allocate the transaction price to the performance obligations in the contract. The transaction price in a contract is allocated based upon the relative standalone selling price of each distinct performance obligation identified in the contract.
Recognize revenue when (or as) we satisfy a performance obligation. We satisfy performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring control of the promised products or services to a customer.
We frequently combine contracts governing the sale and installation of an Energy Server with the related maintenance services contracts and account for them as a single contract at contract inception to the extent the contracts are with the same customer. These contracts are not combined when the customer for the sale and installation of the Energy Server is different to the maintenance services contract customer. We also assess whether any contract terms including default provisions, put or call options result in components of our contracts being accounted for as financing or leasing transactions outside of the scope of ASC 606.
Most of our contracts contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate the total transaction price to each performance obligation based on the relative standalone selling price. Our maintenance services contracts are typically subject to renewal by customers
on an annual basis. We assess these maintenance services renewal options at contract inception to determine whether they provide customers with material rights that give rise to separate performance obligations.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method.
We exclude from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. These tax amounts are recorded in cost of electricity revenue, cost of service revenue, and general and administrative operating expenses.
We allocate the transaction price to each distinct performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for transferring and installing the Energy Server and providing associated maintenance services.
based on relative standalone selling prices. Given that we typically sell an Energy Server with a maintenance serviceservices agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers, which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. As our business offerings and eligibility for the Investment Tax Credit ("ITC")ITC evolve over time, we may be required to modify the expected margin in subsequent periods and our revenue could be adverselymaterially affected.
Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for maintenance serviceservices arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable historical industry service margins.
As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance serviceservices agreements based on their respective costs or, in the case of maintenance serviceservices agreements, the estimated costs to be incurred.
We generally recognize product and installation revenue at the point in time that the Customercustomer obtains control of the Energy Server. For certain instances, such as bill-and-hold transactions, control of installations transfers to the customer over time, and the related revenue is recognized over time as the performance obligation is satisfied using the cost-to-total cost (percentage-of-completion) method. We use an input measure of progress to determine the amount of revenue to recognize during each reporting period when such revenue is recognized over time, based on the costs incurred to satisfy the performance obligation. We recognize maintenance serviceservices revenue, including revenue associated with any related customer material rights, over time as we perform service maintenance activities.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling feescosts are recorded as revenue and the relatedwithin cost is a cost to fulfill the contract that is recognized within costs of goods sold.revenue.
The following is a description of the principal activities from which we generate revenue. Our four revenue streams are classified as follows:
Product Revenue - All of our product revenue is generated from the sale of our Energy Servers to direct purchase customers, including financing partners on Third-Party PPAs and sale-and-leaseback transactions, international channel providers and traditional lease customers. We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance, which typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system has been installedis shipped and delivered to our customers, when the system is shipped and delivered and is runningphysically ready for startup and commissioning, or when the system is shipped and delivered and is turned on and producing power. Certain customer arrangements include bill-and-hold terms under which transfer of control criteria have been met, including the passing of title and significant risk and reward of ownership to the customers. Therefore, the customers can direct the use of the bill-and-hold product while we retain physical possession of the product until it is delivered to a customer site at full power or,a point in time in the case of sales to our international channel providers, based upon shipment terms.future.
Under our traditional leaseslease financing option, we sell our Energy Servers through a direct sale to a financing partner who, in turn, leases the Energy Servers to the customer under a lease agreement. With our sales to our international channel providers, our international channel providers typically sell the Energy Servers to, or sometimes provide a PPA to, an end customer. In both traditional lease and international channel providers transactions, we contract directly with the end customer to provide extended maintenance services after the end of the standard warranty period. As a result, since the customer that purchases the server is a different and unrelated party to the customer that purchases extended warranty services, the product and maintenance serviceservices contract are not combined.
Installation Revenue - Nearly all of our installation revenue relates to the installation of Energy Servers sold to customers as part of a direct purchase and to financing parties as part of a traditional lease or Portfolio Financing. Generally, we recognize installation revenue when the system is physically ready for startup and commissioning, or when the system is turned on and producing power. For instances when control for installation services is transferred over time, we use an input measure of progress to determine the amount of revenue to recognize during each reporting period based on the costs incurred to satisfy the performance obligation.
Payments received from customers are recorded within deferred revenue and customer deposits in the consolidated balance sheets until the acceptance criteria as defined within the customer contract are met.control is transferred. The related cost of such product and installation is also deferred as a component of deferred cost of revenue in the consolidated balance sheets until acceptance.control is transferred.
Installation Revenue - Nearly all of our installation revenue relates to the installation of Energy Servers sold to direct purchase, including financing partners on Third-Party PPAs and traditional lease customers. Generally, we recognize installation revenue when the system has been installed and is running at full power.
Service Revenue - Service revenue is generated from maintenance services agreements. WeAs part of our initial contract with customers for the sale and installation of our Energy Servers, we typically provide to our customers a standard one-year warranty againstwhich covers defects in materials and workmanship and manufacturing or performance defects in ourconditions under normal use and service for the first year following commencement of operations. As part of this standard first-year warranty, we also monitor the operations of the underlying systems and provide output and efficiency guaranties. We have determined that this standard first-year warranty is a distinct performance obligation - being a promise to stand-ready to maintain the Energy Servers.Servers when and if required during the first year following installation. We also sell to theseour customers extended annual maintenance services that effectively extend the standard one-yearfirst-year warranty coverage at the customer’s option. These customers generally have an option to renew or cancel the extended maintenance services on an annual basis and nearly every customer has renewed historically. Similar to the standard first-year warranty, the optional extended annual maintenance services are considered a distinct performance obligation – being a promise to stand-ready to maintain the Energy Servers when and if required during the renewal service year.
Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price may be less than the standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right.
Revenue is recognized over the term of the renewed one-year service period. Given our customers' renewal history, we anticipate that almost all of our customers will continue to renew their maintenance services agreements each year through their expected use of the Energy Server. As a result, we We estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional operations and maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the initial maintenance service contract.standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Payments from customers for the extended maintenance contracts are generally received at the beginning of each service year. Accordingly, the customer payment received is recorded as a customer deposit and revenue is recognized over the related service period as the services are performed using a cost-to-cost basis that reflects the cost of providing these services.performed.
Electricity Revenue - We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA entities.Entities. Our PPA Entities purchase Energy Servers from us and sell electricity produced by these systems to customers through long-term power purchase agreements ("PPAs").PPAs. Customers are required to purchase all of the electricity produced by those Energy Servers at agreed-upon rates over the course of the PPAs' contractual term.
In addition, in certain product sales,Managed Services Financings pursuant to which we are a party to master lease agreements that provide for the sale of our Energy Servers to third-parties and the simultaneous leaseback of the systems, whicha Managed Services Agreement with a customer in a sale-leaseback-sublease arrangement, we then sublease to our customers. In sale-leaseback sublease arrangements ("Managed Services"), wemay recognize electricity revenue. We first determine whether the Energy Servers under the sale-leaseback arrangement areof a Managed Services Financing were “integral equipment”.equipment." As the Energy Servers arewere determined not to be integral equipment, we determine if the leaseback iswas classified as a capitalfinancing lease or an operating lease.
Our managed services arrangementsUnder ASC 840, Leases ("ASC 840"), our Managed Services Agreements with the financing party arefinanciers were classified as capital leases and arewere accordingly recorded as financing transactions, while the sub-lease arrangements with the end customer are were
classified as operating leases. Payments received fromWe have determined that the financierfinanciers are recorded as financing leases. We then recognize revenueour customers in our Managed Services Agreements. In these Managed Services Financings, we enter into an agreement with a customer for a certain term. In exchange for the use of the Energy Server and its generated electricity, generatedthe customer makes a monthly payment. The customer's monthly payment includes a fixed monthly capacity-based payment, and in some cases also includes a performance-based payment based on the performance of the Energy Server. The fixed capacity-based payments made by allocatingthe customer are applied toward our obligation to pay down the financing obligation with the financier. The performance-based payment is transferred to us as compensation for operations and maintenance services and is recognized as service revenue. We allocate the total proceedspayments received based on the relative standalone selling prices to electricity revenue and to service revenue. Electricity revenue
relating to power purchase agreements isPPAs was typically accounted for in accordance with ASC 840, Leases and service revenue in accordance with ASC 606.
We adopted ASC 842, Leases ("ASC 842"), with effect from January 1, 2020. Managed Services Financings entered from January 1, 2020 until June 30, 2021, including some of our agreements with financiers are accounted for as financing transactions because the repurchase options in these agreements prevent the transfer of control of the systems to the financier. Additionally, some of our leaseback agreements with financiers are not operating leases and are therefore accounted for as failed sale-and-leaseback transactions. We also determined that the sub-lease arrangements under the Managed Services Agreements with the customer are not within the scope of ASC 842 because the customer does not have the right to control the use of the underlying assets (i.e., the Energy Servers). Accordingly, such agreements are accounted for under ASC 606. Under ASC 606, we recognize customer payments for electricity as electricity revenue.
The transition guidance associated with ASC 842 also permitted certain practical expedients. We elected the practical expedient, which allowed us to carryforward certain aspects of our historical lease accounting under ASC 840 for leases that commenced before the effective date, including not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. We also elected the practical expedient to not separate non-lease and lease components and instead account for them as a single lease component for all classes of underlying assets. Lastly, for all classes of underlying assets, we elected to adopt an accounting policy for which we will not record on our consolidated balance sheets leases whose terms are 12 months or less. Instead, these lease payments are recognized in profit or loss on a straight-line basis over the lease term.
During the second half of fiscal 2021, we completed several successful sale-and-lease back transactions in which we transferred control of the Energy Server to the financier and leased it back as an operating lease to provide electricity to the end customer.
In order for the transaction to meet the criteria for sale-leaseback accounting, control of the Energy Servers must transfer to the financier, which requires, among other criteria, the leaseback to meet the criteria for an operating lease in accordance with ASC 842. Accordingly, for such transactions where control transfers and the leaseback is classified as an operating lease, the proceeds from the sale to the financier are recognized as revenue based on the fair value of the Energy Servers sold and are allocated between Product Revenue and Installation Revenue based on the relative standalone selling prices.
We recognize a lease liability for the Energy Server leaseback obligation based on the present value of the future payments to the financier that are attributed to the Energy Server leaseback using our incremental borrowing rate. We also record a right-of-use asset, which is amortized over the term of the leaseback, and is included as a cost of electricity revenue on the consolidated statements of operations.
For certain sale-leaseback transactions, we receive proceeds from the financier in excess of the fair value of the Energy Servers in order to finance our ongoing costs associated with the operation of the Energy Servers during the term of the end customer agreement to provide electricity. Such proceeds are recognized as a financing obligation.
We allocate payments we are obligated to make under the leaseback agreement with the financier between the lease liability and the financing obligation based on the proportion of the financing obligation to the total proceeds to be received.
We recognize revenue from the satisfaction of performance obligations under our PPAs and Managed Services contractsFinancings to provide electricity to our end customers as the electricity is provided over the term of the agreement.agreement in the amount invoiced, which reflects the amount of consideration to which we have the right to invoice and which corresponds to the value transferred under such arrangements.
Modifications
Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. Lastly, ifIf the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date. During fiscal 2019, we did not recognize any material revenue for contracts modified during the period that had performance obligations satisfied in prior periods.
Deferred Revenue
We recognize a contract liability (deferred revenue)(referred to as deferred revenue in our consolidated financial statements) when we have an obligation to transfer products or services to a customer in advance of us satisfying a performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The related cost of such product is deferred as a component of deferred cost of goods soldrevenue in the consolidated balance sheets. Prior to shipment of the product or the commencement of performance of maintenance services, any prepayment made by the customer is recorded as a customer deposit. Deferred revenue related to material rights for options to renew are recognized in revenue over the maintenance services period.
A description of the principal activities from which we recognize cost of revenues associated with each of our revenue streams are classified as follows:
Cost of Product Revenue - Cost of product revenue consists of costs of our Energy Servers that we sell to direct customers,purchase, including financing partners on Third-Party PPA,PPAs, international channel providers and traditional lease customers. It includes costs paid to our materials suppliers, direct labor, manufacturing and other overhead costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs of our equipment. Estimated standard one-yearFor Energy Servers sold to customers pending installation, we provide warranty costs are also included in costreserves as a part of product revenuecosts for those contracts that do not contain material rights, see Warranty Costs below.the period from transfer of control of Energy Servers to commencement of operations.
Cost of Installation Revenue - Cost of installation revenue primarily consists of the costs to install our Energy Servers that we sell to direct purchase, including financing partners on Third-Party PPAs and traditional lease customers. It includes costs paid to ourcost of materials and service providers, personnel costs, shipping costs and allocated costs.
Cost of Service Revenue - Cost of service revenue consists of costs incurred under maintenance service contracts for all customers. It includes personnel costs for our customer support organization, certain allocated costs, and extended maintenance-related product repair and replacement costs.
Cost of Electricity Revenue - Cost of electricity revenue primarily consists of the depreciation of the cost of the Energy Servers owned by us or the consolidated PPA Entities and the cost of gas purchased in connection with our first PPA Entity. The cost of electricity revenue is generally recognized over the term of the Managed Services agreementAgreement or customer’s PPA contract. The cost of depreciation of the Energy Servers is reduced by the amortization of any U.S. Treasury Department grant payment in lieu of the energy investment tax credit associated with these systems.
In 2010, we began offeringselling our Energy Servers through our Bloom Electrons financing program. This program is financed via a special purpose Investment Company and Operating Company, collectively referred to tax equity partnerships in which we held an equity interest as a managing member, or a PPA Entity. The investors in a PPA Entity and are owned partly by us and partly by third-party investors. The investors contribute cash to the PPA Entity in exchange for an equity interest, which then allows the PPA Entity to purchase ourthe Operating Company and the Energy Server from us. Servers.
The cash contributions held are classified as short-term or long-term restricted cash according to the terms of each power purchase agreement.PPA Entity's governing documents. As we identify endidentified customers, the PPA Entity entersOperating Company entered into a PPA with the end customer pursuant to which the customer agreesagreed to purchase the power generated by the Bloomone or more Energy ServerServers at a specified rate per kilowatt hour ("kWh") for a specified term, which can range from 10 to 21 years. The Operating Company, wholly owned by the PPA Entity, typically entersentered into a maintenance services agreement with us following the first year of service to extend the standard one-year warranty serviceperformance warranties and performance guaranties. This intercompany arrangement is eliminated inon consolidation. Those power purchase agreementsPPAs that qualify as leases are classified as either sales-type leases or operating leases and those that do not qualify as leases are classified as tariff agreements.agreements or revenue arrangements with customers. For botharrangements classified as operating leases, and tariff agreements, or revenue arrangements with customers, income is recognized as contractual amounts are due when the electricity is generated and presented within electricity revenue on the consolidated statements of operations.
Sales-type Leases - Certain arrangementsPortfolio Financings with PPA Entities entered into by certain PPA entities, including Bloom Energy 2009 PPA Project Company, LLC ("PPA I"), 2012 ESA Project Company, LLC ("PPA IIIa") and 2013B ESA Project Company, LLC ("PPA IIIb"), qualifyprior to our adoption of ASC 842 qualified as sales-type leases in accordance with FASB ASC Topic 840, Leases ("840. The classification for such arrangements were carried over and accounted for as sales-type leases under ASC 840").842. We are responsible for
the installation, operation and maintenance of the Energy Servers at the customers' sites, including running the Energy Servers during the term of the PPA which ranges from 10 to 15 years. Based on the terms of the customer contracts,PPAs, we may also be obligated to supply fuel for the Energy Servers. The amount billed for the delivery of the electricity to PPA I’s customers primarily consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue for certain arrangements.
We are obligated to supply fuel to the Energy Servers that deliver electricity under the PPA I agreements. Based on the customer offtake agreements, the customers pay an all-inclusive rate per kWh of electricity produced by the Energy Servers. The consideration received under the PPA I agreements primarily consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue on the consolidated statements of operations.
As the Power Purchase Agreement ProgramsPortfolio Financings through PPA Entities entered into prior to our adoption of ASC 842 contain a lease, the consideration received is allocated between the lease elements (lease of property and related executory costs) and non-lease elements (other products and services, excluding any derivatives) based on relative fair value. Lease elements include the leased system and the related executory costs (i.e. installation of the system, electricity generated by the system, maintenance costs). Non-lease elements include service, fuel and interest related to the leased systems.
Service revenue and fuel revenue are recognized over the term of the PPA as electricity is generated. TheFor those transactions that contain a lease, the interest component related to the leased system is recognized as interest revenue over the life of the lease term. The customer has the option to purchase the Energy Servers at the then fair market value at the end of the PPA contract term.
Service revenue related to sales-type leases of $2.9$2.3 million, $3.4$2.3 million and $4.0$2.9 million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively, is included in electricity revenue in the consolidated statements of operations. We have not entered into any new Portfolio Financing arrangements through PPA Entities during the last three years.
Product revenue associated with the sale of the Energy Servers under the PPAs that qualify as sales-type leases is recognized at the present value of the minimum lease payments, which approximates fair value, assuming all other conditions for revenue recognition noted above have also been met. A sale is typically recognized as revenue when an Energy Server begins generating electricity and has been accepted, which is consistent across all purchase options in that acceptance generally occurs after the Energy Server has been installed and is running at full power as defined in each contract. There was no product revenue recognized under sales-type leases for the years ended December 31, 2019, 2018 and 2017.
Operating Leases - Certain Power Purchase Agreement Program leasesPortfolio Financings with PPA Entities entered into by PPA IIIa, PPA IIIb, 2014 ESA Holdco, LLC ("PPA IV") and 2015 ESA Holdco, LLC ("PPAV")prior to the adoption of ASC 842 that arewere deemed leases in substance, but dodid not meet the criteria of sales-type leases or direct financing leases in accordance with ASC 840, arewere accounted for as operating leases. The classification for such arrangements were carried over and accounted for as operating leases under ASC 842. Revenue under these arrangements is recognized as electricity sales and service revenue and is provided to the customer at rates specified under the contracts.PPAs. During the years ended December 31, 2019, 20182021, 2020 and 2017,2019, revenue from electricity sales from these Portfolio Financings with PPA arrangementsEntities amounted to $29.7$28.6 million, $30.9$27.7 million and $29.9$29.7 million, respectively. During the years ended December 31, 2019, 20182021, 2020 and 2017,2019, service revenue amounted to $14.6 million, $15.2$13.8 million and $15.6$14.6 million, respectively.
Financing Leases Under Managed Services Agreements - Certain of our customers use managed services agreements to finance their lease of Bloom Energy Servers which are accounted for as operating leases with the end customer. As a result, revenue is recognized over the life of the managed service agreements as power is generated by the Energy Servers. The Managed Services Program is one of several financing vehicles we use to sell our Energy Servers. Under our Managed Services Program, we sell our equipment to a bank financing party, which pays us for the Energy Server and takes title to the Energy Server. We then enter into a sublease contract with an end customer, which pays us a fixed, monthly fee for its use of the Energy Server and pays us for our maintenance services on the Energy Server. The fees we receive for the maintenance services on the Energy Server is recognized as services revenue. In addition, the payments received from our customers under our Managed Services program for power generated by our Energy Servers are also recorded as services revenue, as well as electricity revenue over the term of the agreement using our standalone selling price model allocation.
The fixed, monthly fee for the use of the Energy Server is then paid to the bank to pay down the lease obligation, with interest thereon being calculated on an effective interest rate basis.
Incentives and Grants
Tariff Agreement - One of our PPA II entitiesentered into an agreement with Delmarva Power and Light ("Delmarva"), an energy company that supplies electricity and natural gas to its customers, PJM Interconnection (PJM)("PJM"), a regional transmission organization, and the State of Delaware under which PPA II provided the energy generated from its Energy Servers to PJM and received a tariff as collected by Delmarva.
Revenue at the tariff rate was recognized as electricity sales and service revenue as it was generated over the term of the arrangement until the final repowering in December 2019. Revenue relating to power generation at the Delmarva sites of $11.3 million $23.0 million and $23.3 million for the yearsyear ended December 31, 20192018 and 2017, respectively, is included in electricity sales in the consolidated statements of operations. Revenue relating to power generation at the Delmarva sites of $6.8
million, $13.7 million and $13.9 million for the yearsyear ended December 31, 2019 2018was $6.8 million and 2017, respectively, is included in service revenue in the consolidated statements of operations. There was no Delmarva revenue for the years ended December 31, 2021 and 2020.
Investment Tax Credits ("ITCs") - Through December 31, 2016, our Energy Servers were eligible for federal ITCs that accrued to eligible property under Internal Revenue Code Section 48. Under our Power Purchase Agreement Programs,Portfolio Financings with PPA Entities, ITCs are primarily passed through to Equity Investors with approximately 1% to 10% of incentives received by us. These incentives are accounted for by using the flow-through method. On February 9, 2018, the U.S. Congress passed legislation to extend the federal investment tax creditsITCs for fuel cell systems applicable retroactively to January 1, 2017. DueOn December 21, 2020, the U.S. Congress passed legislation to this reinstatementextend the federal ITCs at a rate of ITC in 2018, the benefit of ITC to total revenue was $45.5 million of revenue benefit related to the retroactive ITC26% for 2017 acceptances.a further two years.
The ITC program has operational criteria for the first five years after the qualified equipment is placed in service. If the qualified energy property is disposed or otherwise ceases to be investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction of the federal tax incentives. No ITC recapture has occurred during the years ended December 31, 2019, 20182021 and 2017.2020.
Recapture of U.S. Treasury Grants and Similar Grantsfederal tax incentives, including the investment tax credit, and Indemnifications
Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives.ITC. Our purchasesale of Energy Servers to PPA Entities and pursuant to Third-Party PPAs, in each case pursuant to a Portfolio Financing, were by the PPA Entities or tax equity partnerships in which we did not have an equity interest (the tax equity partnership purchaser, an "Investment Company") and, therefore, the PPA Entities or Investment Companies, as the case may be, bear the risk of repaymentrecapture if the assets placed in service do not meet the ITC operational criteria in the future. As part of our upgrade of Energy Servers during 2019, we have agreed to indemnify our customer for up to $108.7 million should benefits expected from anticipated ITC grants and established tariffs fail to occur. Based on outside expert guidance, weWe believe these events to be less than likely to occur and have not established financial reserves.
Warranty Costs
We generally warrant our products sold to our direct customers, international channel providers, and financing parties for onethe first year following the date of acceptance of the products (the “standard one-year warranty”). To estimate the product warranty costs, we continuously monitor product returns for warranty failures and maintains the reserve for the related warranty expense based on various factors including historical warranty claims, field monitoring and results of lab testing. Our performance obligations under ourEnergy Servers. This standard product warranty and managed services agreements are generally in the form of product replacement, repair or reimbursement for higher customer electricity costs. The standard one-year warranty covers defects in materials, workmanship and workmanshipmanufacturing or performance conditions under normal use and service conditions and against manufacturing or performance defects. Prior to adoption of ASC 606 Revenue From Contracts With Customers, our warranty accrual represents our best estimate of the amount necessary to settle future and existing claims during the warranty period as of the balance sheet date. We accrue for warranty costs based on estimated costs that may be incurred including material costs, labor costs and higher customer electricity costs should the units not work for extended periods.
With the adoption of ASC 606 Revenue From Contracts With Customersfor the first year ended 2019, we onlyfollowing acceptance or for the optional extended annual maintenance services period.
We recognize warranty costs for those contracts that are considered to be assurance-type warranties and consequently do not give rise to performance obligations or for those maintenance service contracts that were previously in the scope of ASC 605-20-25, Separately Priced Extended Warranty and Product Maintenance Contracts.
AsIn addition, as part of both our standard one-year warranty and managed services agreementsManaged Services Agreements obligations, we monitor the operations of the underlying systems and provide output and efficiency guaranties (collectively “product performance guaranties”). If the Energy Servers run at a lower efficiency or power output than we committed under our product performance warranty or guaranty, we will reimburse the customer for this underperformance. Our performance obligation includes ensuring the customer’s equipmentEnergy Server operates at least at the efficiency andand/or power output levels set forth in the customer agreement. Our aggregate reimbursement obligation for thisa performance guaranty for each customer is capped based on the purchase price of the underlying energy server.Energy Server. Product performance guaranty payments are accounted for as a reduction in service revenue. We accrue for product performance guaranties based on the estimated amounts reimbursable at each reporting period and recognize the costs as a reduction to revenue.
Shipping and Handling Costs
We generally record costs related to shipping and handling in cost of product revenue, cost of installation revenue and cost of service as they are incurred.
Sales and Utility Taxes
We recognize revenue on a net basis for taxes charged to our customers and collected on behalf of the taxing authorities.
Operating Expenses
Advertising and Promotion Costs - Expenses related to advertising and promotion of products are charged to sales and marketing expense as incurred. We did not incur any material advertising or promotion expenses during the years ended December 31, 2019, 20182021 and 2017.2020.
Research and Development - We conduct internally funded research and development activities to improve anticipated product performance and reduce product life-cycle costs. Research and development costs are expensed as incurred and include salaries and expenses related to employees conducting research and development.
Stock-Based Compensation - We account for stock options, and restricted stock units ("RSUs") and performance-based stock units ("PSUs") awarded to employees and non-employee directors under the provisions of Financial Accounting Standards Board Accounting Standards Codification TopicASC 718, - Compensation-Stock Compensation("ASC 718").
Stock-based compensation costs for options are measured using the Black-Scholes valuation model to estimate fair value.model. The Black-Scholes valuation model requires us to make estimatesuses as inputs the fair value of our common stock and assumptions regardingwe make for the underlying stock’s fair value, the expected life of the option and RSUs, the risk-free rate of return interest rate, the expected volatility of our common stock, pricethe expected term of the award, the risk-free interest rate for a period that approximates the expected term of the stock
options and the expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options and RSUs, as well as expected forfeiture rates based on the historical settlement experience and after giving consideration to vesting schedules. For options with a vesting condition tied to the attainment of service and market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. Stock-based compensation costs are recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. Previously recognized costs are reversed for the portion of awards forfeited prior to vesting as and when the forfeitures occurred. We typically record stock-based compensation costs for options under the straight-line attribution method over the requisite service period which is generally the vesting term, which is generally four years for options, and record stock-basedoptions.
Stock-based compensation costs for performance-based awardsRSUs and PSUs are measured based on the fair value of the underlying shares on the date of grant. We recognize the compensation cost for RSUs using a straight-line basis over the requisite service period of the RSUs, which is generally three to four years. We recognize the compensation cost for PSUs over the expected performance period using the graded-vesting method. graded vesting method as the achievement of the milestones become probable, which is generally one to three years.
We also use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach. Forfeitures are estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from initial estimates.
Stock issued to grantees in our stock-based compensation is from authorized and previously unissued shares. Stock-based compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function. Stock-based compensation costs directly associated with the product manufacturing operations process are capitalized into inventory and expensed when the capitalized asset is used in the normal course of the sales or services process.
Stock-based compensation cost for RSUs is measured based on the fair value of the underlying shares on the date of grant. Up to the date of our IPO, RSUs were subject to a time-based vesting condition and a performance-based vesting condition, both of which require satisfaction before the RSUs vest and settle for shares of common stock. The performance-based condition was tied to a liquidity event such as a sale event of Bloom or the completion of our IPO. The time-based conditions range between six months and four years from the end of the lock-up period after our IPO. Upon completion of our IPO in July 2018, the performance-based condition of our RSUs was satisfied and we began recognizing stock-based compensation over the remaining time-based vesting condition, which ranges from six months and up to four years from IPO.
We use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under our 2018 ESPP. The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach. Forfeitures are estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from initial estimates. Stock-based compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function.
For performance-based awards, stock-based compensation costs are recognized over the expected performance achievement period of individual's performance milestone(s) as the achievement of each individual performance milestone become probable. For performance-based awards with a vesting schedule, based entirely on the attainment of market conditions, stock-based compensation costs are recognized for performance and market conditions when the relevant market condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations, see Note 12, Stock-Based Compensation and Employee Benefit Plans.
Compensation costs for equity instruments granted to non-employees is measured on the date of performance at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of the equity instruments is expensed over the term of the non-employee's service period.
We record deferred tax assets for awards that result in deductions on our income tax returns, unless we cannot realize the deduction (i.e., we are in a net operating loss or NOL, position), based on the amount of compensation cost recognized and our statutory tax rate. With our adoption of ASU 2016-09 Improvements to Employee Share-Based Payment Accounting (Topic 718) ("ASU 2016-09") in the first quarter of 2017 on a prospective basis, stock-based compensation excess tax benefits or deficiencies are reflected in the consolidated statements of operations as a component of the provision for income taxes. No tax benefit or expense for stock-based compensation has been recorded for the years ended December 31, 2019, 2018 and 2017 since we remain in an NOL position.
Determining the amount of stock-based compensation to be recorded requires us to develop estimates for the inputs used in the Black-Scholes valuation model to calculate the grant-date fair value of stock options. We use weighted-average assumptions in applying the Black-Scholes valuation model.
The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury zero-coupon issues in effect at the grant date for periods corresponding with the expected term of option. Our estimate of an expected term is calculated based on our historical share option exercise data. We have not and do not expect to pay dividends in the foreseeable future. The estimated stock price volatility is derived based on historical volatility of our peer group, which represents our best estimate of expected volatility.
The amount of stock-based compensation costs recognized during a period is based on the value of that portion of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. We review historical forfeiture data and determines the appropriate forfeiture rate based on that data. We reevaluate this analysis periodically and adjust the forfeiture rate as necessary and ultimately recognize the actual expense over the vesting period only for the shares that vest.
Refer to Note 12, 10 - Stock-Based Compensation and Employee Benefit Plans for further discussion of our stock-based compensation arrangements.
Income Taxes
We account for income taxes using the liability method under FASB ASC Topic 740, - Income Taxes ("ASC 740"). Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. Additionally, we must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. We have provided a full valuation allowance on our domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
We follow the accounting guidance in ASC 740-10,740, which requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured pursuant to ASC 740-10 and the tax position taken or expected to be taken on our tax return. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made. We established reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that the tax return positions are fully supportable. The reserves are adjusted in light of changing facts and circumstances such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. We recognize interest and penalties related to unrecognized tax benefits in income tax expense.
Refer to Note 10, 15 - Income Taxes for further discussion of our income tax expense. Comprehensive Loss
Our comprehensive loss is comprised of net loss attributable to Class A and Class B common stock shareholders, unrealized gain (loss) on available-for-sale securities, change in the effective portion of our interest rate swap agreements and comprehensive (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest.
Fair Value Measurement
FASB ASC Topic 820, - Fair Value Measurements and Disclosures ("ASC 820"), defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principle or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
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| Level 1 | | Quoted prices in active markets for identical assets or liabilities. Financial assets utilizing Level 1 inputs typically include money market securities and U.S. Treasury securities. |
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| Level 2 | | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments utilizing Level 2 inputs include interest rate swaps. |
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| Level 3 | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Financial liabilities utilizing Level 3 inputs include natural gas fixed price forward contracts, derivatives, warrants issued to purchase our preferred stock and embedded derivatives in sales contracts with customers, embedded derivatives in our convertible notes, and bifurcated from convertible notes.the fair valuation of preferred stock, options on the future sale of common stock and certain non-equity items. Derivative liability valuations are performed based on a binomial lattice model and adjusted for illiquidity and/or non-transferability and such adjustments are generally based on available market evidence. Contract embedded derivatives valuations are performed using a Monte Carlo simulation model which considers various potential electricity price curves over the sales contracts terms. |
Other Balance Sheet Components
Cash, Cash Equivalents Short-Term Investments and Restricted Cash - Cash equivalents consist of highly liquid short-term investments with maturities of 90 days or less at the date of purchase.
Short-term investments consist of highly liquid investments with maturities of greater than 90 days at the reporting period end date. Short-term investments are reported at fair value with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss). Short-term investments are anticipated to be used for current operations and are, therefore, classified as available-for-sale in current assets even though their maturities may extend beyond one year. We periodically review short-term investments for impairment. In the event a decline in value is determined to be other-than-temporary, an impairment loss is recognized. When determining if a decline in value is other-than-temporary, we take into consideration the current market conditions and the duration and severity of and the reason for the decline as well as considering the likelihood that it would need to sell the security prior to a recovery of par value.
The specific identification method is used to determine the cost of any securities disposed with any realized gains or losses recognized as income or expense in the consolidated statements of operations.
As of December 31, 2019, we held no short-term investments. As of December 31, 2018, short-term investments consisted of $104.4 million of U.S. Treasury Bills. The cost of these securities approximated fair value and there was no material gross realized or unrealized gains or losses in the years ended December 31, 2019, 2018 and 2017. There were also no impairments in the investments' value in the years ended December 31, 2019, 2018 and 2017.
Restricted cash is held as collateral to provide financial assurance that we will fulfill obligations and commitments primarily related to our power purchase agreement financings, third partyPortfolio Financings, Third Party PPA and managed services arrangements.Managed Services Agreements. Restricted cash also includes debt service reserves, maintenance service reserves and facility lease agreements. Restricted cash that is expected to be used within one year of the balance sheet date is classified as a current asset, whereas restricted cash expected to be used more than one year from the balance sheet date is classified as a non-current asset.
Derivative Financial Instruments - We enter into derivative natural gas fixed price forward contracts to manage our exposure to the fluctuating price of natural gas under certain of our power purchase agreements entered in connection with the Bloom Electrons programPPA Entities (refer to Note 13 - Power Purchase Agreement ProgramsPortfolio Financings). In addition, we enterentered into fixed forward interest rate swap arrangements to convert variable interest rates on debt to a fixed rate and on occasion have committed to certain utility grid price protection guarantees in sales agreements. WeDuring the year ended December 31, 2019, we also issuedhad derivative financial instruments embedded in our 6% Convertible Notes as a means by which to provide additional incentive to investors and to obtain a lower cost cash-source of funds. Derivative transactions are governed by procedures covering areas such as authorization, counterparty exposure and hedging practices. Positions are monitored based on changes in the spot price in the commodity market and their impact on the market value of derivatives. Credit risk on derivatives arises from the potential for counterparties to default on their contractual obligations to us. We limit our credit risk by dealing with counterparties that are considered to be of high credit quality. We do not enter into derivative transactions for trading or speculative purposes.
We account for our derivative instruments as either an asset or a liability which are carried at fair value on the consolidated balance sheets. Changes in the fair value of the derivatives that are designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) on the consolidated balance sheets and forsheets. Changes in fair value of those derivatives that no longer qualify as cash flow hedges or are derivatives that do not qualify for hedge accounting or are not designated hedges are recorded through earnings in the consolidated statements of operations.
While we hedge certain of our natural gas purchase requirements under our power purchase agreements,PPAs, we do not classify these natural gas fixed price forward contracts as designated hedges for accounting purposes. Therefore, we record the
change in the fair value of
our natural gas fixed price forward contracts in cost of revenue on the consolidated statements of operations. The fair value of the natural gas fixed price forward contracts is recorded on the consolidated balance sheets as a component of accrued expenses and other current liabilities and as derivative liabilities. As these forward contracts are considered economic hedges, the changes in the fair value of these forward contracts are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
Our interest rate swap arrangements qualifyprior to their termination qualified as cash flow hedges for accounting purposes as they effectively convertconverted variable rate obligations into fixed rate obligations. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change is recorded in accumulated other comprehensive income (loss) and will bewas recognized as interest expense on settlement. As of January 1, 2019, we adopted Accounting Standards Update ("ASU")ASU 2017-12, Derivatives and Hedging (Topic(Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). PerPursuant to ASU 2017-12, ineffectiveness is no longer required to be measured or disclosed. If a cash flow hedge is discontinued due to changes in the forecasted hedged transactions, hedge accounting is discontinued prospectively and any unrealized gain or loss on the related derivative is recorded in accumulated other comprehensive income (loss) and is reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The fair value of the swap arrangement is recorded on the consolidated balance sheets as a component of accrued expenses and other current liabilities and as derivative liabilities. The changes in fair value of swap agreementagreements are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
We issued convertible notespreferred stock with conversion features. These conversion features were evaluated under ASC topic 815-40, were determined to be embedded derivatives and were bifurcated from the debt and were classified prior to the IPO as liabilities on the consolidated balance sheets. We recorded these derivative liabilities at fair value and adjusted the carrying value to their estimated fair value at each reporting date with the increases or decreases in the fair value recorded as a gain (loss) on revaluation of warrant liabilities and embedded derivativescomplex transaction that is more fully explained in the consolidated statements of operations. Upon the IPO, the final valuation of the embedded derivative was calculated as of the date of the IPO and was reclassified from a derivative liability to additional paid-in capital.Note 18 - SK ecoplant Strategic Investment.
Customer Financing Receivables - The contractual terms of our customer financing receivables are primarily contained within the PPA Entities' customer lease agreements. Leases are classifiedentered into prior to our adoption of ASC 842 carried over their classification as either operating or sales-type leases in accordance with the relevant accounting guidelines and customerguidelines. Customer financing receivables arewere generated by Energy Servers leased to PPA Entities’ customers in leasing arrangements that qualifyqualified and continue to be accounted for as sales-type leases. Customer financing receivables representsfor such arrangements represent the gross minimum lease payments to be received from customers and the system’s estimated residual value, net of unearned income and allowance for estimated losses. Initial direct costs for such sales-type leases arecontinue to be recognized as cost of revenue when the Energy Servers are placed in service.
We review ourrecord a reserve for credit losses related to the collectability of customer financing receivables byusing the historical aging category to identify significantof the customer balances with known disputes or collection issues. In determining the allowance, we make judgments about the credit worthiness of a majority of our customersreceivable balance. The collectability is determined based on ongoingpast events, including historical experience, customer credit evaluations. We also consider our historical level of credit lossesrating, as well as current economic trends that might impactmarket conditions. We monitor customer ratings and collectability on an on-going basis. Account balances will be charged off against the levelcredit loss reserve, when needed, after all means of future credit losses. We write off customer financing receivables when they are deemed uncollectible. We do not maintain an allowance for doubtful accounts to reserve for potentially uncollectible customer financing receivables as historically all of our receivables on the consolidated balance sheetscollection have been collected in full.exhausted and the potential for recovery is considered remote.
Accounts Receivable - Accounts receivable primarily represents trade receivables from sales to customers recorded at net realizable value. As we doamortized cost less allowance for credit losses. The allowance for credit losses reflects our customer financing receivables, we review ourbest estimate about future losses over the contractual life of outstanding accounts receivable by aging category to identify significanttaking into consideration historical experience, specific allowances for known troubled accounts, other currently available information including customer balances with known disputes or collection issues. In determining the allowance, we make judgments about the creditworthiness of a majority of our customers based on ongoing credit evaluations. We also consider our historical level of credit losses as well asfinancial condition, and both current and forecasted economic trends that might impact the level of future credit losses. We write off accounts receivable when they are deemed uncollectible. We do not maintain an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable as historically all of our receivables on the consolidated balance sheets have been collected in full.conditions.
Inventories - Inventories consist principally of raw materials, work-in-process and finished goods and are stated on a first-in, first-out basis at the lower of cost or net realizable value.
We record inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory, including inventory from purchase commitments, equal to the difference between the cost of inventory and estimated net realizable value based upon assumptions about market conditions and future demand for product generally expected to be utilized over the next 12 to 24 months, including product needed to fulfill our warranty obligations. If actual future demand for our products is less than currently forecasted, additional inventory provisions may be required. Once a provision is recorded, it is maintained until the product to which it relates to is sold or otherwise disposed. The inventory reserves were $14.6 million and $13.0 million as of December 31, 2019 and 2018, respectively.
Property, Plant and Equipment - Property, plant and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Energy Servers are depreciated to their residual values over their useful economic lives which reflect consideration of the terms of their related power purchasePPA and tariff agreements. These useful lives are reassessed when there is an expected change in the use of the Energy Servers. Leasehold improvements are depreciated over the shorter of the lease term or their estimated depreciable lives. Buildings are amortized over the shorter of the lease or property term or their estimated depreciable lives. Assets under construction are capitalized as costs are incurred and depreciation commences after the assets are put into service within their respective asset class.
Depreciation is calculated using the straight-line method over the estimated depreciable lives of the respective assets as follows: | | | | | | | | |
| | Depreciable Lives |
| | |
| | Depreciable Lives |
| | |
| Energy Servers | | 15-21 years |
| Computers, software and hardware | | 3-5 years |
| Machinery and equipment | | 5-10 years |
| Furniture and fixtures | | 3-5 years |
| Leasehold improvements | | 1-10 years |
| Buildings | | 35 years* |
* Lesser of 35 years or the term of the underlying land lease.
When assets are retired or disposed, the assets and related accumulated depreciation and amortization are removed from our general ledgerconsolidated financial statements and the resulting gain or loss is reflected in the consolidated statements of operations.
Foreign Currency Transactions
Impairment of Long-Lived Assets - Our long-lived assets include property, plant and equipment and Energy Servers capitalized in connection with our Managed Services Financing Program, Portfolio Financings and other similar arrangements. The functional currencycarrying amounts of our foreign subsidiarieslong-lived assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. We did not have any impairment charges in any of the U.S. dollar since they are considered financiallyperiods presented.
Goodwill - Goodwill is recognized in conjunction with business acquisitions as the excess of the purchase consideration for the business acquisition over the fair value of identifiable assets acquired and operationally integrated with their domestic parent. Foreign currency monetaryliabilities assumed. The fair value of identifiable assets and liabilities, are remeasured into U.S. dollars at end-of-period exchange rates. Any currency transaction gains and losses are includedthus goodwill, is subject to redetermination within a measurement period of up to one year following completion of a business acquisition.
Goodwill is tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. We acquired the remaining noncontrolling equity interest in our related party Bloom Energy Japan Limited as a component of other income (expense), netJuly 1, 2021. As of December 31, 2021, we recognized goodwill of $2.0 million in our consolidated statementsbalance sheets.
Redeemable Convertible Preferred Stock- We issued RCPS on December 29, 2021 that is recorded as mezzanine equity on our consolidated balance sheets because there are certain redemption provisions upon liquidation, dissolution, or deemed liquidation events (which include a change in control and the sale or other disposition of operations and have not been significant for any period presented.
Preferred Stock Warrants - We accounted for freestanding warrants to purchase sharesall or substantially all of our convertible preferred stock as liabilities onassets), which are considered contingent redemption provisions that are not solely within our control. We recorded the consolidated balance sheetsRCPS at fair value upon issuance. In accordance with ASC 480issuance, net of any issuance costs. For additional information, see Note 18 - Distinguishing Liability from Equity ("ASC 480"), these warrants were classified within warrant liability in the consolidated balance sheets as the underlying shares of convertible preferred stock were contingently redeemable which, therefore, may have obligated us to transfer assets at some point in the future. These warrants were valued on the date of issuance, using the Probability-Weighted Expected Return Model ("PWERM"). The warrants were subject to remeasurement to fair value at each balance sheet date or immediately prior to exercise. Any change in fair value was recognized in the consolidated statements of operations. Our convertible preferred stock warrants were converted into common stock warrants upon the completion of our IPO in July 2018. At that time, the convertible preferred stock warrant liability was reclassified to additional paid-in capital.SK ecoplant Strategic Investment.
Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests - We generally allocate profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPEPPA Entities. Refer to Note 13 - Power Purchase Agreement ProgramsPortfolio Financings for more information. The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
For income tax purposes, the Equity Investors of the PPA Entities receive a greater proportion of the share of losses and other income tax benefits. This includes the allocation of investment tax credits which are distributed to the Equity Investors through an Investment Company subsidiary of Bloom. Allocations are initially based on the terms specified in each respective
partnership agreement until either a specific date or the Equity Investors' targeted rate of return specified in the partnership agreement is met (the "flip" of the flip structure) whereupon the allocations change. In some cases after the Equity Investors
receive their contractual rate of return, we receive substantially all of the remaining value attributable to the long-term recurring customer payments and the other incentives.
Foreign Currency Transactions
The functional currencies of most of our foreign subsidiaries are the U.S. dollar since the subsidiaries are considered financially and operationally integrated with their domestic parent. For these subsidiaries, the foreign currency monetary assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates. Any currency transaction gains and losses are included as a component of other expense in our consolidated statements of operations.
The functional currency of our joint venture in the Republic of Korea is the local currency, the South Korean won ("KRW"), since the joint venture is financially independent of its U.S. parent and the KRW is the currency in which the joint venture generates and expends cash. Assets and liabilities of this entity are translated at the rate of exchange at the balance sheet date. Revenue and expenses are translated at the weighted average rate of exchange during the period. For this entity, translation adjustments resulting from the process of translating the KRW financial statements into U.S. dollars are included in other comprehensive loss. Translation adjustments attributable to noncontrolling interests are allocated to and reported as part of the noncontrolling interests in the consolidated financial statements.
Recent Accounting Pronouncements
Other than the adoption of the accounting guidance mentioned below, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.
Accounting Guidance Implemented in Fiscal Year 20192021
Revenue Recognition - In May 2014, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (Topic 606), as amended ("ASC 606"). The guidance provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services, as well as guidance on the recognition of costs related to obtaining and fulfilling customer contracts. The guidance also requires expanded disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASC 606 is effective for our annual period beginning January 1, 2019, and for our interim periods beginning on January 1, 2020. ASC 606 can be adopted using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance (“full retrospective method”); or (ii) retrospective with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance (“modified retrospective method”). We adopted ASC 606 in the year ended December 31, 2019 using the modified retrospective method. As a policy election, Topic ASC was applied only to contracts that were not complete as of the date of adoption. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the January 1, 2019 opening balance of accumulated deficit. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.
As part of our adoption of ASC 606, we elected to apply the following practical expedients:
We have not restated contracts that begin and are completed within the same annual reporting period;
For completed contracts that have variable consideration, we used the transaction price at the date upon which the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods;
We have excluded disclosures of transaction prices allocated to remaining performance obligations and when we expect to recognize such revenue for all periods prior to the date of initial application;
We have not retrospectively restated our contracts to account for those modifications that were entered into before January 1, 2019, the earliest reporting period impacted by ASC 606;
See Note 3 Revenue Recognition for additional information.
Statement of Cash Flows - In August 2016,2020, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230) ("ASU 2016-15"), which clarifies the classification of the activity in the consolidated statements of cash flows and how the predominant principle should be applied when cash receipts and cash payments have more than one class of cash flows. Adoption will be applied retrospectively to all periods presented. We adopted ASU 2016-15 on January 1, 2019. Adoption of ASU 2016-15 had no impact on our consolidated financial statements.
Hedging Activities - As of January 1, 2019, we adopted Accounting Standards Update ("ASU") 2017-122020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities - Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2017-12"2020-06") to help entities recognize. The new standard simplifies the economic results of their hedging strategiesaccounting for convertible instruments by eliminating the conversion option separation model for convertible debt that can be settled in cash and by eliminating the financial statements so that stakeholders can better interpret and understand the effect of hedge accounting on reported results. It is intended to more clearly disclose an entity’s risk exposures and how we manage those exposures through hedging, and it is expected to simplify the application of hedge accounting guidance.measurement model for beneficial conversion features. The new guidance is effective for annual periodsfiscal years beginning after December 15, 2018,2021, with early adoption permitted. There was notpermitted as early as fiscal years (including interim periods) beginning after December 15, 2020. Consequently, a material impactconvertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. There will no longer be a debt discount representing the difference between the carrying value, excluding issuance costs, and the principal of the convertible debt instrument and, as a result, there will no longer be interest expense from the amortization of the debt discount over the term of the convertible debt instrument. The amendments in this update also require the if-converted method to ourbe applied for all convertible instruments when calculating diluted earnings per share.
We elected to early adopt ASU 2020-06 as of January 1, 2021 using the modified retrospective transition method, which resulted in a cumulative-effect adjustment to the opening balance of accumulated deficit on the date of adoption. Prior period consolidated financial statements were not restated upon adoption.
Upon adoption of ASU 2017-12.2020-06, we combined the previously separated equity component with the liability component of our 2.5% Green Convertible Senior Notes due August 2025. These components are now together classified as recourse debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was reclassified to debt and will be amortized as interest expense. Accordingly, we recorded a decrease to accumulated deficit of $5.3 million, a decrease to additional paid-in capital of $126.8 million, and an increase to recourse debt, non-current of approximately $121.5 million.
Income TaxesThere is no deferred tax impact related to the adoption of ASU 2020-06 due to our full valuation allowance.
Accounting Guidance Not Yet Adopted
Cessation of LIBOR - AsIn March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of January 1, 2019, we adopted the Effects of Reference Rate Reform on Financial Reporting, as amended ("ASU 2016-16, Income Taxes-Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) ("ASU 2016-16"2020-04"), which requires that entities recognizeprovides optional expedients for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the income tax consequences of an intra-entity transfer of an asset,London Interbank Offered Rate ("LIBOR") or other than inventory, when the transfer occurs.reference rate expected to be discontinued. ASU 2016-162020-04 is effective for us in our Annual Report
immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on Form 10-K for the year endedor before December 31, 2019 and is required to2022. In the fourth quarter of 2021, our LIBOR-based debt was refinanced with fixed rate debt. ASU 2020-04 can be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the adoption period. Adoption of ASU 2016-16 had no impact on our consolidated financial statements.
Income Taxes - As of January 1, 2019, we adopted ASU 2018-02 Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits reclassification of certain tax effects in Other Comprehensive Income ("OCI") caused by the U.S. tax reform enacted in
December 2017 to retained earnings. We do31, 2022, and has not have any tax effect (due to full valuation allowance) in our OCI account, thus this guidance has no impact onaffected our consolidated financial statements.
Codification ImprovementsLessor with Variable Lease Payments - In April 2019,July 2021, the FASB issued ASU 2019-04, Codification ImprovementsNo. 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments ("ASU 2021-05"), which modifies ASC 842 to Topic 326, Financial Instruments-Credit Losses; Topic 815, Derivativesrequire lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and Hedging; and Topic 825, Financial Instruments ("ASU 2019-04"), that clarifies and improves areas of guidance related to the recently issued standards on creditwould have selling losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01), respectively.if they were classified as sales-type or direct financing leases. The amendments generally have the same effective dates as their related standards. If already adopted, the amendments ofin ASU 2016-01 and ASU 2016-132021-05 are effective for fiscal years beginning after December 15, 20192021, and the amendments of ASU 2017-12 are effective as of theinterim periods beginning of a company’s next annual reporting period.after December 15, 2022. Early adoption is permitted. As discussed above, we adopted ASU 2017-12 on January 1, 2019 and the amendments of ASU 2019-04 did not have a material impact on our consolidated financial statements.
Cloud Computing - In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), to clarify the guidance on the costs of implementing a cloud computing hosting arrangement that is a service contract. Under ASU 2018-15, the entity is required to follow the guidance in Subtopic 350-40, Internal-Use Software, to determine which implementation costs under the service contract to be capitalized as an asset and which costs to expense. ASU 2018-15 is effective for us for the annual periods beginning in 2021 and the interim periods in 2022 on a retrospective or prospective basis and early adoption is permitted. We adopted ASU 2018-15 on a prospective basis in the fiscal year ended December 31, 2019 and ASU 2018-15 did not have a material impact on the consolidated financial statements and related disclosures.
Accounting Guidance Not Yet Adopted
Leases - In February 2016, the FASB issued ASU 2016-02, Leases(Topic 842), as amended (“ASC 842”), which provides new authoritative guidance on lease accounting. Among its provisions, the standard changes the definition of a lease, requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases and also requires additional qualitative and quantitative disclosures about lease arrangements. All leases in scope will be classified as either operating or financing. Operating and financing leases will require the recognition of an asset and liability to be measured at the present value of the lease payments. ASC 842 also makes a distinction between operating and financing leases for purposes of reporting expenses on the income statement. We are the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases and expect to continue to enter into new such leases. Additionally, we expect to continue to enter into Managed Services related financing leases in the future and are the lessor of Energy Servers that are subject to power purchase arrangements with customers under our PPA and Managed Services programs that are currently accounted for as leases.
We are currently evaluating the impact of the adoption of this updateASU 2021-05 on our consolidated financial statements. We expect that the most significant impacts will be assessing whether new power purchase arrangements with customers meet the new definition of
Contract Assets and Contract Liabilities Acquired in a lease and recognizing right of use assets and lease liabilities for arrangements currently accounted for as operating leases where we are the lessee. We expect to adopt this guidance on a prospective basis on January 1, 2021.
Financial InstrumentsBusiness Combination - In June 2016,October 2021, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses2021-08, Business Combinations (Topic 326). The pronouncement was issued805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which requires contract assets and contract liabilities acquired in a business combination to provide more decision-useful information aboutbe recognized and measured by the expected credit lossesacquirer on financial instrumentsthe acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and changes the loss impairment methodology. This pronouncementcontract liabilities acquired in a business combination at fair value. ASU 2021-08 will be effective for us from fiscal year 2021. A prospective transition approach is required for debt securities for which an other than temporary impairment had been recognized before the effective date. We are currently evaluating the impact of the adoption of this update on our financial statements.
Stock Compensation - In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07") which aligns the accounting for share-based payment awards issued to employees and nonemployees. Measurement of equity-classified nonemployee awards will now be valued on the grant date and will no longer be remeasured through the performance completion date. ASU 2018-07 also changes the accounting for nonemployee awards with performance conditions to recognize compensation cost when achievement of the performance condition is probable, rather than upon achievement of the performance condition, as well as eliminating the requirement to reassess the equity or liability classification for nonemployee awards upon vesting, except for certain award types. ASU 2018-07 is effective for us foryears, including interim and annual reporting periods within those fiscal years, beginning after December 15, 2019.2022. Early adoption is permitted. We plan to adopt ASU 2018-07 on a modified retrospective approach in January 2020. We do not expect theThe adoption impact of ASU 2018-07 to have a material effect2021-08 will depend on our financial statements and related disclosures.
Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 has eliminated, amended and added disclosure requirements for fair value measurements. Entitiesmagnitude of any future acquisitions. The standard will no longer be required to
disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. ASU 2018-13 will have annot impact on our disclosures. We are evaluating the effect on our financial statements and related disclosures.
2. Restatement and Revision of Previously Issued Consolidated Financial Statements
We have restated herein our consolidated financial statements as of and for the year ended December 31, 2018 and revised herein our consolidated financial statements as of and for the year ended December 31, 2017. We have also restated and revised related amounts within the accompanying footnotes to the consolidated financial statements to conform to the corrected amounts in the financial statements.
Restatement Background
On February 11, 2020, our management, in consultation with the Audit Committee of our Board of Directors, determined that Bloom's previously issued consolidated financial statements as of and for the year ended December 31, 2018, as well as financial statements for the three month period ended March 31, 2019, the three and six month periods ended June 30, 2019 and 2018 and the three and nine month periods ended September 30, 2019 and 2018 should no longer be relied upon due to misstatements related to our Managed Services Agreements and similar arrangements and we would restate such financial statements to make the necessary accounting corrections. The revenue for the Managed Services Agreements and similar transactions will now be recognized over the duration of theacquired contract instead of upfront. In addition, management determined that the impact of these misstatements to periodsassets or liabilities from business combinations occurring prior to the three months ended June 30, 2018 wasadoption date.
3. Revenue Recognition
Contract Balances
The following table provides information about accounts receivables, contract assets, customer deposits and deferred revenue from contracts with customers (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | |
| Accounts receivable | | $ | 87,788 | | | $ | 96,186 | |
| Contract assets | | 25,201 | | | 3,327 | |
| Customer deposits | | 64,809 | | | 66,171 | |
| Deferred revenue | | 115,476 | | | 135,578 | |
Contract assets relate to contracts for which revenue is recognized upon transfer of control of performance obligations, however billing milestones have not materialbeen reached. Customer deposits and deferred revenue are payments received from customers or invoiced amounts prior to warrant restatementtransfer of reported figures, however, our consolidated financial statements ascontrols of andperformance obligations. Customer deposits, except for the year ended December 31, 2017 and the relevant unaudited selected quarterly financial data for the three month period ended March 31, 2018 would be revised to correct these misstatements. The restatement also includes corrections for additional identified immaterial misstatements in certain of the impacted periods.
The misstatements are described in greater detail below.
Description of Misstatements
Under our Managed Services program, we sell our equipment to a bank financing party under a sale-leaseback transaction, which pays us for the Energy Server and takes title to the Energy Server. We then enter into a service contract with an end customer, who pays the bank a fixed, monthly fee for its use of the Energy Server and pays us for our maintenance and operation of the Energy Server.
The majority of these Managed Services Agreements and similar transactions were originally recorded as sales, subject to an operating lease, in which revenues and associated costs were recognized at the time of installation and acceptance of the Bloom Energy Server at the customer site.
In December 2019, in the course of reviewing a Managed Services transaction that closed on November 27, 2019, an issue was identified$34.2 million related to the accounting for our Managed Services transactions. The issue primarily related to whether the terms of our Managed Services Agreements and similar arrangements,transaction with SK ecoplant, are refundable fees until certain milestones are met.
Contract Assets
| | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 |
| | | | | | | | |
| Beginning balance | | | | | | $ | 3,327 | | | $ | 2,768 | |
| Transferred to accounts receivable from contract assets recognized at the beginning of the period | | | | | | (1,198) | | | — | |
| Revenue recognized and not billed as of the end of the period | | | | | | 23,072 | | | 559 | |
| Ending balance | | | | | | $ | 25,201 | | | $ | 3,327 | |
Deferred Revenue
Deferred revenue activity, including the events of default provisions, satisfied the requirements for sales under thedeferred incentive revenue accounting standards. Subsequently, it was determined that the previous accounting for the Managed Services Agreements and similar transactions was misstated, as the Managed Services Agreements and similar transactions should have been accounted for as financing transactions under lease accounting standards.
The impact of the correction of the misstatement is to recognize amounts received from the bank financing party as a financing obligations, and the Energy Server is recorded within property, plant and equipment, net on our consolidated balance sheets. We recognize revenue for the electricity generated by the systems, based on payments received by the bank from the customer, and the corresponding financing obligations to the bank is also amortized as these payments are received by the bank from the customer, with interest thereon being calculated on an effective interest rate basis. Depreciation expense is also recognized over the estimated useful life of the Energy Server.
In addition, it was determined that stock-based compensation costs relating to manufacturing employees that were previously expensed as incurred incorrectly, should have been capitalized as a component of Energy Server manufacturing costs to inventory, deferred cost of revenues, construction-in-progress and property, plant and equipment in accordance with SEC Staff Accounting Bulletin Topic 14. These costs will now be expensed on consumption of the related inventory and over the economic useful life of the property, plant and equipment, as applicable.
Also, as part of a review of historical revenue agreements as a result of the above errors, it was noted that the Company failed to identify embedded derivatives in certain revenue agreements for an escalator price protection (“EPP”) feature given to our customers. As a result, the Company has recorded a derivative liability, with an offset to revenue, to
account for the fair value of this feature at inception and will record the liability at its then fair value at each period end with any changes in fair value recognized in other income (expense).
Finally, there were certain other immaterial misstatements identified or which had been previously identified which are also being corrected in connection with the restatement and/or revision of previously issued financial statements.
Description of Restatement and Revision Reconciliation Tables
In the following tables, we have presented a reconciliation of our consolidated balance sheets, statement of operations and cash flows from our prior periods as previously reported to the restated and revised amounts as of and foractivity, during the years ended December 31, 20182021 and 2017, respectively. The Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Deficit and Noncontrolling Interest for the years ended December 31, 2018 and 2017 have been restated and revised, respectively, for the restatement and revision impacts to Net Loss and, for the latter statements, for the correction of an uncorrected misstatement within Additional Paid-In Capital for $0.8 million in 2018. See the statement of operations reconciliation tables below for additional information on the restatement and revision impacts to Net Loss. For the misstatements arising in periods commencing prior to 2017, the cumulative impact of all periods prior to January 1, 2017 has been reflected as an adjustment to opening accumulated deficit as of that date in the Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest.
Bloom Energy Corporation
Consolidated Balance Sheet
(in thousands, except share and per share data)
|
| | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | As Previously Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| | | | | | | | | |
| Assets | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 220,728 |
| | $ | — |
| | | | $ | 220,728 |
|
| Restricted cash | | 28,657 |
| | — |
| | | | 28,657 |
|
| Short-term investments | | 104,350 |
| | — |
| | | | 104,350 |
|
| Accounts receivable | | 84,887 |
| | 3,897 |
| | 1 | | 88,784 |
|
| Inventories | | 132,476 |
| | 2,789 |
| | 2 | | 135,265 |
|
| Deferred cost of revenue | | 62,147 |
| | (18,338 | ) | | 3 | | 43,809 |
|
| Customer financing receivable | | 5,594 |
| | — |
| | | | 5,594 |
|
| Prepaid expenses and other current assets | | 33,742 |
| | 3,005 |
| | 4 | | 36,747 |
|
| Total current assets | | 672,581 |
| | (8,647 | ) | | | | 663,934 |
|
| Property, plant and equipment, net | | 481,414 |
| | 235,337 |
| | 5 | | 716,751 |
|
| Customer financing receivable, non-current | | 67,082 |
| | — |
| | | | 67,082 |
|
| Restricted cash, non-current | | 31,100 |
| | — |
| | | | 31,100 |
|
| Deferred cost of revenue, non-current | | 102,699 |
| | (102,654 | ) | | 3 | | 45 |
|
| Other long-term assets | | 34,792 |
| | 8,090 |
| | 6 | | 42,882 |
|
| Total assets | | $ | 1,389,668 |
| | $ | 132,126 |
| | | | $ | 1,521,794 |
|
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interests | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 66,889 |
| | $ | — |
| | | | $ | 66,889 |
|
| Accrued warranty | | 19,236 |
| | (1,268 | ) | | 7 | | 17,968 |
|
| Accrued expenses and other current liabilities | | 69,535 |
| | (2,697 | ) | | 8 | | 66,838 |
|
| Financing obligations | | — |
| | 8,128 |
| | 9 | | 8,128 |
|
| Deferred revenue and customer deposits | | 94,158 |
| | (26,526 | ) | | 10 | | 67,632 |
|
| Current portion of recourse debt | | 8,686 |
| | — |
| | | | 8,686 |
|
| Current portion of non-recourse debt | | 18,962 |
| | — |
| | | | 18,962 |
|
| Current portion of non-recourse debt from related parties | | 2,200 |
| | — |
| | | | 2,200 |
|
| Total current liabilities | | 279,666 |
| | (22,363 | ) | | | | 257,303 |
|
| Derivative liabilities | | 10,128 |
| | 4,015 |
| | 11 | | 14,143 |
|
| Deferred revenue and customer deposits, net of current portion | | 241,794 |
| | (154,486 | ) | | 10 | | 87,308 |
|
| Financing obligations, non-current | | — |
| | 385,650 |
| | 9 | | 385,650 |
|
| Long-term portion of recourse debt | | 360,339 |
| | — |
| | | | 360,339 |
|
| Long-term portion of non-recourse debt | | 289,241 |
| | — |
| | | | 289,241 |
|
| Long-term portion of recourse debt from related parties | | 27,734 |
| | — |
| | | | 27,734 |
|
| Long-term portion of non-recourse debt from related parties | | 34,119 |
| | — |
| | | | 34,119 |
|
| Other long-term liabilities | | 55,937 |
| | (29,741 | ) | | 8 | | 26,196 |
|
| Total liabilities | | 1,298,958 |
| | 183,075 |
| | | | 1,482,033 |
|
| | | | | | | | | |
| Redeemable noncontrolling interest | | 57,261 |
| | — |
| | | | 57,261 |
|
| Stockholders’ deficit: | | | | | | | | |
| Common stock | | 11 |
| | — |
| | | | 11 |
|
| Additional paid-in capital | | 2,480,597 |
| | 755 |
| | 12 | | 2,481,352 |
|
| Accumulated other comprehensive income | | 131 |
| | — |
| | | | 131 |
|
|
| | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | As Previously Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| Accumulated deficit | | (2,572,400 | ) | | (51,704 | ) | | | | (2,624,104 | ) |
| Total stockholders’ deficit | | (91,661 | ) | | (50,949 | ) | | | | (142,610 | ) |
| Noncontrolling interest | | 125,110 |
| | — |
| | | | 125,110 |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,389,668 |
| | $ | 132,126 |
| | | | $ | 1,521,794 |
|
1Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation cost of $8.1 million, reclassification of inventories of $6.0 million held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net and an increase to inventory to correct a misstatement related to an in-transit shipment of $0.7 million.
3Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $19.6 million current and $102.7 million non-current, net capitalization of stock-based compensation costs of $2.2 million into current deferred cost of revenue together with the correction of an immaterial misstatements identified to reduce deferred cost of revenue of $0.9 million.
4Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install cost of revenues are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $232.1 million. This includes a net capitalization of stock-based compensation cost for these assets of $3.2 million.
6Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
7Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements, reducing accrued warranty by $0.5 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued warranty by $0.7 million.
8Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed, and an increase to accrued liabilities to correct a misstatement related to an in-transit inventory shipment of $0.7 million.
9Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10 Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.
12 APIC — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million.
Bloom Energy Corporation
Consolidated Statement of Operations
(in thousands, except per share data)
|
| | | | | | | | | | | | | | |
| | | For the year ended December 31, 2018 |
| | | As Previously Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| | | | | | | | | |
| Revenue: | | | | | | | | |
| Product | | $ | 512,322 |
| | $ | (111,684 | ) | | a | | $ | 400,638 |
|
| Installation | | 91,416 |
| | (23,221 | ) | | a | | 68,195 |
|
| Service | | 82,385 |
| | 882 |
| | a | | 83,267 |
|
| Electricity | | 55,915 |
| | 24,633 |
| | a | | 80,548 |
|
| Total revenue | | 742,038 |
| | (109,390 | ) | | | | 632,648 |
|
| Cost of revenue: | | | | | | | | |
| Product | | 374,590 |
| | (93,315 | ) | | c, d | | 281,275 |
|
| Installation | | 119,474 |
| | (24,168 | ) | | c | | 95,306 |
|
| Service | | 94,639 |
| | 6,050 |
| | b, d | | 100,689 |
|
| Electricity | | 36,265 |
| | 13,363 |
| | c | | 49,628 |
|
| Total cost of revenue | | 624,968 |
| | (98,070 | ) | | | | 526,898 |
|
| Gross profit | | 117,070 |
| | (11,320 | ) | | | | 105,750 |
|
| Operating expenses: | | | | | | | | |
| Research and development | | 89,135 |
| | — |
| | | | 89,135 |
|
| Sales and marketing | | 62,975 |
| | (168 | ) | | e | | 62,807 |
|
| General and administrative | | 118,817 |
| | — |
| | | | 118,817 |
|
| Total operating expenses | | 270,927 |
| | (168 | ) | | | | 270,759 |
|
| Loss from operations | | (153,857 | ) | | (11,152 | ) | | | | (165,009 | ) |
| Interest income | | 4,322 |
| | — |
| | | | 4,322 |
|
| Interest expense | | (76,935 | ) | | (20,086 | ) | | f | | (97,021 | ) |
| Interest expense to related parties | | (8,893 | ) | | — |
| | | | (8,893 | ) |
| Other expense, net | | (999 | ) | | — |
| | | | (999 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | (21,590 | ) | | (549 | ) | | g | | (22,139 | ) |
| Loss before income taxes | | (257,952 | ) | | (31,787 | ) | | | | (289,739 | ) |
| Income tax provision | | 1,537 |
| | — |
| | | | 1,537 |
|
| Net loss | | (259,489 | ) | | (31,787 | ) | | | | (291,276 | ) |
| Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (17,736 | ) | | — |
| | | | (17,736 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (241,753 | ) | | $ | (31,787 | ) | | | | $ | (273,540 | ) |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | $ | (4.54 | ) | | | | | | $ | (5.14 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a decrease in service cost of revenue of $0.5 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change of from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $75.0 million and installation cost of revenue of $25.1 million, offset by an increase in electricity cost of revenue of $13.3 million, together with the correction of another immaterial misstatements identified to record installation cost of revenue of$0.9 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $18.3 million and an increase in service cost of revenue of $6.5 million, due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing — The correction of these misstatements resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligations and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The liability has reduced in value by $0.2 million in 2018, resulting in a credit to this line item. In addition, we corrected a misstatement in the valuation of our 6% Notes derivative, resulting in $0.8 million of additional expense in the period.
Bloom Energy Corporation
Consolidated Statement of Operations
(in thousands, except per share data)
|
| | | | | | | | | | | | | | |
| | | For the year ended December 31, 2017 |
| | | As Previously Reported | | Revision Impacts | | Revision Reference | | As Revised |
| | | | | | | | | |
| Revenue: | | | | | | | | |
| Product | | $ | 179,768 |
| | $ | (22,576 | ) | | a | | $ | 157,192 |
|
| Installation | | 63,226 |
| | (5,289 | ) | | a | | 57,937 |
|
| Service | | 76,904 |
| | (2,012 | ) | | a, b | | 74,892 |
|
| Electricity | | 56,098 |
| | 19,504 |
| | a | | 75,602 |
|
| Total revenue | | 375,996 |
| | (10,373 | ) | | | | 365,623 |
|
| Cost of revenue: | | | | | | | | |
| Product | | 210,773 |
| | (18,412 | ) | | c, d | | 192,361 |
|
| Installation | | 59,929 |
| | (4,959 | ) | | c | | 54,970 |
|
| Service | | 83,597 |
| | 1,531 |
| | b, d | | 85,128 |
|
| Electricity | | 39,741 |
| | 9,734 |
| | c | | 49,475 |
|
| Total cost of revenue | | 394,040 |
| | (12,106 | ) | | | | 381,934 |
|
| Gross loss | | (18,044 | ) | | 1,733 |
| | | | (16,311 | ) |
| Operating expenses: | | | | | | | | |
| Research and development | | 51,146 |
| | — |
| | | | 51,146 |
|
| Sales and marketing | | 32,415 |
| | (489 | ) | | e | | 31,926 |
|
| General and administrative | | 55,674 |
| | 15 |
| | e | | 55,689 |
|
| Total operating expenses | | 139,235 |
| | (474 | ) | | | | 138,761 |
|
| Loss from operations | | (157,279 | ) | | 2,207 |
| | | | (155,072 | ) |
| Interest income | | 759 |
| | — |
| | | | 759 |
|
| Interest expense | | (96,358 | ) | | (15,681 | ) | | f | | (112,039 | ) |
| Interest expense to related parties | | (12,265 | ) | | — |
| | | | (12,265 | ) |
| Other income (expense), net | | (491 | ) | | — |
| | | | (491 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | (14,995 | ) | | (289 | ) | | g | | (15,284 | ) |
| Loss before income taxes | | (280,629 | ) | | (13,763 | ) | | | | (294,392 | ) |
| Income tax provision | | 636 |
| | — |
| | | | 636 |
|
| Net loss | | (281,265 | ) | | (13,763 | ) | | | | (295,028 | ) |
| Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (18,666 | ) | | — |
| | | | (18,666 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (262,599 | ) | | $ | (13,763 | ) | | | | $ | (276,362 | ) |
| | | | | | | | |
|
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | $ | (25.62 | ) | | | | | | $ | (26.97 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation by $1.1 million.
b Service revenue and service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a decrease in service cost of revenue of $0.3 million and a decrease of service revenue of $3.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in product cost of revenue of $15.2 million, installation cost of revenue of $5.0 million and electricity cost of revenue of $9.7 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $3.2 million and an increase in service cost of revenue of $1.8 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligations and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives —The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The liability has increased in value by $0.3 million resulting in a loss on revaluation of embedded derivatives.
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
|
| | | | | | | | | | | | | | |
| | | For the year ended December 31, 2018 |
| | | As Previously Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (259,489 | ) | | $ | (31,787 | ) | | | | $ | (291,276 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | 43,459 |
| | 10,428 |
| | A | | 53,887 |
|
| Write-off of property, plant and equipment, net | | 939 |
| | — |
| | | | 939 |
|
| Revaluation of derivative contracts | | 28,471 |
| | 550 |
| | B | | 29,021 |
|
| Stock-based compensation | | 180,284 |
| | (11,802 | ) | | C | | 168,482 |
|
| Loss on long-term REC purchase contract | | 200 |
| | — |
| | | | 200 |
|
| Revaluation of stock warrants | | (9,108 | ) | | — |
| | | | (9,108 | ) |
| Amortization of debt issuance cost | | 25,437 |
| | — |
| | | | 25,437 |
|
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | (54,570 | ) | | (453 | ) | | D | | (55,023 | ) |
| Inventories | | (42,216 | ) | | 5,242 |
| | E | | (36,974 | ) |
| Deferred cost of revenue | | 88,324 |
| | (74,101 | ) | | F | | 14,223 |
|
| Customer financing receivable and other | | 4,878 |
| | — |
| | | | 4,878 |
|
| Prepaid expenses and other current assets | | (7,064 | ) | | (968 | ) | | G | | (8,032 | ) |
| Other long-term assets | | 1,897 |
| | (2,099 | ) | | H | | (202 | ) |
| Accounts payable | | 18,307 |
| | — |
| | | | 18,307 |
|
| Accrued warranty | | 2,426 |
| | (928 | ) | | I | | 1,498 |
|
| Accrued expense and other current liabilities | | (6,800 | ) | | 816 |
| | J | | (5,984 | ) |
| Deferred revenue and customer deposits | | (91,996 | ) | | 70,222 |
| | K | | (21,774 | ) |
| Other long-term liabilities | | 18,204 |
| | 1,349 |
| | L | | 19,553 |
|
| Net cash used in operating activities | | (58,417 | ) | | (33,531 | ) | | | | (91,948 | ) |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property, plant and equipment | | (14,659 | ) | | (30,546 | ) | | M | | (45,205 | ) |
| Payments for acquisition of intangible assets | | (3,256 | ) | | — |
| | | | (3,256 | ) |
| Purchase of marketable securities | | (103,914 | ) | | — |
| | | | (103,914 | ) |
| Proceeds from maturity of marketable securities | | 27,000 |
| | — |
| | | | 27,000 |
|
| Net cash used in investing activities | | (94,829 | ) | | (30,546 | ) | | | | (125,375 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Repayment of debt | | (18,770 | ) | | — |
| | | | (18,770 | ) |
| Repayment of debt to related parties | | (1,390 | ) | | — |
| | | | (1,390 | ) |
| Proceeds from financing obligations | | — |
| | 70,265 |
| | N | | 70,265 |
|
| Repayment of financing obligations | | — |
| | (6,188 | ) | | N | | (6,188 | ) |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (15,250 | ) | | — |
| | | | (15,250 | ) |
| Proceeds from issuance of common stock | | 1,521 |
| | — |
| | | | 1,521 |
|
| Proceeds from public offerings, net of underwriting discounts and commissions | | 292,529 |
| | — |
| | | | 292,529 |
|
| Payments of initial public offering issuance costs | | (5,521 | ) | | — |
| | | | (5,521 | ) |
| Net cash provided by financing activities | | 253,119 |
| | 64,077 |
| | | | 317,196 |
|
| Net increase in cash, cash equivalents, and restricted cash | | 99,873 |
| | — |
| | | | 99,873 |
|
| Cash, cash equivalents, and restricted cash: | | | | | | | | |
| Beginning of period | | 180,612 |
| | — |
| | | | 180,612 |
|
| End of period | | $ | 280,485 |
| | $ | — |
| | | | $ | 280,485 |
|
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| Cash paid during the period for interest | | $ | 39,465 |
| | $ | 20,084 |
| | N | | $ | 59,549 |
|
| Cash paid during the period for taxes | | 1,748 |
| | — |
| | | | 1,748 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and install cost of revenue, but are now recorded as property, plant and equipment, and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent liability and recorded as an accrued liability. We now consider the commitments a derivative liability, with the initial value recorded as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter, resulting in a credit of $0.2 million, with $0.8 million of additional expense recorded to correct a misstatement in the valuation of our 6% Notes derivative.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $10.3 million. The correction of this misstatement also resulted in the capitalization of $1.5 million of stock-based compensation costs related to assets, under the Managed Services Program now recorded as construction in progress within property, plant and equipment, net.
DAccounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within accounts receivable.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories, held for shipments planned to customers under the Managed Services Program and other similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
FDeferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $71.9 million, and the net capitalization of stock-based compensation costs of $2.2 million in current deferred cost of revenue.
GPrepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
HOther long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end customers of $0.1 million, payments received from the financing entity now recorded within long term receivables of $1.9 million, and commission payments now classified within long term commission expenses of $0.1 million.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements. The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote and therefore, no accrual was made. We now consider $0.3 million accrual has made, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next twelve months are classified as lease loan liability.
MPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the upfront proceeds received from the bank as revenue, the bank proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
Bloom Energy Corporation
Consolidated Statements of Cash Flows
|
| | | | | | | | | | | | | | |
| | | For the year ended December 31, 2017 |
| | | As Previously Reported | | Revision Impacts | | Revision Reference | | As Revised |
| | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (281,265 | ) | | $ | (13,763 | ) | | | | $ | (295,028 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | 46,105 |
| | 8,271 |
| | A | | 54,376 |
|
| Write-off of property, plant and equipment, net | | 48 |
| | — |
| | | | 48 |
|
| Revaluation of derivative contracts | | 14,754 |
| | 288 |
| | B | | 15,042 |
|
| Stock-based compensation | | 30,479 |
| | (1,378 | ) | | C | | 29,101 |
|
| Gain on long-term REC purchase contract | | (70 | ) | | — |
| | | | (70 | ) |
| Revaluation of stock warrants | | (2,975 | ) | | — |
| | | | (2,975 | ) |
| Amortization of debt issuance cost | | 47,312 |
| | — |
| | | | 47,312 |
|
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | 4,849 |
| | (1,607 | ) | | D | | 3,242 |
|
| Inventories | | (7,105 | ) | | (3,531 | ) | | E | | (10,636 | ) |
| Deferred cost of revenue | | (70,979 | ) | | 39,701 |
| | F | | (31,278 | ) |
| Customer financing receivable and other | | 5,459 |
| | — |
| | | | 5,459 |
|
| Prepaid expenses and other current assets | | (2,175 | ) | | 1,193 |
| | G | | (982 | ) |
| Other long-term assets | | 4,625 |
| | (3,869 | ) | | H | | 756 |
|
| Accounts payable | | 7,076 |
| | — |
| | | | 7,076 |
|
| Accrued warranty | | (7,045 | ) | | (320 | ) | | I | | (7,365 | ) |
| Accrued expense and other current liabilities | | 8,599 |
| | (602 | ) | | J | | 7,997 |
|
| Deferred revenue and customer deposits | | 91,893 |
| | (43,571 | ) | | K | | 48,322 |
|
| Other long-term liabilities | | 43,239 |
| | (5,602 | ) | | L | | 37,637 |
|
| Net cash used in operating activities | | (67,176 | ) | | (24,790 | ) | | | | (91,966 | ) |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property, plant and equipment | | (5,140 | ) | | (56,314 | ) | | M | | (61,454 | ) |
| Purchase of marketable securities | | (29,043 | ) | | — |
| | | | (29,043 | ) |
| Proceeds from maturity of marketable securities | | 2,250 |
| | — |
| | | | 2,250 |
|
| Net cash used in investing activities | | (31,933 | ) | | (56,314 | ) | | | | (88,247 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Borrowings from issuance of debt | | 100,000 |
| | — |
| | | | 100,000 |
|
| Repayment of debt | | (20,507 | ) | | — |
| | | | (20,507 | ) |
| Repayment of debt to related parties | | (912 | ) | | — |
| | | | (912 | ) |
| Debt issuance costs | | (6,108 | ) | | — |
| | | | (6,108 | ) |
| Proceeds from financing obligations | | — |
| | 84,314 |
| | N | | 84,314 |
|
| Repayment of financing obligations | | — |
| | (3,210 | ) | | N | | (3,210 | ) |
| Proceeds from noncontrolling and redeemable noncontrolling interests | | 13,652 |
| | — |
| | | | 13,652 |
|
| Distributions to noncontrolling and redeemable noncontrolling interests | | (23,659 | ) | | — |
| | | | (23,659 | ) |
| Proceeds from issuance of common stock | | 432 |
| | — |
| | | | 432 |
|
| Payments of initial public offering issuance costs | | (1,092 | ) | | — |
| | | | (1,092 | ) |
| Net cash provided by financing activities | | 61,806 |
| | 81,104 |
| | | | 142,910 |
|
| Net decrease in cash, cash equivalents, and restricted cash | | (37,303 | ) | | — |
| | | | (37,303 | ) |
| Cash, cash equivalents, and restricted cash: | | | | | | | | |
| Beginning of period | | 217,915 |
| | — |
| | | | 217,915 |
|
| End of period | | $ | 180,612 |
| | $ | — |
| | | | $ | 180,612 |
|
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| Cash paid during the period for interest | | $ | 21,948 |
| | $ | 15,680 |
| | N | | $ | 37,628 |
|
| Cash paid during the period for taxes | | 616 |
| | — |
| | | | 616 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and other similar arrangements that would have been product and install costs of goods sold, but are now recorded as property, plant and equipment, and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts - The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent liability and recorded as an accrued liability. We now consider the commitments a derivative liability, with the initial value recorded as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $0.6 million. The correction of this misstatement also resulted in the capitalization of $0.7 million of stock-based compensation, cost related to assets, under the Managed Services Program now recorded as construction in progress within property, plant and equipment, net.
DAccounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within accounts receivable.
EInventories — The correction of these misstatements resulted from the change of accounting for inventories, held for shipments planned to customers under the Managed Services Program and other similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
FDeferred cost of revenue, current and non-current — The correction of these misstatements resulted from the change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $39.1 million, and the net capitalization of stock-based compensation costs of $0.6 million in current deferred cost of revenue.
GPrepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
HOther long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end customers of $1.7 million, payments received from the financing entity now recorded within long term receivables of $1.8 million, and commission payments now classified within long term commission expenses of $0.4 million.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements. The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote and therefore, no accrual was made. We now consider $0.3 million accrual has made, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next twelve months are classified as lease loan liability.
MPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the upfront proceeds received from the bank as revenue, the bank proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
3. Revenue Recognition
Adoption of ASC 606
The cumulative effect of the changes made to our consolidated January 1, 2019 consolidated balance sheet for the adoption of ASC 606 was as follows (in thousands):
|
| | | | | | | | | | | | |
| | | Balances at
December 31, 2018 | | Adjustments
from Adoption
of ASC 606 | | Balances at
January 1, 2019 |
| | | As Restated | | | | As Recast |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 220,728 |
| | $ | — |
| | $ | 220,728 |
|
| Restricted cash | | 28,657 |
| | — |
| | 28,657 |
|
| Short-term investments | | 104,350 |
| | — |
| | 104,350 |
|
| Accounts receivable | | 88,784 |
| | 995 |
| | 89,779 |
|
| Inventories | | 135,265 |
| | — |
| | 135,265 |
|
| Deferred cost of revenue | | 43,809 |
| | — |
| | 43,809 |
|
| Customer financing receivable | | 5,594 |
| | — |
| | 5,594 |
|
| Prepaid expenses and other current assets | | 36,747 |
| | 140 |
| | 36,887 |
|
| Total current assets | | 663,934 |
| | 1,135 |
| | 665,069 |
|
| Property, plant and equipment, net | | 716,751 |
| | — |
| | 716,751 |
|
| Customer financing receivable, non-current | | 67,082 |
| | — |
| | 67,082 |
|
| Restricted cash (non-current) | | 31,100 |
| | — |
| | 31,100 |
|
| Deferred cost of revenue, non-current | | 45 |
| | — |
| | 45 |
|
| Other long-term assets | | 42,882 |
| | 2,472 |
| | 45,354 |
|
| Total assets | | $ | 1,521,794 |
| | $ | 3,607 |
| | $ | 1,525,401 |
|
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 66,889 |
| | $ | — |
| | $ | 66,889 |
|
| Accrued warranty | | 17,968 |
| | (1,032 | ) | | 16,936 |
|
| Accrued expenses and other current liabilities | | 66,838 |
| | — |
| | 66,838 |
|
| Financing obligations | | 8,128 |
| | — |
| | 8,128 |
|
| Deferred revenue and customer deposits | | 67,632 |
| | 4,653 |
| | 72,285 |
|
| Current portion of recourse debt | | 8,686 |
| | — |
| | 8,686 |
|
| Current portion of non-recourse debt | | 18,962 |
| | — |
| | 18,962 |
|
| Current portion of non-recourse debt from related parties | | 2,200 |
| | — |
| | 2,200 |
|
| Total current liabilities | | 257,303 |
| | 3,621 |
| | 260,924 |
|
| Derivative liabilities | | 14,143 |
| | — |
| | 14,143 |
|
| Deferred revenue and customer deposits, net of current portion | | 87,308 |
| | 17,982 |
| | 105,290 |
|
| Financing obligations, non-current | | 385,650 |
| | — |
| | 385,650 |
|
| Long-term portion of recourse debt | | 360,339 |
| | — |
| | 360,339 |
|
| Long-term portion of non-recourse debt | | 289,241 |
| | — |
| | 289,241 |
|
| Long-term portion of recourse debt from related parties | | 27,734 |
| | — |
| | 27,734 |
|
| Long-term portion of non-recourse debt from related parties | | 34,119 |
| | — |
| | 34,119 |
|
| Other long-term liabilities | | 26,196 |
| | — |
| | 26,196 |
|
| Total liabilities | | 1,482,033 |
| | 21,603 |
| | 1,503,636 |
|
| Redeemable noncontrolling interest | | 57,261 |
| | — |
| | 57,261 |
|
| Stockholders’ deficit: | | | | | | |
| Common stock: $0.0001 par value; Class A shares and, Class B shares | | 11 |
| | — |
| | 11 |
|
| Additional paid-in capital | | 2,481,352 |
| | — |
| | 2,481,352 |
|
| Accumulated other comprehensive income | | 131 |
| | — |
| | 131 |
|
| Accumulated deficit | | (2,624,104 | ) | | (17,996 | ) | | (2,642,100 | ) |
| Total stockholders’ deficit | | (142,610 | ) | | (17,996 | ) | | (160,606 | ) |
| Noncontrolling interest | | 125,110 |
| | — |
| | 125,110 |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,521,794 |
| | $ | 3,607 |
| | $ | 1,525,401 |
|
In accordance with the ASC 606 requirements, the impact of adoption on our consolidated balance sheet was as follows as of December 31, 2019 (in thousands):
|
| | | | | | | | | | | | |
| | | December 31, 2019 |
| | | As Reported | | Balances Without
Adoption of ASC 606 | | Effect of Change
Higher / (Lower) |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 202,823 |
| | $ | 202,823 |
| | $ | — |
|
| Restricted cash | | 30,804 |
| | 30,804 |
| | — |
|
| Accounts receivable | | 37,828 |
| | 47,442 |
| | (9,614 | ) |
| Inventories | | 109,606 |
| | 109,606 |
| | — |
|
| Deferred cost of revenue | | 58,470 |
| | 58,470 |
| | — |
|
| Customer financing receivable | | 5,108 |
| | 5,108 |
| | — |
|
| Prepaid expenses and other current assets | | 28,068 |
| | 27,860 |
| | 208 |
|
| Total current assets | | 472,707 |
| | 482,113 |
| | (9,406 | ) |
| Property, plant and equipment, net | | 607,059 |
| | 607,059 |
| | — |
|
| Customer financing receivable, non-current | | 50,747 |
| | 50,747 |
| | — |
|
| Restricted cash, non-current | | 143,761 |
| | 143,761 |
| | — |
|
| Deferred cost of revenue, non-current | | 6,665 |
| | 6,665 |
| | — |
|
| Other long-term assets | | 41,652 |
| | 37,849 |
| | 3,803 |
|
| Total assets | | $ | 1,322,591 |
| | $ | 1,328,194 |
| | $ | (5,603 | ) |
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 55,579 |
| | $ | 55,579 |
| | $ | — |
|
| Accrued warranty | | 10,333 |
| | 11,952 |
| | (1,619 | ) |
| Accrued expenses and other current liabilities | | 70,284 |
| | 70,284 |
| | — |
|
| Financing obligations | | 10,993 |
| | 10,993 |
| | — |
|
| Deferred revenue and customer deposits | | 89,192 |
| | 90,075 |
| | (883 | ) |
| Current portion of recourse debt | | 304,627 |
| | 304,627 |
| | — |
|
| Current portion of non-recourse debt | | 8,273 |
| | 8,273 |
| | — |
|
| Current portion of recourse debt from related parties | | 20,801 |
| | 20,801 |
| | — |
|
| Current portion of non-recourse debt from related parties | | 3,882 |
| | 3,882 |
| | — |
|
| Total current liabilities | | 573,964 |
| | 576,466 |
| | (2,502 | ) |
| Derivative liabilities | | 17,551 |
| | 17,551 |
| | — |
|
| Deferred revenue and customer deposits, net of current portion | | 125,529 |
| | 84,594 |
| | 40,935 |
|
| Financing obligations, non-current | | 446,165 |
| | 446,165 |
| | — |
|
| Long-term portion of recourse debt | | 75,962 |
| | 75,962 |
| | — |
|
| Long-term portion of non-recourse debt | | 192,180 |
| | 192,180 |
| | — |
|
| Long-term portion of non-recourse debt from related parties | | 31,087 |
| | 31,087 |
| | — |
|
| Other long-term liabilities | | 28,013 |
| | 28,013 |
| | — |
|
| Total liabilities | | 1,490,451 |
| | 1,452,018 |
| | 38,433 |
|
| Redeemable noncontrolling interest | | 443 |
| | 443 |
| | — |
|
| Stockholders’ deficit: | | | | | | |
| Common stock: $0.0001 par value; Class A shares and, Class B shares | | 12 |
| | 12 |
| | — |
|
| Additional paid-in capital | | 2,686,759 |
| | 2,686,759 |
| | — |
|
|
| | | | | | | | | | | | |
| | | December 31, 2019 |
| | | As Reported | | Balances Without
Adoption of ASC 606 | | Effect of Change
Higher / (Lower) |
| Accumulated other comprehensive income | | 19 |
| | 19 |
| | — |
|
| Accumulated deficit | | (2,946,384 | ) | | (2,902,348 | ) | | (44,036 | ) |
| Total stockholders’ deficit | | (259,594 | ) | | (215,558 | ) | | (44,036 | ) |
| Noncontrolling interest | | 91,291 |
| | 91,291 |
| | — |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,322,591 |
| | $ | 1,328,194 |
| | $ | (5,603 | ) |
In accordance with ASC 606 requirements, the impact of adoption on our consolidated statement of operations for the year ended December 31, 2019 was as follows (in thousands):
|
| | | | | | | | | | | | |
| | | Year ended December 31, 2019 |
| | | As Reported | | Balances Without
Adoption of ASC 606 | | Effect of Change
Higher / (Lower) |
| Revenue: | | |
| | |
| | |
|
| Product | | $ | 557,336 |
| | $ | 601,857 |
| | $ | (44,521 | ) |
| Installation | | 60,826 |
| | 54,716 |
| | 6,110 |
|
| Service | | 95,786 |
| | 91,944 |
| | 3,842 |
|
| Electricity | | 71,229 |
| | 71,229 |
| | — |
|
| Total revenue | | 785,177 |
| | 819,746 |
| | (34,569 | ) |
| Cost of revenue: | | | | | | |
| Product | | 435,479 |
| | 436,064 |
| | (585 | ) |
| Installation | | 76,487 |
| | 76,487 |
| | — |
|
| Service | | 100,238 |
| | 106,782 |
| | (6,544 | ) |
| Electricity | | 75,386 |
| | 75,386 |
| | — |
|
| Total cost of revenue | | 687,590 |
| | 694,719 |
| | (7,129 | ) |
| Gross profit | | 97,587 |
| | 125,027 |
| | (27,440 | ) |
| Operating expenses: | | | | | | |
| Research and development | | 104,168 |
| | 104,168 |
| | — |
|
| Sales and marketing | | 73,573 |
| | 74,973 |
| | (1,400 | ) |
| General and administrative | | 152,650 |
| | 152,650 |
| | — |
|
| Total operating expenses | | 330,391 |
| | 331,791 |
| | (1,400 | ) |
| Loss from operations | | (232,804 | ) | | (206,764 | ) | | (26,040 | ) |
| Interest income | | 5,661 |
| | 5,661 |
| | — |
|
| Interest expense | | (87,480 | ) | | (87,480 | ) | | — |
|
| Interest expense to related parties | | (6,756 | ) | | (6,756 | ) | | — |
|
| Other income (expense), net | | 706 |
| | 706 |
| | — |
|
| Loss on revaluation of warrant liabilities and embedded derivatives | | (2,160 | ) | | (2,160 | ) | | — |
|
| Loss before income taxes | | (322,833 | ) | | (296,793 | ) | | (26,040 | ) |
| Income tax provision | | 633 |
| | 633 |
| | — |
|
| Net loss | | (323,466 | ) | | (297,426 | ) | | (26,040 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (19,052 | ) | | (19,052 | ) | | — |
|
| Net loss attributable to Class A and Class B common stockholders | | (304,414 | ) | | (278,374 | ) | | (26,040 | ) |
| Less: deemed dividend to noncontrolling interest | | (2,454 | ) | | (2,454 | ) | | — |
|
| Net loss available to Class A and Class B common stockholders | | $ | (306,868 | ) | | $ | (280,828 | ) | | $ | (26,040 | ) |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | $ | (2.67 | ) | | $ | (2.44 | ) | | $ | (0.23 | ) |
The impact of the adoption of ASC 606 on our consolidated statement of cash flows for the year ended December 31, 2019, relating to cash flows from operating activities was an increase to net loss of $26.0 million which was offset by a decrease in accounts receivable of $10.6 million, increases in prepaid expenses and other current assets of $0.1 million, and increases in other long-term assets of $1.3 million. These sources of cash from changes in operating assets were partially offset by increases in deferred revenue and customer deposits of $17.4 million and a decrease in accrued warranty of $0.6 million. There is no net impact on operating activities and no impact in investing and financing activities.
Contract Liabilities
Deferred revenue and customer deposits activity related to the adoption of ASC 6062020 consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 |
| | | | | | | | |
| Beginning balance | | | | | | $ | 135,578 | | | $ | 175,619 | |
| Additions | | | | | | 916,604 | | | 652,960 | |
| Revenue recognized | | | | | | (936,706) | | | (693,001) | |
| Ending balance | | | | | | $ | 115,476 | | | $ | 135,578 | |
|
| | | | | | | | | | | | | | | | |
| | | Year ended 12/31/2018
(As Restated) | | Impacts of ASC606 Adoption | | As of 1/1/2019
(As Recast) | | As of 12/31/2019
(As Recast) |
| Deferred revenue | | $ | (141,458 | ) | | $ | (8,154 | ) | | $ | (149,612 | ) | | $ | (175,619 | ) |
| Customer deposits | | (13,482 | ) | | (14,481 | ) | | (27,963 | ) | | (39,101 | ) |
| Deferred revenue and customer deposits | | $ | (154,940 | ) | | $ | (22,635 | ) | | $ | (177,575 | ) | | $ | (214,720 | ) |
Deferred revenue activity during the year ended December 31, 2019 after the ASC 606 adoption consisted of the following (in thousands):
|
| | | | |
| | | Year Ended December 31, 2019 |
| | | As Reported |
| Deferred revenue on January 1, 2019 | | $ | 149,612 |
|
| Additions | | 709,843 |
|
| Revenue recognized | | (683,836 | ) |
| Deferred revenue on December 31, 2019 | | $ | 175,619 |
|
Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of December 31, 2019. Thesethe end of the period. The significant component of deferred revenue at the end of the period consists of performance obligations relaterelating to the provision of maintenance services under current contracts and future renewal periods whichperiods. These obligations provide customers with material rights over a period that we estimate will be largely commensurate with the period of their expected use of the associated Energy Server. As a result, we expect to recognize these amounts as revenue over a period of up to 21 years, predominantly on a cost-to-costrelative standalone selling price basis that reflects the cost of providing these services. Deferred revenue also includes performance obligations relating to product acceptance and installation. A significant amount of this deferred revenue is reflected as additions and revenue recognized in the same period and we expect to recognize substantially all amounts within a year. During the years ended December 31, 2021 and 2020, we recognized $1.2 million and $14.2 million, respectively, of previously deferred revenue that was not associated with acceptances or service in the year as a result of a modification of a contract with a customer.
Revenue by sourceWe do not disclose the value of the unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Disaggregated Revenue
We disaggregate revenue from contracts with customers into four revenue categories: (i) product, (ii) installation, (iii) services and (iv) electricity as shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | |
| Revenue from contracts with customers: | | | | | | | | | | |
| Product revenue | | | | | | $ | 663,512 | | | $ | 518,633 | | | $ | 557,336 | |
| Installation revenue | | | | | | 96,059 | | | 101,887 | | | 60,826 | |
| Services revenue | | | | | | 144,184 | | | 109,633 | | | 95,786 | |
| Electricity revenue | | | | | | 3,103 | | | 1,071 | | | 10,840 | |
| Total revenue from contract with customers | | | | | | 906,858 | | | 731,224 | | | 724,788 | |
| Revenue from contracts accounted for as leases: | | | | | | | | | | |
| Electricity revenue | | | | | | 65,318 | | | 63,023 | | | 60,389 | |
| Total revenue | | | | | | $ | 972,176 | | | $ | 794,247 | | | $ | 785,177 | |
|
| | | | | | | | |
| | | Years Ended December 31, |
| | | 2019 | | 2018 |
| | | As Reported, With Adoption of ASC 606 | | As Reported, Under ASC 605 |
| Revenue from contracts with customers: | | | | |
| Product revenue | | $ | 557,336 |
| | $ | 400,638 |
|
| Installation revenue | | 60,826 |
| | 68,195 |
|
| Services revenue | | 95,786 |
| | 83,267 |
|
| Electricity revenue | | 10,840 |
| | 23,023 |
|
| Total revenue from contract with customers | | 724,788 |
| | 575,123 |
|
| Revenue from contracts accounted for as leases: | |
| |
|
| Electricity revenue | | 60,389 |
| | 57,525 |
|
| Total revenue | | $ | 785,177 |
| | $ | 632,648 |
|
For the year ended December 31, 2019, approximately 77% of our revenues are from the United States and 23% comes from the Asia Pacific region.
4. Financial Instruments
Cash, Cash Equivalents and Restricted Cash
The carrying valuevalues of cash, and cash equivalents and restricted cash approximate fair valuevalues and arewere as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| As Held: | | | | |
| Cash | | $ | 318,080 | | | $ | 180,808 | |
| Money market funds | | 297,034 | | | 235,902 | |
| | $ | 615,114 | | | $ | 416,710 | |
| As Reported: | | | | |
| Cash and cash equivalents | | $ | 396,035 | | | $ | 246,947 | |
| Restricted cash | | 219,079 | | | 169,763 | |
| | $ | 615,114 | | | $ | 416,710 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| As Held: | | | | |
| Cash | | $ | 100,773 |
| | $ | 136,642 |
|
| Money market funds | | 276,615 |
| | 143,843 |
|
| | | $ | 377,388 |
| | $ | 280,485 |
|
| As Reported: | | | | |
| Cash and cash equivalents | | $ | 202,823 |
| | $ | 220,728 |
|
| Restricted cash | | 174,565 |
| | 59,757 |
|
| | | $ | 377,388 |
| | $ | 280,485 |
|
Restricted cash consisted of the following (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| Current: | | | | |
| Restricted cash | | $ | 89,462 | | | $ | 26,706 | |
Restricted cash related to PPA Entities1 | | 3,078 | | | 25,764 | |
| Restricted cash, current | | 92,540 | | | 52,470 | |
| Non-current: | | | | |
| Restricted cash | | 103,300 | | | 286 | |
Restricted cash related to PPA Entities1 | | 23,239 | | | 117,007 | |
| Restricted cash, non-current | | 126,539 | | | 117,293 | |
| | $ | 219,079 | | | $ | 169,763 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Current: | | | | |
| Restricted cash | | $ | 28,494 |
| | $ | 25,740 |
|
| Restricted cash related to PPA Entities | | 2,310 |
| | 2,917 |
|
| Restricted cash, current | | $ | 30,804 |
| | $ | 28,657 |
|
| Non-current: | | | | |
| Restricted cash | | $ | 10 |
| | $ | 3,246 |
|
Restricted cash related to PPA Entities 1 | | 143,751 |
| | 27,854 |
|
| Restricted cash, non-current | | 143,761 |
| | 31,100 |
|
| | | $ | 174,565 |
| | $ | 59,757 |
|
1 We have variable interest entities whichVIEs that represent a portion of the consolidated balances are recorded within the "restricted cash,"cash" and other financial statement line items in the Consolidated Balance Sheetsconsolidated balance sheets (see Note 13, Power Purchase Agreement Programs)11 - Portfolio Financings). This amount includes $108.7 million and $20.0 million ofIn addition, the restricted cash non-current, held in the PPA II and PPA IIIb entities respectively. Asas of December 31, 2019, such2021, includes $41.7 million and $1.2 million of current restricted cash, respectively, and $57.7 million and $6.7 million of non-current restricted cash, respectively. The restricted cash held in the PPA II and PPA IIIb entities are no longer considered variable interest entities.
Short-Term Investments
Asas of December 31, 2019, we had no short-term investments. As2020, includes $20.3 million and $0.7 million of current restricted cash, respectively, and $88.4 million and $13.3 million of non-current restricted cash, respectively. These entities are not considered VIEs.
Factoring Arrangements
We sell certain customer trade receivables on a non-recourse basis under factoring arrangements with our designated financial institution. These transactions are accounted for as sales and cash proceeds are included in cash used in operating activities. We derecognized $116.3 million and $49.3 million of accounts receivable during the years ended December 31, 2018, we had short-term investments in U.S. Treasury Bills2021 and 2020, respectively. The costs of $104.4 million.factoring such accounts receivable on our consolidated statements of operations for the years ended December 31, 2021 and 2020 were not material.
We have derivative financial instruments
5. Fair Value
Our accounting policy for the fair value measurement of cash equivalents, the fair value of contingent consideration related to business combinations, natural gas fixed price forward contracts, embedded Escalation Protection Plan ("EPP") derivatives and interest rate swaps. Seeswap agreements is described in Note 8, Derivative Financial Instrumentsfor a full description of our derivative financial instruments. 5. Fair Value2 - Significant Accounting Policies.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below set forth, by level, our financial assets that wereare accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measured at Reporting Date Using |
| December 31, 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
| Assets | | | | | | | | |
| Cash equivalents: | | | | | | | | |
| Money market funds | | $ | 297,034 | | | $ | — | | | $ | — | | | $ | 297,034 | |
| | | | | | | | |
| | | | | | | | |
| | $ | 297,034 | | | $ | — | | | $ | — | | | $ | 297,034 | |
| Liabilities | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Derivatives: | | | | | | | | |
| Option to acquire a variable number of shares of Class A Common Stock (Note 18) | | $ | — | | | $ | 13,200 | | | $ | — | | | $ | 13,200 | |
| | | | | | | | |
| Natural gas fixed price forward contracts | | — | | | — | | | — | | | — | |
| | | | | | | | |
| Embedded EPP derivatives | | — | | | — | | | 6,461 | | | 6,461 | |
| | | | | | | | |
| | $ | — | | | $ | 13,200 | | | $ | 6,461 | | | $ | 19,661 | |
|
| | | | | | | | | | | | | | | | |
| | | Fair Value Measured at Reporting Date Using |
| December 31, 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | |
| Assets | | | | | | | | |
| Cash equivalents: | | | | | | | | |
| Money market funds | | $ | 276,615 |
| | $ | — |
| | $ | — |
| | $ | 276,615 |
|
| Interest rate swap agreements | | — |
| | 3 |
| | — |
| | 3 |
|
| | | $ | 276,615 |
| | $ | 3 |
| | $ | — |
| | $ | 276,618 |
|
| Liabilities | | | | | | | | |
| Accrued expenses and other current liabilities | | $ | 996 |
| | $ | — |
| | $ | — |
| | $ | 996 |
|
| Derivatives: | | | | | | | | |
| Natural gas fixed price forward contracts | | — |
| | — |
| | 6,968 |
| | 6,968 |
|
| Embedded EPP derivatives | | — |
| | — |
| | 6,176 |
| | 6,176 |
|
| Interest rate swap agreements | | — |
| | 9,241 |
| | — |
| | 9,241 |
|
| | | $ | 996 |
| | $ | 9,241 |
| | $ | 13,144 |
| | $ | 23,381 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measured at Reporting Date Using |
| December 31, 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
| Assets | | | | | | | | |
| Cash equivalents: | | | | | | | | |
| Money market funds | | $ | 235,902 | | | $ | — | | | $ | — | | | $ | 235,902 | |
| | | | | | | | |
| | | | | | | | |
| | $ | 235,902 | | | $ | — | | | $ | — | | | $ | 235,902 | |
| Liabilities | | | | | | | | |
| | | | | | | | |
| Derivatives: | | | | | | | | |
| Natural gas fixed price forward contracts | | $ | — | | | $ | — | | | $ | 2,574 | | | $ | 2,574 | |
| | | | | | | | |
| Embedded EPP derivatives | | — | | | — | | | 5,541 | | | 5,541 | |
| Interest rate swap agreements | | — | | | 15,989 | | | — | | | 15,989 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | $ | — | | | $ | 15,989 | | | $ | 8,115 | | | $ | 24,104 | |
|
| | | | | | | | | | | | | | | | |
| | | Fair Value Measured at Reporting Date Using |
| December 31, 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | |
| Assets | | | | | | | | |
| Cash equivalents: | | | | | | | | |
| Money market funds | | $ | 143,843 |
| | $ | — |
| | $ | — |
| | $ | 143,843 |
|
| Short-term investments | | 104,350 |
| | — |
| | — |
| | 104,350 |
|
| Interest rate swap agreements | | — |
| | 82 |
| | — |
| | 82 |
|
| | | $ | 248,193 |
| | $ | 82 |
| | $ | — |
| | $ | 248,275 |
|
| Liabilities | | | | | | | | |
| Accrued expenses and other current liabilities | | $ | 1,331 |
| | $ | — |
| | $ | — |
| | $ | 1,331 |
|
| Derivatives: | | | | | | | | |
| Natural gas fixed price forward contracts | | — |
| | — |
| | 9,729 |
| | 9,729 |
|
| Embedded EPP derivatives | | — |
| | — |
| | 4,015 |
| | 4,015 |
|
| Interest rate swap agreements | | — |
| | 3,630 |
| | — |
| | 3,630 |
|
| | | $ | 1,331 |
| | $ | 3,630 |
| | $ | 13,744 |
| | $ | 18,705 |
|
Money Market Funds - Money market funds are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial assets.
Short-Term InvestmentsOption to acquire a variable number of shares of Class A Common Stock - Short-term investments,We estimated the fair value of the Option (as defined in Note 18) to acquire a variable number of shares of Class A Common Stock using a Monte Carlo simulation model using a stochastic volatility parameter, which are comprisedis calibrated and considers the observable implied volatility, the stock price of U.S. Treasury Bills with maturitiesour Class A Common Stock and market interest rates. As the fair value is determined based on observable inputs, the Option to acquire a variable number of 12 months or less from the purchase date, are valued using quoted market prices for identical securities and are thereforeshares of Class A Common Stock is classified as Level 1 financial assets.
Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified asa Level 2 financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on our consolidated balance sheets. As of December 31, 2019, $0.6 million of the gain on the interest rate swaps accumulated in other comprehensive income (loss) is expected to be reclassified into earnings in the next twelve months.liability.
Natural Gas Fixed Price Forward Contracts - NaturalAs of December 31, 2020, natural gas fixed price forward contracts arewere valued using a combination of factors including the counterparty's credit rating and estimates of future natural gas pricesprices. The leveling of each financial instrument is reassessed at the end of each period and therefore, asis based on pricing information received from third-party pricing sources. As of December 31, 2021, our remaining natural gas fixed price forward contracts had no observable inputs to support market activity are available, are classified as Level 3 financial assets.fair value.
The following table provides the number and fair value of our natural gas fixed price forward contracts (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | December 31, 2021 | | December 31, 2020 |
| | | Number of Contracts (MMBTU)² | | Fair
Value | | Number of
Contracts
(MMBTU)² | | Fair
Value |
| | | | | | | | | |
Liabilities¹: | | | | | | | | |
| Natural gas fixed price forward contracts (not under hedging relationships) | | 88 | | | $ | — | | | 830 | | | $ | 2,574 | |
| | | | | | | | |
| ¹ Recorded in current liabilities and derivative liabilities in the consolidated balance sheets. |
| ² One MMBTU is a traditional unit of energy used to describe the heat value (energy content) of fuels. |
|
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| | | Number of Contracts (MMBTU)² | | Fair Value | | Number of
Contracts
(MMBTU)² | | Fair Value |
| | | | | | | | | |
Liabilities¹ | | | | | | | | |
| Natural gas fixed price forward contracts (not under hedging relationships) | | 1,991 |
| | $ | 6,968 |
| | 3,096 |
| | $ | 9,729 |
|
| | | | | | | | | |
| ¹ Recorded in current liabilities and derivative liabilities in the consolidated balance sheets. |
| ² One MMBTU is a traditional unit of energy used to describe the heat value (energy content) of fuels. |
For the years ended December 31, 20192021 and 2018,2020, we marked-to-market the fair valuerecognized an unrealized gain of our natural gas fixed price forward contracts$1.1 million and recorded aan unrealized loss of $0.8$0.1 million, respectively. We realized gains of $1.5 million and a gain of $2.2$4.5 million respectively,for the years ended December 31, 2021 and recorded gains2020, respectively, on the settlement of these contracts of $3.6 million and $3.4 million, respectively, in cost of revenue on our consolidated statementstatements of operations.
Embedded Escalation Protection Plan Derivative on 6% Convertible Promissory Notes - Between December 2015 and September 2016, we issued $260.0 million of 6% Convertible Promissory Notes (6% Notes) that mature in December 2020. The 6% Notes are convertible at the option of the holders at a conversion price of $11.25 per share. The embedded redemption feature of the 6% Notes was therefore classified as an embedded derivative.
The embedded redemption feature of the 6% Notes was valued using the binomial lattice method, which utilizes significant inputs that are unobservable in the market. The fair value was determined by estimated event dates with probabilities of likely events under the scenario based upon facts existing through the date of our IPO. It was therefore classified as a Level 3 financial liability. Upon the expiration of embedded derivative features triggered by the IPO, we reclassified the fair value of the derivative liability into additional paid-in capital. The final valuation of the conversion feature was calculated as of the date of the IPO to be $178.0 million and was reclassified from derivative liability to additional paid-in capital on the balance sheet.
Embedded EPP DerivativesLiability in Sales Contracts - We estimatedestimate the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo simulation model, which considers various potential electricity price curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. We have classified these derivatives as a Level 3 financial liability.
Preferred Stock Warrants - We estimatedFor the years ended December 31, 2021 and 2020, we recorded the fair value of the preferred stock warrants using a probability-weighted expected return model which considers various potential liquidity outcomesembedded EPP derivatives and assigned probabilities to each to arrive at the weighted equity value. As there were no observable inputs supported by market activity, the preferred stock warrants were therefore classified as a Level 3 financial liability.
The preferred stock warrants were converted to common stock warrants effective with the IPOrecognized an unrealized loss of $0.9 million and
reclassified to additional paid-in capital. The fair valuean unrealized gain of
the preferred stock warrants was zero as of December 31, 2019 and 2018. The changes$0.6 million, respectively, in
fair value were recorded in(loss) gain
(loss) on revaluation of
warrant liabilities inembedded derivatives on our consolidated statements of operations.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Natural
Gas
Fixed Price
Forward
Contracts | | | | | | Embedded EPP Derivative Liability | | Total |
| Liabilities at December 31, 2019 | | $ | 6,968 | | | | | | | $ | 6,176 | | | $ | 13,144 | |
| Settlement of natural gas fixed price forward contracts | | (4,503) | | | | | | | — | | | (4,503) | |
| Changes in fair value | | 109 | | | | | | | (635) | | | (526) | |
| Liabilities at December 31, 2020 | | 2,574 | | | | | | | 5,541 | | | 8,115 | |
| | | | | | | | | | |
| Changes in fair value | | (2,574) | | | | | | | 920 | | | (1,654) | |
| | | | | | | | | | |
| Liabilities at December 31, 2021 | | $ | — | | | | | | | $ | 6,461 | | | $ | 6,461 | |
The following table presents the unobservable inputs related to the year ended December 31, 2020 Level 3 liabilities:
There were no transfers between | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, 2020 |
| Commodity Contracts | | | | Derivative Liabilities | | Valuation Technique | | Unobservable Input | | Units | | Range | | Average |
| | | | (in thousands) | | | | | | | | ($ per Units) |
| Natural Gas | | | | $ | 2,574 | | | Discounted Cash Flow | | Forward basis price | | MMBTU | | $2.82 - $5.03 | | $ | 3.67 | |
| | | | | | | | | | | | | | |
The unobservable inputs used in the fair value measurement classificationsof the natural gas commodity contracts consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement
date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas contracts were deemed unobservable.
To estimate the liabilities related to the EPP contracts an option pricing method was implemented through a Monte Carlo simulation. The unobservable inputs were simulated based on the available values for avoided cost and cost of electricity as calculated for December 31, 2021 and 2020, using an expected growth rate of 7% over the contracts' life and volatility of 20%. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 2021. Avoided cost is the transmission and distribution cost expressed in dollars per kilowatt hours avoided in the given year of the contract, calculated using the billing rates of the effective utility tariff applied during the years ended December 31, 2019 and 2018. year to the host account for which usage is offset by the generator. If the billing rates within the utility tariff change during the measurement period, the average of the amount of charge for each rate shall be weighted by the number of effective months for each amount.
The changes ininputs listed above would have had a direct impact on the Level 3 financial assetsfair values of the above derivatives if they were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Natural Gas Fixed Price Forward Contracts | | Preferred Stock Warrants | | Embedded Derivative Liability | | Embedded EPP Derivative | | Total |
| Balances at December 31, 2017 | | $ | 15,368 |
| | $ | 9,825 |
| | $ | 140,771 |
| | $ | 4,217 |
| | $ | 170,181 |
|
| Settlement of natural gas fixed price forward contracts | | (3,412 | ) | | — |
| | — |
| | 0 |
| | (3,412 | ) |
| Embedded derivative on notes and sales contracts | | — |
| | — |
| | 6,288 |
| | 3 |
| | 6,291 |
|
| Changes in fair value | | (2,227 | ) | | (8,943 | ) | | 30,904 |
| | (205 | ) | | 19,529 |
|
| Reclassification of preferred stock warrants liability to common stock warrants and derivative liability into additional paid-in-capital | | — |
| | (882 | ) | | (177,963 | ) | | — |
| | (178,845 | ) |
| Balances at December 31, 2018 | | 9,729 |
| | — |
| | — |
| | 4,015 |
| | 13,744 |
|
| Settlement of natural gas fixed price forward contracts | | (3,605 | ) | | — |
| | — |
| | — |
| | (3,605 | ) |
| Changes in fair value | | 844 |
| | — |
| | — |
| | 2,161 |
| | 3,005 |
|
| Balances at December 31, 2019 | | $ | 6,968 |
| | $ | — |
| | $ | — |
| | $ | 6,176 |
| | $ | 13,144 |
|
Significant changes in any assumption input in isolation can result in a significant change in fair value measurement.adjusted. Generally, an increase in the market price of our shares of common stock, an increase in natural gas prices an increaseand a decrease in the volatility of our shares of common stock and an increase in the remaining term of the conversion featureelectric grid prices would each result in a directionally similar changean increase in the estimated fair value of our derivative liability. Increasesliabilities.
Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified as Level 2 financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on our consolidated balance sheets. During the fourth quarter of 2021, we terminated our hedges and recognized $10.8 million of interest expense in such assumption values would increaserelation to the associated liability while decreases in these assumption values would decrease the associated liability. An increaseterminated hedges in the risk-free interest rate or a decreaseconsolidated statement of operations for the year ended December 31, 2021.
Redeemable Convertible Preferred Stock - RCPS are recorded at fair value upon issuance, net of any issuance costs in accordance with ASC 815-40, Contracts in Entity’s Own Equity. For additional information see Note 18 - SK ecoplant Strategic Investment.
We revalued the market price of our shares ofOption to purchase Class A common stock would result in a decrease in the estimatedto its fair value measurementas of December 31, 2021, and thusrecorded a decreaseloss of $3.6 million which is included in other income (expense), net in our consolidated statements of operations. The fair value of the associated liability.Option is reflected in Accrued expenses and other current liabilities in our consolidated balance sheet.
Financial Assets and Liabilities and Other Items Not Measured at Fair Value on a Recurring Basis
Customer Receivables and Debt Instruments - We estimateThe fair value for customer financing receivables is based on a discounted cash flow model, whereby the fair value approximates the present value of the receivables (Level 3). The senior secured notes, term loans and convertible promissory notes are based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| | | Net Carrying
Value | | Fair Value | | Net Carrying
Value | | Fair Value |
| | | | | | | | | |
| Customer receivables | | | | | | | | |
| Customer financing receivables | | $ | 45,269 | | | $ | 38,334 | | | $ | 50,746 | | | $ | 42,679 | |
| Debt instruments | | | | | | | | |
| Recourse: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 10.25% Senior Secured Notes due March 2027 | | 68,968 | | | 72,573 | | | 68,614 | | | 71,831 | |
| 2.5% Green Convertible Senior Notes due August 2025 | | 222,863 | | | 356,822 | | | 99,394 | | | 426,229 | |
| Non-recourse: | | | | | | | | |
| | | | | | | | |
| 7.5% Term Loan due September 2028 | | 29,006 | | | 35,669 | | | 31,746 | | | 37,658 | |
| | | | | | | | |
| 6.07% Senior Secured Notes due March 2030 | | 73,262 | | | 83,251 | | | 77,007 | | | 89,654 | |
| 3.04% Senior Secured Notes due June 2031 | | 132,631 | | | 137,983 | | | — | | | — | |
| LIBOR + 2.5% Term Loan due December 2021 | | — | | | — | | | 114,138 | | | 116,113 | |
| Redeemable convertible preferred stock, Series A | | $ | 208,551 | | | $ | 208,551 | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| | | Net Carrying Value | | Fair Value | | Net Carrying Value | | Fair Value |
| | | | | | | | | |
| Customer receivables: | | | | | | | | |
| Customer financing receivables | | $ | 55,855 |
| | $ | 44,002 |
| | $ | 72,676 |
| | $ | 51,541 |
|
| Debt instruments: | | | | | | | | |
| Recourse | | | | | | | | |
| LIBOR + 4% term loan due November 2020 | | 1,536 |
| | 1,590 |
| | 3,214 |
| | 3,311 |
|
| 5% convertible promissory note due December 2020 | | 36,482 |
| | 32,070 |
| | 34,706 |
| | 31,546 |
|
| 6% convertible promissory notes due December 2020 | | 273,410 |
| | 302,047 |
| | 263,284 |
| | 353,368 |
|
| 10% notes due July 2024 | | 89,962 |
| | 97,512 |
| | 95,555 |
| | 99,260 |
|
| Non-recourse | | | | | | | | |
| 5.22% senior secured notes due March 2025 | | — |
| | — |
| | 78,566 |
| | 80,838 |
|
| 7.5% term loan due September 2028 | | 34,969 |
| | 41,108 |
| | 36,319 |
| | 39,892 |
|
| LIBOR + 5.25% term loan due October 2020 | | — |
| | — |
| | 23,916 |
| | 25,441 |
|
| 6.07% senior secured notes due March 2030 | | 80,016 |
| | 87,618 |
| | 82,337 |
| | 85,917 |
|
| LIBOR + 2.5% term loan due December 2021 | | 120,436 |
| | 120,510 |
| | 123,384 |
| | 123,040 |
|
Long-Lived Assets - Our long-lived assets include property, plant and equipment and Energy Servers capitalized in connection with our Managed Services Program and other similar arrangements. The carrying amounts of our long-lived assets
are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. During the year ended December 31, 2019 we upgraded the 30 megawatts of Energy Servers in PPA II and the 5.4 megawatts of Energy Servers in PPA IIIb by decommissioning these systems and selling and installing new Energy Servers. As a result of these upgrades, the useful lives of all other remaining Energy Servers included within our long-lived assets were reassessed and we concluded that no change in the useful lives or impairment of these remaining Energy Servers was identified in the year ended December 31, 2019. See Note 13, Purchase Power Agreement Programs for further information.
6. Balance Sheet Components
Inventories
The components of inventory consistedconsist of the following (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | |
| Raw materials | | $ | 80,809 | | | $ | 79,090 | |
| Work-in-progress | | 31,893 | | | 29,063 | |
| Finished goods | | 30,668 | | | 33,906 | |
| | $ | 143,370 | | | $ | 142,059 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| | | | | As Restated |
| Raw materials | | $ | 67,829 |
| | $ | 50,856 |
|
| Work-in-progress | | 21,207 |
| | 18,676 |
|
| Finished goods | | 20,570 |
| | 65,733 |
|
| | | $ | 109,606 |
| | $ | 135,265 |
|
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consistedconsist of the following (in thousands):
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| | | | | As Restated |
| Government incentives receivable | | $ | 893 |
| | $ | 1,001 |
|
| Prepaid HW & SW maintenance | | 3,763 |
| | 1,464 |
|
| Receivables from employees | | 6,130 |
| | 5,922 |
|
| Other prepaid expense and other current assets | | 17,282 |
| | 28,360 |
|
| | | $ | 28,068 |
| | $ | 36,747 |
|
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | | |
| | | | |
| Prepaid hardware and software maintenance | | $ | 3,494 | | | $ | 5,227 | |
| Receivables from employees | | 5,463 | | | 5,160 | |
| Other prepaid expenses and other current assets | | 21,704 | | | 20,331 | |
| | $ | 30,661 | | | $ | 30,718 | |
Property, Plant and Equipment, Net
Property, plant and equipment, net, consistedconsists of the following (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | | |
| Energy Servers | | $ | 674,799 | | | $ | 669,422 | |
| Computers, software and hardware | | 21,276 | | | 20,432 | |
| Machinery and equipment | | 110,600 | | | 106,644 | |
| Furniture and fixtures | | 8,607 | | | 8,455 | |
| Leasehold improvements | | 52,936 | | | 37,497 | |
| Building | | 48,934 | | | 46,730 | |
| Construction-in-progress | | 43,544 | | | 21,118 | |
| | 960,696 | | | 910,298 | |
| Less: accumulated depreciation | | (356,590) | | | (309,670) | |
| | $ | 604,106 | | | $ | 600,628 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| | | | | As Restated |
| Energy Servers | | $ | 650,600 |
| | $ | 757,574 |
|
| Computers, software and hardware | | 20,275 |
| | 16,536 |
|
| Machinery and equipment | | 101,650 |
| | 99,209 |
|
| Furniture and fixtures | | 8,339 |
| | 4,337 |
|
| Leasehold improvements | | 35,694 |
| | 18,629 |
|
| Building | | 40,512 |
| | 40,512 |
|
| Construction in progress | | 12,611 |
| | 41,180 |
|
| | | 869,681 |
| | 977,977 |
|
| Less: Accumulated depreciation | | (262,622 | ) | | (261,226 | ) |
| | | $ | 607,059 |
| | $ | 716,751 |
|
Construction in progress decreased $28.6 million from 2018, primarily due to our move to our new corporate headquarters during the first quarter of 2019. After the move was completed, $17.6 million was reclassified to leasehold improvements within property, plant and equipment. In addition, the remaining decrease of $11.0 million was due to acceptances of Energy Servers under our Managed Services sale-leaseback program which are reclassified from construction in progress to Energy Servers within property, plant and equipment upon acceptance.
Depreciation expense related to property, plant and equipment was $78.6 million, $53.1$53.4 million and $54.4$52.2 million for the years ended December 31, 2019, 20182021 and 2017,2020, respectively.
Property, plant and equipment under operating leases by the PPA Entities was $371.4$368.0 million and $397.5$368.0 million as of December 31, 2019 and 2018, respectively. The accumulated depreciation for these assets was $95.5$139.4 million and $77.4$115.9 million as of December 31, 20192021 and 2018, 2020,
respectively. Depreciation expense related to our property, plant and equipment under operating leases by the PPA Entitiesfor these assets was $27.1 million, $25.5$23.5 million and $25.5$23.8 million for the years ended December 31, 2019, 20182021 and 20172020, respectively.
During the year ended December 31, 2019, there was a decommissioning in PPA II, including the replacement during 2019 of 30.0 megawatts of installed Energy Servers with 27.5 megawatts of new systems sold, resulting in product cost of goods sold due to $52.5 million for the write-off of Energy Servers and $78.4 million for the cost of new systems sold, and electricity cost of revenue of $22.6 million of accelerated depreciation charged.
During the year ended December 31, 2019, there was a decommissioning in PPA IIIb, including the replacement during 2019 of 5.0 megawatts of installed Energy Servers, resulting in product cost of goods sold of $18.0 million for the write-off of Energy Servers, and electricity cost of revenue of $1.7 million of accelerated depreciation charged in fourth quarter of 2019 related to the revised expected lives of installed systems, which we recognized in our consolidated statement of operations
See Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers and PPA IIIb Upgrade of Energy Servers for additional information.
Customer Financing Receivable
The components of investment in sales-type financing leases consisted of the following (in thousands):
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Total minimum lease payments to be received | | $ | 76,886 |
| | $ | 100,816 |
|
| Less: Amounts representing estimated executing costs | | (19,931 | ) | | (25,180 | ) |
| Net present value of minimum lease payments to be received | | 56,955 |
| | 75,636 |
|
| Estimated residual value of leased assets | | 890 |
| | 1,051 |
|
| Less: Unearned income | | (1,990 | ) | | (4,011 | ) |
| Net investment in sales-type financing leases | | 55,855 |
| | 72,676 |
|
| Less: Current portion | | (5,108 | ) | | (5,594 | ) |
| Non-current portion of investment in sales-type financing leases | | $ | 50,747 |
| | $ | 67,082 |
|
The future scheduled customer payments from sales-type financing leases were as follows as of December 31, 2019 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter |
| | | | | | | | | | | | | |
| Future minimum lease payments, less interest | | $ | 5,108 |
| | $ | 5,428 |
| | $ | 5,784 |
| | $ | 6,155 |
| | $ | 6,567 |
| | $ | 25,923 |
|
Other Long-Term Assets
Other long-term assets consistedconsist of the following (in thousands):
| | | | | | | | December 31, |
| | | December 31, | | 2021 | | 2020 |
| | | 2019 | | 2018 | | | | | |
| Prepaid insurance | | Prepaid insurance | | $ | 9,534 | | | $ | 11,792 | |
| Deferred commissions | | Deferred commissions | | 7,569 | | | 6,732 | |
| Long-term lease receivable | | Long-term lease receivable | | 7,953 | | | 6,995 | |
| Prepaid and other long-term assets | | Prepaid and other long-term assets | | 14,060 | | | 8,992 | |
| | | | | As Restated | | $ | 39,116 | | | $ | 34,511 | |
| Prepaid and other long-term assets | | $ | 29,153 |
| | $ | 34,093 |
| |
| Deferred commissions | | 5,007 |
| | 1,083 |
| |
| Equity-method investments | | 5,733 |
| | 6,046 |
| |
| Long-term deposits | | 1,759 |
| | 1,660 |
| |
| | | $ | 41,652 |
| | $ | 42,882 |
| |
Accrued Warranty
Accrued warranty liabilities consistedconsist of the following (in thousands):
| | | | | December 31, | | December 31, |
| | | 2019 | | 2018 | | | 2021 | | 2020 |
| | | | | As Restated | | | | | |
| Product warranty | | $ | 2,345 |
| | $ | 3,378 |
| Product warranty | | $ | 961 | | | $ | 1,549 | |
| Product performance | | 7,536 |
| | 6,290 |
| Product performance | | 10,785 | | | 8,605 | |
| Maintenance services contracts | | 453 |
| | 8,300 |
| Maintenance services contracts | | — | | | 109 | |
| | | $ | 10,334 |
| | $ | 17,968 |
| | $ | 11,746 | | | $ | 10,263 | |
Changes in the product warranty and product performance liabilities were as follows (in thousands):
| | | | | |
| Balances at December 31, 2019 | $ | 9,881 | |
| Accrued warranty, net | 5,944 | |
| Warranty expenditures during the year | (5,671) | |
| Balances at December 31, 2020 | 10,154 | |
| Accrued warranty, net | 11,049 | |
| Warranty expenditures during the year-to-date period | (9,457) | |
| Balances at December 31, 2021 | $ | 11,746 | |
|
| | | |
| Balances at December 31, 2016 (As Revised) | $ | 8,082 |
|
| Accrued warranty, net (As Revised) | 5,979 |
|
| Warranty expenditures during period (As Revised) | (6,740 | ) |
| Balances at December 31, 2017 (As Revised) | 7,321 |
|
| Accrued warranty, net (As Restated) | 9,301 |
|
| Warranty expenditures during period (As Restated) | (6,954 | ) |
| Balances at December 31, 2018 (As Restated) | 9,668 |
|
| Cumulative effect upon adoption of ASC 606 | 1,032 |
|
| Accrued warranty, net | 1,849 |
|
| Warranty expenditures during period | (2,668 | ) |
| Balances at December 31, 2019 | $ | 9,881 |
|
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consistedconsist of the following (in thousands):
| | | | | | | | December 31, |
| | | December 31, | | | 2021 | | 2020 |
| | | 2019 | | 2018 | | | | | |
| | | | | As Restated | |
| Compensation and benefits | | $ | 17,173 |
| | $ | 16,742 |
| Compensation and benefits | | $ | 38,222 | | | $ | 28,343 | |
| Current portion of derivative liabilities | | 4,834 |
| | 3,232 |
| Current portion of derivative liabilities | | 6,059 | | | 19,116 | |
| Sales related liabilities | | 416 |
| | 1,421 |
| |
| Sales-related liabilities | | Sales-related liabilities | | 6,040 | | | 14,479 | |
| | Accrued installation | | 10,348 |
| | 6,859 |
| Accrued installation | | 13,968 | | | 16,468 | |
| Sales tax liabilities | | 3,849 |
| | 1,798 |
| Sales tax liabilities | | 1,491 | | | 2,732 | |
| Interest payable | | 3,875 |
| | 4,675 |
| Interest payable | | 2,159 | | | 2,224 | |
| Other | | 29,789 |
| | 32,111 |
| Other | | 46,198 | | | 28,642 | |
| | | $ | 70,284 |
| | $ | 66,838 |
| | $ | 114,138 | | | $ | 112,004 | |
Other Long-Term Liabilities
Other long-term liabilities consistedconsist of the following (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | |
| Delaware grant | | $ | 9,495 | | | $ | 9,212 | |
| Other | | 7,277 | | | 8,056 | |
| | $ | 16,772 | | | $ | 17,268 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| | | | | As Restated |
| Delaware grant | | $ | 10,469 |
| | $ | 10,469 |
|
| Other | | 17,544 |
| | 15,727 |
|
| | | $ | 28,013 |
| | $ | 26,196 |
|
In March 2012, we entered into an agreement withWe recorded a long-term liability for the potential future repayment of the incentive grant received from the Delaware Economic Development Authority to provide a grant of $16.5$9.5 million to usand $9.2 million as an incentive to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. We have received $12.0 million of the grant which is contingent upon us meeting certain milestones related to the construction of the manufacturing facility and the employment of full-time workers at the facility through September 30, 2023. As of December 31, 2019, we have paid $1.5 million in October 2017 for recapture provisions2021 and have recorded $10.5 million in other long-term liabilities for potential repayments.December 31, 2020, respectively. See Note 14, 13 - Commitments and Contingencies for a full description of the grant.
7. Outstanding Loans and Security Agreements
The following is a summary of our debt as of December 31, 20192021 (in thousands)thousands, except percentage data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Net Carrying Value | | | | Interest
Rate | | Maturity Dates | | Entity | | Recourse |
| | | Current | | Long-
Term | | Total | |
| | | | | | | | | | | | | | | | | | |
| 10.25% Senior Secured Notes due March 2027 | | $ | 70,000 | | | $ | 8,348 | | | $ | 60,620 | | | $ | 68,968 | | | | | 10.25% | | March 2027 | | Company | | Yes |
| 2.5% Green Convertible Senior Notes due August 2025 | | 230,000 | | | — | | | 222,863 | | | 222,863 | | | | | 2.5% | | August 2025 | | Company | | Yes |
| Total recourse debt | | 300,000 | | | 8,348 | | | 283,483 | | | 291,831 | | | | | | | | | | | |
| 3.04% Senior Secured Notes due June 30, 2031 | | 134,644 | | | 9,376 | | | 123,255 | | | 132,631 | | | | | 3.04% | | June 2031 | | PPA V | | No |
| 7.5% Term Loan due September 2028 | | 31,070 | | | 3,436 | | | 25,570 | | | 29,006 | | | | | 7.5% | | September
2028 | | PPA IIIa | | No |
| 6.07% Senior Secured Notes due March 2030 | | 73,955 | | | 4,671 | | | 68,591 | | | 73,262 | | | | | 6.07% | | March 2030 | | PPA IV | | No |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Total non-recourse debt | | 239,669 | | | 17,483 | | | 217,416 | | | 234,899 | | | | | | | | | | | |
| Total debt | | $ | 539,669 | | | $ | 25,831 | | | $ | 500,899 | | | $ | 526,730 | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Net Carrying Value | | Unused
Borrowing
Capacity | | Interest
Rate | | Maturity Dates | | Entity | | Recourse |
| | | Current | | Long-
Term | | Total | |
| | | | | | | | | | | | | | | | | | | |
| LIBOR + 4% term loan due November 2020 | | $ | 1,571 |
| | $ | 1,536 |
| | $ | — |
| | $ | 1,536 |
| | $ | — |
| | LIBOR
plus margin | | November 2020 | | Company | | Yes |
| 5% convertible promissory note due December 2020 | | 33,104 |
| | 36,482 |
| | — |
| | 36,482 |
| | — |
| | 5.0% | | December 2020 | | Company | | Yes |
| 6% convertible promissory notes due December 2020 | | 289,299 |
| | 273,410 |
| | — |
| | 273,410 |
| | — |
| | 6.0% | | December 2020 | | Company | | Yes |
| 10% notes due July 2024 | | 93,000 |
| | 14,000 |
| | 75,962 |
| | 89,962 |
| | — |
| | 10.0% | | July 2024 | | Company | | Yes |
| Total recourse debt | | 416,974 |
| | 325,428 |
| | 75,962 |
| | 401,390 |
| | — |
| | | | | | | | |
| 7.5% term loan due September 2028 | | 38,337 |
| | 3,882 |
| | 31,087 |
| | 34,969 |
| | — |
| | 7.5% | | September 2028 | | PPA IIIa | | No |
| 6.07% senior secured notes due March 2030 | | 80,988 |
| | 3,151 |
| | 76,865 |
| | 80,016 |
| | — |
| | 6.1% | | March 2030 | | PPA IV | | No |
| LIBOR + 2.5% term loan due December 2021 | | 121,784 |
| | 5,122 |
| | 115,315 |
| | 120,437 |
| | — |
| | LIBOR plus
margin | | December 2021 | | PPA V | | No |
| Letters of Credit due December 2021 | | — |
| | — |
| | — |
| | — |
| | 1,220 |
| | 2.25% | | December 2021 | | PPA V | | No |
| Total non-recourse debt | | 241,109 |
| | 12,155 |
| | 223,267 |
| | 235,422 |
| | 1,220 |
| | | | | | | | |
| Total debt | | $ | 658,083 |
| | $ | 337,583 |
| | $ | 299,229 |
| | $ | 636,812 |
| | $ | 1,220 |
| | | | | | | | |
The following is a summary of our debt as of December 31, 20182020 (in thousands)thousands, except percentage data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Net Carrying Value | | Unused
Borrowing
Capacity | | Interest
Rate | | Maturity Dates | | Entity | | Recourse |
| | | Current | | Long-
Term | | Total | |
| | | | | | | | | | | | | | | | | | |
| 10.25% Senior Secured Notes due March 2027 | | $ | 70,000 | | | $ | — | | | $ | 68,614 | | | $ | 68,614 | | | $ | — | | | 10.25% | | March 2027 | | Company | | Yes |
| 2.5% Green Convertible Senior Notes due August 2025 | | 230,000 | | | — | | | 99,394 | | | 99,394 | | | — | | | 2.5% | | August 2025 | | Company | | Yes |
| Total recourse debt | | 300,000 | | | — | | | 168,008 | | | 168,008 | | | — | | | | | | | | | |
| 7.5% Term Loan due September 2028 | | 34,456 | | | 2,826 | | | 28,920 | | | 31,746 | | | — | | | 7.5% | | September
2028 | | PPA IIIa | | No |
| 6.07% Senior Secured Notes due March 2030 | | 77,837 | | | 3,882 | | | 73,125 | | | 77,007 | | | — | | | 6.07% | | March 2030 | | PPA IV | | No |
| LIBOR + 2.5% Term Loan due December 2021 | | 114,761 | | | 114,138 | | | — | | | 114,138 | | | — | | | LIBOR plus
margin | | December 2021 | | PPA V | | No |
| Letters of Credit due December 2021 | | — | | | — | | | — | | | — | | | 968 | | | 2.25% | | December 2021 | | PPA V | | No |
| Total non-recourse debt | | 227,054 | | | 120,846 | | | 102,045 | | | 222,891 | | | 968 | | | | | | | | | |
| Total debt | | $ | 527,054 | | | $ | 120,846 | | | $ | 270,053 | | | $ | 390,899 | | | $ | 968 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unpaid Principal Balance | | Net Carrying Value | | Unused Borrowing Capacity | | Interest Rate | | Maturity Dates | | Entity | | Recourse |
| | | Current | | Long- Term | | Total | |
| | | | | | | | | | | | | | | | | | | |
| LIBOR + 4% term loan due November 2020 | | $ | 3,286 |
| | $ | 1,686 |
| | $ | 1,528 |
| | $ | 3,214 |
| | $ | — |
| | LIBOR
plus margin | | November 2020 | | Company | | Yes |
| 5% convertible promissory note due December 2020 | | 33,104 |
| | — |
| | 34,706 |
| | 34,706 |
| | — |
| | 8.0% | | December 2020 | | Company | | Yes |
| 6% convertible promissory notes due December 2020 | | 296,233 |
| | — |
| | 263,284 |
| | 263,284 |
| | — |
| | 6.0% | | December 2020 | | Company | | Yes |
| 10% notes due July 2024 | | 100,000 |
| | 7,000 |
| | 88,555 |
| | 95,555 |
| | — |
| | 10.0% | | July 2024 | | Company | | Yes |
| Total recourse debt | | 432,623 |
| | 8,686 |
| | 388,073 |
| | 396,759 |
| | — |
| | | | | | | | |
| 5.22% senior secured term notes due March 2025 | | 79,698 |
| | 11,994 |
| | 66,572 |
| | 78,566 |
| | — |
| | 5.2% | | March 2025 | | PPA II | | No |
| 7.5% term loan due September 2028 | | 40,538 |
| | 2,200 |
| | 34,119 |
| | 36,319 |
| | — |
| | 7.5% | | September 2028 | | PPA IIIa | | No |
| LIBOR + 5.25% term loan due October 2020 | | 24,723 |
| | 827 |
| | 23,089 |
| | 23,916 |
| | — |
| | LIBOR
plus margin | | October 2020 | | PPA IIIb | | No |
| 6.07% senior secured notes due March 2030 | | 83,457 |
| | 2,469 |
| | 79,868 |
| | 82,337 |
| | — |
| | 6.1% | | March 2030 | | PPA IV | | No |
| LIBOR + 2.5% term loan due December 2021 | | 125,456 |
| | 3,672 |
| | 119,712 |
| | 123,384 |
| | — |
| | LIBOR plus
margin | | December 2021 | | PPA V | | No |
| Letters of Credit due December 2021 | | — |
| | — |
| | — |
| | — |
| | 1,220 |
| | 2.25% | | December 2021 | | PPA V | | No |
| Total non-recourse debt | | 353,872 |
| | 21,162 |
| | 323,360 |
| | 344,522 |
| | 1,220 |
| | | | | | | | |
| Total debt | | $ | 786,495 |
| | $ | 29,848 |
| | $ | 711,433 |
| | $ | 741,281 |
| | $ | 1,220 |
| | | | | | | | |
Recourse debt refers to debt that Bloom Energy Corporation haswe have an obligation to pay. Non-recourse debt refers to debt that is recourse to only specified assets or our subsidiaries. The differences between the unpaid principal balances and the net carrying values apply to debt discounts and deferred financing costs. We and all of our subsidiaries were in compliance with all financial covenants as of December 31, 20192021 and 2018.December 31, 2020.
Recourse Debt Facilities
LIBOR + 4% Term Loan10.25% Senior Secured Notes due NovemberMarch 2027 - On May 1, 2020, - In May 2013, we issued $70.0 million of 10.25% Senior Secured Notes in a private placement ("10.25% Senior Secured Notes"). The 10.25% Senior Secured Notes are governed by an indenture (the “Senior Secured Notes Indenture”) entered into among us, the guarantor party thereto and U.S. Bank National Association, in its capacity as trustee and collateral agent. The 10.25% Senior Secured Notes are secured by certain of our operations and maintenance agreements that previously were part of the security for the 6% Convertible Notes. The 10.25% Senior Secured Notes are supported by a $5.0$150.0 million credit agreementindenture between us and U.S. Bank National Association, which contained an accordion feature for an additional $80.0 million of notes that could be issued on or prior to September 27, 2021. We chose not to exercise this accordion feature, which has now expired.
Interest on the 10.25% Senior Secured Notes is payable quarterly, commencing June 30, 2020. The 10.25% Senior Secured Notes Indenture contains customary events of default and covenants relating to, among other things, the incurrence of new debt, affiliate transactions, liens and restricted payments. On or after March 27, 2022, we may redeem all of the 10.25% Senior Secured Notes at a $12.0 million financing agreementprice equal to help fund108% of the buildingprincipal amount of the 10.25% Senior Secured Notes plus accrued and unpaid interest, with such optional redemption prices decreasing to 104% on and after March 27, 2023, 102% on and after March 27, 2024 and 100% on and after March 27, 2026. Before March 27, 2022, we may redeem the 10.25% Senior Secured Notes upon repayment of a new facility in Newark, Delaware. The $5.0 million credit agreement expired in December 2016. The $12.0 million financing agreement hasmake-whole premium. If we experience a termchange of 90 months, payable monthlycontrol, we must offer to purchase for cash all or any part of each holder’s 10.25% Senior Secured Notes at a variable ratepurchase price equal to one month LIBOR101% of the principal amount of the 10.25% Senior Secured Notes, plus accrued and unpaid interest. The non-current balance of the applicable margin. The weighted average interest rateoutstanding unpaid principal of the 10.25% Senior Secured Notes was $61.7 million as of December 31, 2019 and 2018 was 6.3% and 5.9%, respectively.2021. The loan requires monthly payments and is secured by the manufacturing facility. In addition, the credit agreements also include a cross-default provision which provides that the remainingcurrent balance of borrowings under the agreements will be due and payable immediately if a lien is placed onoutstanding unpaid principal of the Newark facility in the event we default on any indebtedness in excess of $100,000 individually or $300,000 in the aggregate. Under the terms of these credit agreements, we are required to comply with various restrictive covenants. As10.25% Senior Secured Notes was $8.3 million as of December 31, 2019 and 2018,2021.
2.5% Green Convertible Senior Notes due August 2025 - In August 2020, we issued $230.0 million aggregate principal amount of our 2.5%Green Convertible Senior Notes due August 2025 (the "Green Notes"), unless earlier repurchased, redeemed or converted. The principal amount of the unpaid principal balanceGreen Notes are $230.0 million, less initial purchaser's discount of debt outstanding was $1.6$6.9 million and $3.3other issuance costs of $3.0 million respectively.resulting in net proceeds of $220.1 million.
5% Convertible PromissoryThe Green Notes due 2020 (Originally 8% Convertible Promissory Notes due December 2018) - Between December 2014 and June 2016, we issued $193.2 million of three-year convertible promissory notes ("8% Notes") to certain investors. The 8% Notes hadare senior, unsecured obligations accruing interest at a fixed interest rate of 8% compounded monthly, due at maturity or at the election of the investor with accrued interest due2.5% per annum, payable semi-annually in Decemberarrears on February 15 and August 15 of each year.year, beginning on February 15, 2021.
On January 18, 2018, amendments were finalizedWe may not redeem the Green Notes prior to extend the maturity dates forAugust 21, 2023. We may elect to redeem, at face value, all the 8% Notes to December 2019. At the same time, theor any portion of the notes that was held by Constellation NewEnergy, Inc. ("Constellation") was extended to December 2020Green Notes at any time on or after August 21, 2023 and on or before the interest rate decreased from 8% to 5% ("5% Notes").twenty-sixth trading day immediately before the maturity date, provided certain conditions are met.
Investors heldBefore May 15, 2025, the noteholders have the right to convert their Green Notes only upon the unpaid principal and accrued interestoccurrence of bothcertain events, including a conversion upon satisfaction of a condition relating to the 8% Notes and 5% Notes to Series G convertible preferred stock at any time at the price of $38.64 per share. In July 2018, upon our IPO, the $221.6 million of
principal and accrued interest of outstanding 8% Notes automatically converted into additional paid-in capital, the conversion of which included all the related-party noteholders. The 8% Notes converted to shares of Series G convertible preferred stock and, concurrently, each such share of Series G convertible preferred stock converted automatically into one share of Class B common stock. Upon our IPO, conversions of 5,734,440 shares of Class B common stock were issued and the 8% Notes were retired. Constellation, the holder of the 5% Notes, have not elected to convert as of December 31, 2019. The outstanding unpaid principal and accrued interest debt balance of the 5% Notes of $36.5 million was classified as current as of December 31, 2019, and the outstanding unpaid principal and accrued interest debt balances of the 5% Notes of $34.7 million was classified as non-current as of December 31, 2018.
6% Convertible Promissory Notes due December 2020 - Between December 2015 and September 2016, we issued $260.0 million convertible promissory notes due December 2020, ("6% Notes") to certain investors. The 6% Notes bore a 5.0% fixed interest rate, payable monthly either in cash or in kind, at our election. We amended the terms of the 6% Notes in June 2017 to increase the interest rate from 5% to 6% and to reduce the collateral securing the notes.
As of December 31, 2019 and 2018, the amount outstanding on the 6% Notes, which includes interest paid in kind through the IPO date, was $289.3 million and $296.2 million, respectively. Upon our IPO, the debt is convertible at the option of the holders at the conversion price of $11.25 per share into common stock at any time through the maturity date. In January 2018, we amended the terms of the 6% Notes to extend the convertible put option, which investors could elect only if the IPO did not occur prior to December 2019. After the IPO, we paid the interest in cash when due and no additional interest accrued on the consolidated balance sheet on the 6% Notes. In November 2019, one note holder exchanged a portion of their 6% Notes at the conversion price of $11.25 per share into 616,302 shares of common stock.
On or after July 27, 2020, we may redeem, at our option, all or part of the 6% Notes if the last reported saleclosing price of our common stock has been at least $22.50 for("the Closing Price Condition"). If the Closing Price Condition is met on at least 20 trading days (whether or not consecutive) during a period of the last 30 consecutive trading days ending withinin any quarter, the noteholders may convert their Green Notes at any time during the immediately following quarter. The Closing Price Condition was not met during the three months ended September 30, 2021 and accordingly, the noteholders may not convert their Green Notes at any time during the quarter ending December 31, 2021. From and after May 15, 2025, the noteholders may convert their Green Notes at any time at their election until the close of business on the second trading daysday immediately precedingbefore the date on which we provide written notice of redemption In certain circumstances,maturity date. Should the 6% Notes are also redeemable at our option in connection with a change of control.
Under the terms of the indenture governing the 6%noteholders elect to convert their Green Notes, we are requiredmay elect to comply with various restrictive covenants, including meeting reporting requirements, suchsettle the conversion by paying or delivering, as the preparation and deliveryapplicable, cash, shares of audited consolidated financial statements, and restrictions on investments. In addition, we are required to maintain collateral which secures the 6% Notes in an amount equal to 200%our Class A common stock or a combination thereof.
The initial conversion rate is 61.6808 shares of theClass A common stock per $1,000 principal amount of notes, which represents an initial conversion price of approximately $16.21 per share of Class A common stock. The conversion rate and accruedconversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” as defined occur, the conversion rate will, in certain circumstances, be increased for a specified period of time.
We adopted ASU 2020-06 as of January 1, 2021 using the modified retrospective transition method. Upon adoption, we combined the previously separated equity component of the Green Notes with the liability component, which is now together classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was reclassified to debt and unpaidamortized as interest expense. Accordingly, we recorded a net decrease to accumulated deficit of $5.3 million, a decrease to additional paid-in capital of $126.8 million, and an increase to recourse debt, non-current, of approximately $121.5 million upon adoption as of January 1, 2021.
Interest on the outstanding notes. This minimum collateral test is not a negative covenant and does not result in a default if not met. However,Green Notes for the minimum collateral test does restrict us with respect to investing in non-PPA subsidiaries. If we do not meet the minimum collateral test, we cannot invest cash into any non-PPA subsidiary that is not a guarantor of the notes. The 6% Notes also include a cross-acceleration provision which provides that the holders of at least 25% of the outstanding principal amount of the 6% Notes may cause such notes to become immediately due and payable if we or any of our subsidiaries default on any indebtedness in excess of $15.0 million such that the repayment of such indebtedness is accelerated.
10% Notes due July 2024 - In June 2017, we issued $100.0 million of senior secured notes ("10% Notes"). The 10% Notes mature in 2024 and bear a 10.0% fixed rate of interest and with principal amortization started July 2019, payable semi-annually. The 10% Notes have a continuing security interest in the cash flows payable to us as servicing, operations and maintenance fees and administrative fees from certain active power purchase agreements in our Bloom Electrons program. Under the terms of the indenture governing the notes, we are required to comply with various restrictive covenants including, among other things, to maintain certain financial ratios such as debt service coverage ratios, to incur additional debt, issue guarantees, incur liens, make loans or investments, make asset dispositions, issue or sell share capital of our subsidiaries and pay dividends, meet reporting requirements, including the preparation and delivery of audited consolidated financial statements, or maintain certain restrictions on investments and requirements in incurring new debt. In addition, we are required to maintain collateral which secures the 10% Notes based on debt ratio analyses. This minimum collateral test is not a negative covenant and does not result in a default if not met. However, the minimum debt service coverage ratio test does restrict our access to the excess cash escrowed in a collection account which would otherwise be released to us on a bi-annual basis after principal amortization and interest payment. The outstanding unpaid principal and accrued interest debt balance of the 10% Notes of $14.0 million and $7.0 million were classified as current as ofyear ended December 31, 2019 and 2018, respectively and2021 was $7.7 million, including amortization of issuance costs of $2.0 million. Interest expense for the outstanding unpaid principal and accrued interest debt balances of the 10% Notes of $76.0 million and $88.6 million were classified as non-current as ofyear ended December 31, 2019 and 2018, respectively.2020 was $2.9 million, including amortization of issuance costs of $0.8 million.
Non-recourse Debt Facilities
5.22% Senior Secured Term Notes - In March 2013, PPA Company II refinanced its existing debt by issuing 5.22%3.04% Senior Secured Notes due March 30, 2025. The totalJune 2031 -In November 2021, PPA V issued senior secured notes in an aggregate principal amount of $136.0 million due June 2031. The note bears a fixed rate of 3.04% per annum payable quarterly. The proceeds from the loan proceeds was $144.8 million,3.04% Senior Secured Notes due June 2031 were utilized to (i) repay all obligations of the existing LIBOR + 2.5% Term Loan due December 2021, including $28.8 million to repayan outstanding principal balance of existing debt, $21.7$109.1 million, for debt service reservesaccrued interest of $0.1 million, and transaction costs and $94.3fees required to terminate associated interest rate swaps of $11.5 million, to fund(ii) pay the remaining system purchases. In June 2019, as part ofrequired premium for the PPA II upgradeV production insurance of Energy Servers, we paid off$6.5 million, (iii) and pay related fees and expenses related to the outstanding debt and interestrefinancing totaling $2.1 million, resulting in a net cash flow of these notes for the outstanding amount of $77.6$6.7 million. The Note Purchase Agreement requirednote purchase agreement requires us to maintain a debt service reserve, the balance of $11.2 million which was written off in June 2019 and was $11.2$8.0 million as of December 31, 2018,2021, which was included as part of long-term restricted cash in the consolidated balance sheets. The loan is secured by all assets of PPA V.
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreement to help fund the purchase and installation of our Energy Servers. The loan bears a fixed interest rate of 7.5% payable quarterly. The loan requires quarterly principal payments, which began in March 2014. The credit agreement requires us to maintain a debt service reserve for all funded systems, the balance of which was $3.8$3.6 million and $3.7$3.8 million as of December 31, 20192021 and 2018,2020, respectively, and which was included as part of long-term restricted cash in the consolidated balance sheets. The loan is secured by all assets of PPA IIIa.
LIBOR + 5.25% Term Loan6.07% Senior Secured Notes due October 2020March 2030 - In September 2013, PPA IIIb entered intoThe notes bear a creditfixed interest rate of 6.07% per annum payable quarterly, which began in December 2015 and ends in March 2030. The note purchase agreement to help fund the purchase and installation of our Energy Servers. In accordance with that agreement, PPA IIIb issued floating rate debt based on LIBOR plus a margin of 5.2%, paid quarterly. The aggregate amount of the debt facility was $32.5 million. In December 2019, as part of the PPA IIIa upgrade of Energy Servers, we paid off the outstanding debt and interest of these notes for the outstanding amount of $24.2 million. The credit agreement requiredrequires us to maintain a debt service reserve, for all funded systems, the balance of which was $1.8$9.1 million which was written off in December 2019 and was $1.7$8.5 million as of December 31, 20182021 and 2020, respectively, which was included as part of long-term restricted cash in the consolidated balance sheets.
6.07% Senior Secured Notes due March 2025 - In July 2014, PPA IV issued senior secured notes amounting to $99.0 million to third parties to help fund the purchase and installation of our Energy Servers. The notes bear a fixed interest rate of 6.07% payable quarterly which began in December 2015 and ends in March 2030. The notes are secured by all the assets of the PPA IV. The Note Purchase Agreement requires us to maintain a debt service reserve, the balance of which was $8.0 million as of December 31, 2019 and $7.5 million as of December 31, 2018, and which was included as part of long-term restricted cash in the consolidated balance sheets.
LIBOR + 2.5% Term Loan due December 2021 - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of our Energy Servers. The lenders are a group of five financial institutions and the terms included commitments to a letter of credit ("LC") facility (see below).term loan due December 2021. The loan was initially advanced as a construction loan duringsecured by all the developmentassets of the PPA V Project and converted into a term loan on February 28, 2017 (the “Term Conversion Date”). As part of the term loan’s conversion, the LC facility commitments were adjusted.
required quarterly principal payments which began in March 2017. In accordance with the credit agreement, PPA V was issued a floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. For the Lenders’lenders’ commitments to the loan and the commitments to the LC loan,a letter of credit facility, the PPA V also payspaid commitment fees at 0.50%0.5% per annum over the outstanding commitments, paid quarterly. The loan is secured by all the assets of the PPA V and requires quarterly principal payments which began in March 2017. In connection with the floating-rate credit agreement, in July 2015, the PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.
Letters of Credit due December 2021 - In June 2015, PPA V entered into a $131.2 million term loan due December 2021. The agreement also included commitments to a LCletter of credit facility with the aggregate principal amount of $6.4 million, later adjusted down to $6.2 million. TheIn November 2021, PPA V issued 3.04% Senior Secured Notes due June 2031 in an aggregate principal amount reservedof $136.0 million due June 2031, the proceeds of which were primarily utilized to pay all obligations under the letter of credit as ofLIBOR + 2.5% Term Loan due December 31, 2019 and 2018 was $5.0 million. The unused capacity as of December 31, 2019 and 2018 was and $1.2 million and $1.2 million, respectively.
Related Party Debt
Portions of the above described recourse and non-recourse debt are held by various related parties. See Note 16, Related Party Transactions for a full description.
2021.
Repayment Schedule and Interest Expense
The following table presents detaildetails of our entire outstanding loan principal repayment schedule as of December 31, 20192021 (in thousands):
| | | 2020 | $ | 350,129 |
| |
| 2021 | 139,370 |
| |
| 2022 | 26,046 |
| 2022 | $ | 25,831 | |
| 2023 | 29,450 |
| 2023 | 32,430 | |
| 2024 | 35,941 |
| 2024 | 36,369 | |
| 2025 | | 2025 | 270,613 | |
| 2026 | | 2026 | 44,870 | |
| Thereafter | 77,147 |
| Thereafter | 129,556 | |
| | $ | 658,083 |
| | $ | 539,669 | |
Interest expense of $94.2 million, $105.9$69.0 million and $124.3$78.8 million for the years ended December 31, 2019, 20182021 and 2017,2020, respectively, was recorded in interest expense on the consolidated statements of operations. This interest expense includes interest expense - related parties of $2.5 million for the year ended December 31, 2020. We did not incur any interest expense - related parties during the year ended December 31, 2021.
8. Derivative Financial Instruments
Option to acquire a variable number of shares of Class A Common Stock (Note 18)
In December 2021, we provided SK ecoplant with an option to acquire a variable number of shares of Class A Common Stock (the “Option”). We concluded that the Option is a freestanding financial instrument that should be separately recorded at fair value on the date the SPA was executed. We determined the fair value of the Option on that date to be $9.6 million. We revalued the Option to its fair value of $13.2 million as of December 31, 2021, and recorded a loss of $3.6 million which is included in other income (expense), net in our consolidated statements of operations. The fair value of the Option is reflected in accrued expenses and other current liabilities in our consolidated balance sheet. For additional information, see Note 18 - SK ecoplant Strategic Investment.
Interest Rate Swaps
We use various financial instruments to minimize the impact of variable market conditions on our results of operations. We use interest rate swaps to minimize the impact of fluctuations of interest rate changes on our outstanding debt where LIBOR is applied. We do not enter into derivative contracts for trading or speculative purposes.
The fair values of the derivatives designated as cash flow hedges as of December 31, 20192021 and 2018December 31, 2020 on our consolidated balance sheets wereare as follows (in thousands): |
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| Assets | | | | |
| Prepaid expenses and other current assets | | $ | 3 |
| | $ | 42 |
|
| Other long-term assets | | — |
| | 40 |
|
| | | $ | 3 |
| | $ | 82 |
|
| | | | | |
| Liabilities | | | | |
| Accrued expenses and other current liabilities | | $ | 782 |
| | $ | 4 |
|
| Derivative liabilities | | 8,459 |
| | 3,626 |
|
| | | $ | 9,241 |
| | $ | 3,630 |
|
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Liabilities | | | | |
| | | | |
| Accrued expenses and other current liabilities | | $ | — | | | $ | 15,989 | |
| | | | |
| | | | |
PPA Company IIIb - In September 2013, PPA IIIb entered into an interest rate swap arrangement to convert a variable interest rate debt to a fixed rate. We designated and documented its interest rate swap arrangement as a cash flow hedge. The swap’s term ends on October 1, 2020, which is concurrent with the final maturity of the debt floating interest rates reset on a quarterly basis. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swap were zero, $24.7 million and $25.6 million as of December 31, 2019, 2018 and 2017 respectively. We measure the swap at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk.
We recorded a loss of $82,000, a loss of $68,000 and a loss of $64,000 during the years ended December 31, 2019, 2018 and 2017, respectively, attributable to the change in swap’s fair value. These gains and losses were included in other income (expense), net in the consolidated statement of operations.
Pursuant to the PPA IIIb upgrade of Energy Servers, the debt was paid off along with any interest accrued and the interest swap was settled for $0.2 million in 2019 and recorded to interest expense in the consolidated statement of operations.
PPA Company V - In July 2015, PPA Company V entered into nine9 interest rate swap agreements to convert a variable interest rate debt to a fixed rate. The loss on the swaps prior to designation was recorded in current-period earnings. In July 2015,rate and we designated and documented itsthe interest rate swap arrangements as cash flow hedges. ThreeNaN of these swaps matured in 2016, three will3 were to mature on December 21,31, 2021 and the remaining three will3 were to mature on SeptemberJune 30, 2031. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change wasis recorded in accumulated other
comprehensive income (loss)loss and wasis recognized as interest expense on settlement. The notional amounts of the swaps were $184.2 million, $186.6 millionare none and $188.5$181.4 million as of December 31, 2019, 20182021 and 2017,December 31, 2020, respectively. During 2021, the variable rate debts were refinanced into fixed rate debt and there was no notational amount as the swaps were settled.
We measuremeasured the swaps at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk. We recorded a gain of $0.2 million, a gain of $0.1 million and a gain of $0.1 millionrealized immaterial gains attributable to the change in valuation during the years ended December 31, 2019, 20182021 and 2017, respectively. These2020, and these gains wereare included in other income (expense),expense, net, in the consolidated statementstatements of operations. Upon settlement of the interest rate swaps in November 2021, we paid $11.5 million in breakage fees to terminate the interest rate swap contracts, and we recognized interest expense of $10.9 million on interest rate swaps settlements in our consolidated statements of operations.
The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive income (loss)loss and in earnings wereare as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, | | |
| | | | | | 2021 | | 2020 | | | | |
| Beginning balance | | | | | | $ | 15,989 | | | $ | 9,238 | | | | | |
| Loss (gain) recognized in other comprehensive loss | | | | | | (2,714) | | | 8,465 | | | | | |
| Amounts reclassified from other comprehensive loss to earnings | | | | | | (12,529) | | | (1,569) | | | | | |
| Net loss (gain) recognized in other comprehensive loss | | | | | | (15,243) | | | 6,896 | | | | | |
| Gain recognized in earnings | | | | | | (746) | | | (145) | | | | | |
| Ending balance | | | | | | $ | — | | | $ | 15,989 | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | |
| | | Year ended December 31, |
| | | 2019 | | 2018 |
| Beginning balance | | $ | 3,548 |
| | $ | 5,852 |
|
| Loss (gain) recognized in other comprehensive loss | | 6,131 |
| | (1,729 | ) |
| Amounts reclassified from other comprehensive loss to earnings | | (216 | ) | | (369 | ) |
| Net loss (gain) recognized in other comprehensive income (loss) | | 5,915 |
| | (2,098 | ) |
| Gain recognized in earnings | | (225 | ) | | (206 | ) |
| Ending balance | | $ | 9,238 |
| | $ | 3,548 |
|
| | | | | |
Natural Gas Derivatives
On September 1, 2011, we entered into a natural gas fixed price forward contract with a gas supplier. This fuel forward contract is used as part of our program to manage the risk for controlling the overall cost of natural gas. Our PPA I is the only PPA Company for which natural gas was provided by us. This fuel forward contract meets the definition of a derivative under U.S. GAAP. We have not elected to designate this contract as a hedge and, accordingly, any changes in its fair value is recorded within cost of revenue in the statements of operations. The fair value of the contract is determined using a combination of factors including the counterparty’s credit rate and estimates of future natural gas prices.
For the years ended December 31, 2019, 2018 and 2017, we marked-to-market the fair value of our natural gas fixed price forward contract and recorded a loss of $0.8 million, a gain of $2.2 million and a loss of $1.0 million, respectively. For the years ended December 31, 2019, 2018 and 2017, we recorded gains of $3.6 million, $3.4 million and $4.2 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the consolidated statement of operations.
Embedded Derivatives
6% Convertible Promissory Notes - On December 15, 2015, January 29, 2016, and September 10, 2016, we issued $160.0 million, $25.0 million, and $75.0 million, respectively, of 6% Convertible Promissory Notes ("6% Notes") that mature in December 2020. The 6% Notes were contractually convertible at the option of the holders at a conversion price per share equal to the lower of $20.61 or 75% of the offering price of our common stock sold in an initial public offering. Upon the IPO, the options were convertible at the option of the holders at the conversion price of $11.25 per share.
The valuation of this embedded put feature was recorded as a derivative liability in the consolidated balance sheet, measured each reporting period. Fair value was determined using the binomial lattice method. We recorded a gain of $31.5 million and a loss of $18.2 million attributable to the change in valuation for the years ended December 31, 2018 and 2017, respectively. These gains and losses were included within loss on revaluation of warrant liabilities and embedded derivatives in the consolidated statement of operations. Upon the IPO, the final valuation of the conversion feature was calculated as of the date of the IPO and was reclassified from a derivative liability to additional paid-in capital. The fair value of the embedded derivatives within the notes was $178.0 million upon reclassification.
Embedded EPP Derivatives in Sales Contracts -
We estimatedestimate the fair value of the embedded EPP derivatives in certain salesof the contracts with our customers using a Monte Carlo simulation model, which considers various potential electricity price forward curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. The grid pricing Escalation Protection Plan ("EPP")EPP guarantees that we provided in some of our sales arrangements represent an embedded derivative, with the initial value accounted for as a reduction in product revenue and any changes, reevaluated quarterly, in the fair market value of the derivative recorded in other income (expense), net. We recorded a lossgain (loss) on revaluation of $2.2 million, a gain of $0.2 million and a loss of $0.3 million attributable to the change in fair value forembedded derivatives. For the years ended December 31, 2019, 20182021 and 2017,2020, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized loss of $0.9 million and an unrealized gain of $0.6 million, respectively. These gains and losses wereare included within loss on revaluation of warrant
liabilities and embedded derivatives in the consolidated statements of operations. The fair value of these derivatives was $6.2 million, $4.0$6.5 million and $4.2$5.5 million as of December 31, 2019, 20182021 and 2017,2020, respectively.
9. Common Stock WarrantsLeases
Common Stock WarrantsFacilities, Energy Servers, and Vehicles
During 2018, allWe lease most of our facilities, Energy Servers, and vehicles under operating and finance leases that expire at various dates through February 2036. We lease various manufacturing facilities in California and Delaware. Our Sunnyvale, California manufacturing facility lease was entered into in April 2005 and expires in December 2023. In June 2020 and in March 2021, we signed leases in Fremont, California that will expire in 2027 and 2036, respectively, to replace our manufacturing facilities in Sunnyvale and Mountain View, California. These existing plants in California together comprise approximately 581,000 square feet of space. In 2021, we extended the lease term for our headquarters in San Jose, California to 2031 and leased three additional floors. We lease additional office space as field offices in the United States and around the world including in China, India, Japan, the Republic of Korea, Taiwan and the United Arab Emirates.
Some of these arrangements have free rent periods or escalating rent payment provisions. We recognize lease cost under such arrangements on a straight-line basis over the life of the preferredleases. For the years ended December 31, 2021 and common stock warrants2020, rent expense for all occupied facilities was $16.0 million and $9.9 million, respectively.
At inception of the contract, we issuedassess whether a contract is a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in connectionexchange for consideration. Lease classification, measurement, and recognition are determined at lease commencement, which is the date the underlying asset is available for use by us. The accounting classification of a lease is based on whether the arrangement is effectively a financed purchase of the underlying asset (financing lease) or not (operating lease). Our operating leases are comprised primarily of leases for facilities, office buildings, and vehicles, and our financing leases are comprised primarily of vehicles.
Our leases have lease terms ranging from less than 1 year to 15 years, some of which include options to extend the leases. The lease term is the non-cancelable period of the lease and includes options to extend the lease when it is reasonably certain that an option will be exercised.
Lease liabilities are measured at the lease commencement date as the present value of future lease payments. Lease right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future lease payments, the discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. In computing our lease liabilities, we use the incremental borrowing rate based on the information available on the commencement date using an estimate of company-specific rate in the United States on a collateralized basis and consistent with loan agreementsthe lease term for each lease. The lease term is the non-cancelable period of the lease and a dispute settlement convertedincludes options to warrants to purchase shares of Class B common stock. Asextend or terminate the lease when it is reasonably certain that an option will be exercised.
Operating and financing lease right-of-use assets and lease liabilities for facilities, Energy Servers, and vehicles as of December 31, 2019, we had Class B common stock warrants outstanding to purchase 481,1812021 and 12,940 shares of Class B common stock at exercise prices of $27.78 and $38.64, respectively. As of December 31, 2018, we had Class B common stock warrants outstanding to purchase 481,181 and 312,939 shares of Class B common stock at exercise prices of $27.78 and $38.64, respectively.
10. Income Taxes
The components of income (loss) before the provision for income taxes are2020 were as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Assets: | | | | |
Operating lease right-of-use assets, net 1, 2 | | $ | 106,660 | | | $ | 35,621 | |
Financing lease right-of-use assets, net 2, 3, 4 | | 2,944 | | | 334 | |
| Total | | $ | 109,604 | | | $ | 35,955 | |
| | | | |
Liabilities: | | | | |
| Current: | | | | |
| Operating lease liabilities | | $ | 13,101 | | | $ | 7,899 | |
Financing lease liabilities 5 | | 863 | | | 74 | |
| Total current lease liabilities | | 13,964 | | | 7,973 | |
| | | | |
| Non-current: | | | | |
| Operating lease liabilities | | 106,187 | | | 41,849 | |
Financing lease liabilities 6 | | 2,157 | | | 267 | |
| Total non-current lease liabilities | | 108,344 | | | 42,116 | |
| | | | |
| Total lease liabilities | | $ | 122,308 | | | $ | 50,089 | |
1 These assets primarily include leases for facilities, Energy Servers and vehicles.
2 Net of accumulated amortization.
3 These assets primarily include leases for vehicles.
4 Included in property, plant and equipment, net, in the consolidated balance sheets, net of accumulated amortization.
5 Included in accrued expenses and other current liabilities in the consolidated balance sheets.
6 Included in other long-term liabilities in the consolidated balance sheets.
The components of our facilities, Energy Servers, and vehicles' lease costs for the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 |
| Operating lease costs | | | | | | $ | 15,850 | | | $ | 9,804 | |
| Financing lease costs: | | | | | | | | |
| Amortization of financing lease right-of-use assets | | | | | | 1,345 | | | 51 | |
| Interest expense for financing lease liabilities | | | | | | 349 | | | 16 | |
| Total financing lease costs | | | | | | 1,694 | | | 67 | |
| | | | | | | | |
| Short-term lease costs | | | | | | 407 | | | 613 | |
| | | | | | | | |
| Total lease costs | | | | | | $ | 17,951 | | | $ | 10,484 | |
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | As Restated | | As Revised |
| United States | | $ | (324,467 | ) | | $ | (291,574 | ) | | $ | (297,473 | ) |
| Foreign | | 1,634 |
| | 1,835 |
| | 3,081 |
|
| Total | | $ | (322,833 | ) | | $ | (289,739 | ) | | $ | (294,392 | ) |
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Remaining lease term (years): | | | | |
| Operating leases | | 8.9 years | | 6.7 years |
| Finance leases | | 3.5 years | | 4.2 years |
| | | | |
| Discount rate: | | | | |
| Operating leases | | 9.6 | % | | 8.7 | % |
| Finance leases | | 7.6 | % | | 7.0 | % |
Future lease payments under lease agreements for our facilities, Energy Servers and vehicles as of December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| 2022 | | $ | 13,153 | | | $ | 948 | |
| 2023 | | 14,994 | | | 944 | |
| 2024 | | 13,500 | | | 771 | |
| 2025 | | 13,524 | | | 301 | |
| 2026 | | 13,061 | | | 83 | |
| Thereafter | | 61,636 | | | — | |
| Total minimum lease payments | | 129,868 | | | 3,047 | |
| Less: amounts representing interest or imputed interest | | (10,581) | | | (26) | |
| Present value of lease liabilities | | $ | 119,287 | | | $ | 3,021 | |
Managed Services and Portfolio Financings Through PPA Entities
Certain of our customers enter into Managed Services or Portfolio Financings through a PPA Entity to finance their lease of Bloom Energy Servers. Prior to our adoption of ASC 842 as of January 1, 2020, such arrangements with customers that qualified as leases were classified as either sales-type leases or operating leases. For all pre-existing Managed Services Financings or Portfolio Financings through PPA Entities, we have carried over the accounting classifications for those transactions and continue to account for such transactions as either sales-type leases or operating leases under ASC 842. Customer arrangements under Managed Services and Portfolio Financings through PPA Entities entered into after January 1, 2021 do not contain a lease under ASC 842 and are accounted for under ASC 606 as revenue arrangements.
Lease agreements under our Managed Services Financings and Portfolio Financings through PPA Entities include non-cancellable lease terms, during which terms the majority of our investment in Energy Servers under lease are typically recovered. We mitigate remaining residual value risk of its Energy Servers through its provision of maintenance on the Energy Servers during the lease term and through insurance whose proceeds are payable in the event of theft, loss, damage, or destruction.
Managed Services - Our Managed Services Financings with financiers that result in failed sale-and-leaseback transactions are accounted for as financing transactions. Payments received from the financier are recognized as financing obligations in our consolidated balance sheets. Proceeds from the financiers in excess of fair value of Energy Servers under successful sale-and-leaseback transactions are also accounted for as financing liability. These financing obligations are included in each agreements' contract value and are recognized as short-term or long-term liabilities based on the estimated payment dates. The provisionlease agreements expire on various dates through 2034. For successful sale-and-leaseback transactions, we recorded right-of-use assets and lease liabilities and recorded lease expense over the lease term. The recognized lease expense has been immaterial.
We recognized $35.1 million of product revenue, $20.9 million of installation revenue, $10.0 million of financing obligations, and $29.4 million of right-of-use assets and lease liabilities from such successful sale and leaseback transactions for income taxes is comprisedthe year ended December 31, 2021.
At December 31, 2021, future lease payments under the Managed Services Agreements financing obligations and the sublease payments from the customers under the related operating leases were as follows (in thousands):
| | | | | | | | | | |
| | Financing Obligations | | |
| 2022 | | $ | 45,117 | | | |
| 2023 | | 44,173 | | | |
| 2024 | | 42,100 | | | |
| 2025 | | 41,075 | | | |
| 2026 | | 36,477 | | | |
| Thereafter | | 55,780 | | | |
| Total lease payments | | 264,722 | | | |
| Less: imputed interest | | (149,240) | | | |
| Total lease obligations | | 115,482 | | | |
| Less: current obligations | | (14,721) | | | |
| Long-term lease obligations | | $ | 100,761 | | | |
The long-term financing obligations, as reflected in our consolidated balance sheets, were $461.9 million and $460.0 million as of December 31, 2021 and 2020, respectively. The difference between these obligations and the principal obligations in the table above will be offset against the carrying value of the related Energy Servers at the end of the lease and the remainder recognized as a gain at that point.
Portfolio Financings through PPA Entities - Customer arrangements entered into prior to January 1, 2020 under Portfolio Financing arrangements through a PPA Entity that qualified as leases are accounted for as either sales-type leases or operating leases. Since January 1, 2020, we have not entered into any new PPAs with customers under such arrangements.
The components of our aggregate net investment in sales-type leases under our Portfolio Financings through PPA entities consisted of the following (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Lease payment receivables, net1 | | $ | 44,378 | | | $ | 49,806 | |
| Estimated residual value of leased assets (unguaranteed) | | 890 | | | 890 | |
| Net investment in sales-type leases | | 45,268 | | | 50,696 | |
| Less: current portion | | (5,784) | | | (5,428) | |
| Non-current portion of net investment in sales-type leases | | $ | 39,484 | | | $ | 45,268 | |
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | | | |
| Current: | | | | | | |
| Federal | | $ | — |
| | $ | — |
| | $ | — |
|
| State | | 26 |
| | 191 |
| | 25 |
|
| Foreign | | 595 |
| | 1,407 |
| | 621 |
|
| Total current | | 621 |
| | 1,598 |
| | 646 |
|
| Deferred: | | | | | | |
| Federal | | — |
| | — |
| | — |
|
| State | | — |
| | — |
| | — |
|
| Foreign | | 12 |
| | (61 | ) | | (10 | ) |
| Total deferred | | 12 |
| | (61 | ) | | (10 | ) |
| Total provision for income taxes | | $ | 633 |
| | $ | 1,537 |
| | $ | 636 |
|
A reconciliation1 Net of the U.S. federal statutory income tax rate to our effective tax rate is as follows (in thousands):
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | As Restated | | As Revised |
| Tax at federal statutory rate | | $ | (67,795 | ) | | $ | (60,845 | ) | | $ | (100,093 | ) |
| State taxes, net of federal effect | | 26 |
| | 191 |
| | 25 |
|
| Impact on noncontrolling interest | | 4,001 |
| | 3,725 |
| | 6,347 |
|
| Non-U.S. tax effect | | 264 |
| | 960 |
| | (437 | ) |
| Nondeductible expenses | | 144 |
| | 6,796 |
| | 5,698 |
|
| Stock-based compensation | | 6,484 |
| | 3,892 |
| | 4,854 |
|
| U.S. tax reform impact | | — |
| | — |
| | 239,117 |
|
| U.S. tax on foreign earnings (GILTI) | | 221 |
| | 127 |
| | — |
|
| Change in valuation allowance | | 57,288 |
| | 46,691 |
| | (154,875 | ) |
| Provision for income taxes | | $ | 633 |
| | $ | 1,537 |
| | $ | 636 |
|
For the year ended December 31, 2019, we recorded a provision for income taxescurrent estimated credit losses of $0.6 million on a pre-tax loss of $322.8 million, for an effective tax rate of (0.2)%. For the year ended December 31, 2018, we recorded a provision for income taxes of $1.5 million on a pre-tax loss of $289.7 million, for an effective tax rate of (0.5)%. For the year ended December 31, 2017, we recorded a provision for income taxes of $0.6 million on a pre-tax loss of $294.4 million, for an effective tax rate of (0.2)%. The effective tax rate for 2019, 2018 and 2017 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.
Significant components of our deferred tax assets and liabilities consist of the following (in thousands):
|
| | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 |
| | | | | As Restated |
| Tax credits and NOLs | | $ | 494,084 |
| | $ | 468,402 |
|
| Leased liabilities | | 122,145 |
| | 108,113 |
|
| Depreciation and amortization | | 8,523 |
| | 9,631 |
|
| Deferred revenue | | 6,688 |
| | 457 |
|
| Accruals and reserves | | 5,874 |
| | 4,462 |
|
| Stock-based compensation | | 61,808 |
| | 62,793 |
|
| Other items - DTA | | 24,443 |
| | 17,863 |
|
| Gross deferred tax assets | | 723,565 |
| | 671,721 |
|
| Valuation allowance | | (633,591 | ) | | (571,277 | ) |
| Net deferred tax assets | | 89,974 |
| | 100,444 |
|
| Investment in PPA entities | | (13,494 | ) | | (21,587 | ) |
| Debt issuance cost | | (4,055 | ) | | (8,586 | ) |
| Leased assets | | (65,978 | ) | | (62,681 | ) |
| Other items - DTL | | (5,803 | ) | | (6,817 | ) |
| Gross deferred tax liabilities | | (89,330 | ) | | (99,671 | ) |
| Net deferred tax asset | | $ | 644 |
| | $ | 773 |
|
Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, is not more-likely-than-not to be realized. Management believes that, based on available evidence, both positive and negative, it is not more likely than not that the net U.S. deferred tax assets will be utilized. As a result, a full valuation allowance has been recorded.
The valuation allowance for deferred tax assets was $633.6 million and $571.3approximately $0.1 million as of December 31, 20192021 and 2018, respectively. The net change in the total valuation allowance for the years ended December 31, 2019 and 2018 was an increase2020.
As of $62.3 million and an increase of $24.0 million, respectively.
At December 31, 2019, we had federal and state net operating loss carryforwards of $1.8 billion and $1.6 billion, respectively, to reduce2021, the future taxable income. Of the federal net operating loss carryforwards, $1.7 billion will begin to expire in 2022 and $125.2 million will carryforward indefinitely, while state net operating losses begin to expire in 2028. In addition, we had approximately $20.5 million of federal research credit, $6.6 million of federal investment tax credit, and $14.0 million of state research credit carryforwards. The federal tax credit carryforwards begin to expire in 2022.The state credit carryforwards may be carried forward indefinitely. We have not reflected deferred tax assets for the federal and state research credit carryforwards as the entire amount of the carryforwards represent unrecognized tax benefits.
Internal Revenue Code Section 382 (“Section 382”) limits the use of net operating loss and tax credit carryforwards in certain situations in which changes occur in our capital stock ownership. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If we should have an ownership change, as defined by the tax law, utilization of the net operating loss and credit carryforwards could be significantly reduced. We completed a Section 382 analysis through December 31, 2019. Based on this analysis, Section 382 limitations will not have a material impact on our net operating loss and credit carryforwards related to any ownership changes which occurred during the period covered by the analysis.
During the year ended December 31, 2019, the amount of uncertain tax positions increased by $4.2 million. We have not recorded any uncertain tax liabilities associated with its tax positions.
A reconciliation of the beginning and ending amounts of unrecognized tax benefitsscheduled customer payments from sales-type leases were as follows (in thousands):
| | | | | | | | |
| | Future minimum lease payments |
| 2022 | | $ | 6,110 | |
| 2023 | | 6,435 | |
| 2024 | | 6,797 | |
| 2025 | | 7,125 | |
| 2026 | | 7,491 | |
| Thereafter | | 11,690 | |
| Total undiscounted cash flows | | 45,648 | |
| Less: imputed interest | | (1,219) | |
Present value of lease payments1 | | $ | 44,429 | |
| | |
1 Amount comprises a current and long-term portion of lease receivables of $5.8 million and $39.5 million, respectively, after giving effect to a $0.1 million current expected credit loss reserve on the long-term portion, which is reflected as a component of the net investment in sales-type leases presented in our consolidated statement of financial position as customer financing receivables. |
|
| | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 |
| Unrecognized tax benefits beginning balance | | $ | 30,311 |
| | $ | 28,331 |
|
| Gross decrease for tax positions of prior year | | (93 | ) | | (468 | ) |
| Gross increase for tax positions of prior year | | 615 |
| | 353 |
|
| Gross increase for tax positions of current year | | 3,647 |
| | 2,095 |
|
| Unrecognized tax benefits end balance | | $ | 34,480 |
| | $ | 30,311 |
|
If fully recognized in the future, there would be no impactFuture estimated operating lease payments we expect to the effective tax rate, and $31.5 million would result in adjustments to the valuation allowance. We do not have any tax positions that are expected to significantly increase or decrease within the next 12 months.
Interest and penalties, to the extent there are any, are included in income tax expense and there were no interest or penalties accrued during or for the years ended December 31, 2019 and 2018.
We are subject to taxation in the United States and various states and foreign jurisdictions. We currently do not have any income tax examinations in progress nor have we had any income tax examinations since our inception. All of our tax years will remain open for examination by federal and state authorities for three and four yearsreceive from the date of utilization of any net operating losses and tax credits.
The Tax Cuts and Jobs Act of 2017 ("Tax Act") includes a provision referred to as Global Intangible Low-Taxed Income ("GILTI") which generally imposes a tax on foreign income in excess of a deemed return on tangible assets. FASB guidance issued in January 2018 allows companies to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which the tax is incurred ("period cost method"), or (ii) account for GILTI in the measurement of deferred taxes ("deferred method"). We elected to account for the tax effects of this provision using the period cost method.
Our accumulated undistributed foreign earningsPortfolio Financing arrangements through PPA Entities as of December 31, 2019 have been subject to either the deemed one-time mandatory repatriation under the Tax Act or the current year income inclusion under GILTI regime for U.S. tax purposes. If we2021, were to make actual distributions of some or all of these earnings, including earnings accumulated after December 31, 2017, we would generally incur no additional U.S. income tax but could incur U.S. state income tax and foreign withholding taxes. We have not accrued for these potential U.S. state income tax and foreign withholding taxes because we intend to permanently reinvest our foreign earnings in our international operations. However, any additional income tax associated with the distribution of these earnings would be immaterial.
11. Net Loss per Share Attributable to Common Stockholders
Net loss per share (basic) attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Net loss per share (diluted) is computed by using the "if-converted" method when calculating the potential dilutive effect, if any, of convertible shares whereby net loss attributable to common stockholders is adjusted by the effect of dilutive securities such as awards under equity compensation plans and inducement awards under separate restricted stock unit, or RSUs, award agreements. Net loss per share (diluted) attributable to common stockholders is then calculated by dividing the resulting adjusted net loss attributable to common stockholders by the combined weighted-average number of fully diluted common shares outstanding.
In July 2018, we completed an initial public offering of our common shares wherein 20,700,000 shares of Class A common stock were sold into the market. Added to existing shares of Class B common stock were shares mandatorily converted from various financial instruments as a result of the IPO. See Note 9, Common Stock Warrants.
There were no adjustments to net loss attributable to common stockholders in determining net loss attributable to common stockholders (diluted). Equally, there were no adjustments to the weighted average number of outstanding shares of common stock (basic) in arriving at the weighted average number of outstanding shares (diluted), as such adjustments would have been antidilutive.
We recognized a deemed dividend of $2.5 million on November 26, 2019 related to our buyout of the tax equity partner’s equity interest in PPA IIIb. The deemed dividend was recorded as a result of the buyout amount exceeding the hypothetical liquidation book value of the tax equity investor's equity interest in PPA IIIb on the date the buyout occurred. This charge impacted net income attributable to common stockholders and earnings per share in the year ended December 31, 2019.
Net loss per share is the same for each class of common stock as they are entitled to the same liquidation and dividend rights with the exception of voting rights. As a result, net loss per share (basic) and net loss per share (diluted) attributed to common stockholders are the same for both Class A and Class B common stock and are combined for presentation. The following table sets forth the computation of our net loss per share (basic) and net loss per share (diluted) attributable to common stockholdersfollows (in thousands, except per share amounts)thousands):
| | | | | | | | |
| | Operating Leases |
| 2022 | | 44,205 | |
| 2023 | | 45,290 | |
| 2024 | | 46,533 | |
| 2025 | | 47,553 | |
| 2026 | | 48,732 | |
| Thereafter | | 215,286 | |
| Total lease payments | | $ | 447,599 | |
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | As Restated | | As Revised |
| Numerator: | | | | | | |
| Net loss attributable to Class A and Class B common stockholders | | $ | (304,414 | ) | | $ | (273,540 | ) | | $ | (276,362 | ) |
| Less: deemed dividend to noncontrolling interest | | (2,454 | ) | | — |
| | — |
|
| Net loss available to Class A and Class B common stockholders | | $ | (306,868 | ) | | $ | (273,540 | ) | | $ | (276,362 | ) |
| Denominator: | | | | | | |
| Weighted average shares of common stock, basic and diluted | | 115,118 |
| | 53,268 |
| | 10,248 |
|
| | | | | | | |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | $ | (2.67 | ) | | $ | (5.14 | ) | | $ | (26.97 | ) |
The following common stock equivalents (in thousands) were excluded from the computation of our net loss per share attributable to common stockholders (diluted) for the periods presented as their inclusion would have been antidilutive: |
| | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | | | |
| Convertible and non-convertible redeemable preferred stock and convertible notes | | 27,213 |
| | 27,230 |
| | 85,476 |
|
| Stock options to purchase common stock | | 4,631 |
| | 4,962 |
| | 2,950 |
|
| Convertible redeemable preferred stock warrants | | — |
| | — |
| | 60 |
|
| Convertible redeemable common stock warrants | | — |
| | — |
| | 312 |
|
| | | 31,844 |
| | 32,192 |
| | 88,798 |
|
12.10. Stock-Based Compensation and Employee Benefit Plans
Share-based grants are designed to reward employees for their long-term contributions to us and provide incentives for them to remain with us.
2002 Stock Plan
Our 2002 Stock Plan (the "2002 Plan") was approved in April 2002 and amended in June 2011. In August 2012 and in connection with the adoption of the 2012 Plan, shares authorized for issuance under the 2002 Plan were cancelled, except for those shares reserved for issuance upon exercise of outstanding stock options. Any outstanding stock options granted under the 2002 Plan remain outstanding, subject to the terms of the 2002 Plan, until such shares are issued under those awards (by exercise of stock options) or until the awards terminate or expire by terms.
Grants under the 2002 Plan generally vest ratably over a four-yearfour years period from the vesting commencement date and expire ten years from grant date. Original grants under the 2002 Plan were for "common stock". Pursuant to the Twelfth Amended and Restated Articles of Incorporation authorized in July 2018, all such shares automatically converted to Class B shares of common stock.
As of December 31, 2019,2021, options to purchase 1,856,15448,777 shares of Class B common stock were outstanding with a weighted average exercise price of $23.21$30.29 per share. The 2002 Stock Plan has been canceled but continues to govern outstanding option grants under the 2002 Plan.
2012 Equity Incentive Plan
Our 2012 Equity Incentive Plan (the "2012 Plan") was approved in August 2012. The 2012 Plan provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights and restricted stock awards ("RSUs"),RSUs, all of which may be granted to employees, including officers, and to non-employee directors and consultants except we may grant incentive stock options only to employees.
Grants under the 2012 Plan generally vest ratably over a four-yearfour years period from the vesting commencement date and expire ten years from grant date. Original grants under the 2012 Plan were for "common stock". Pursuant to the Twelfth Amended and Restated Articles of Incorporation authorized in July 2018, all such shares automatically converted to Class B shares of common stock. As of December 31, 2019,2021, stock options to purchase 9,982,7566,891,128 shares of Class B common stock were outstanding with a weighted average exercise price of $27.12$27.52 per share and no shares were available for future grant. As of December 31, 2019, we hadThe 2012 Equity Incentive Plan has been canceled but continues to govern outstanding RSUs that may be settled for 6,656,094 shares of Class B common stockoption grants under the plan.2012 Plan.
2018 Equity Incentive Plan
The 2018 Equity Incentive Plan (the "2018 Plan") was approved in April 2018. The 2018 Plan became effective upon the IPO and will serveserves as the successor to the 2012 Plan. We have reserved 20,278,268 shares of Class A common stock under the 2018 Plan and no more than 26,666,667 shares of Class A common stock will be issued pursuant to the exercise of incentive stock options.
The 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awardsPSUs and stock bonuses. The 2018 Plan provides for the grant of awards to employees, directors, consultants, independent contractors and advisors provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options is at least equal to the fair market value of Class A common stock on the date of grant. Grants under the 2018 Plan generally vest ratably over a four-year periodthree or four years from the vesting commencement date and expire ten years from grant date.
The 2018 Plan allows for an annual increase on January 1, of each of 2019 through 2028, by the lesser of (a) 4 percent (4%) of the number of Class A common stock, Class B common stock, and common stock equivalents (including options, RSUs, warrants and preferred stock on an as-converted basis) issued and outstanding on each December 31 immediately prior to the date of increase, and (b) such number of shares determined by the Board of Directors.
As of December 31, 2019,2021, stock options to purchase 5,998,4063,797,391 shares of Class A common stock were outstanding with a weighted average exercise price of $9.42$9.70 per share and 3,456,1728,367,663 shares of outstanding RSUs that may be settled for Class A common stock which were granted pursuant to the plan.2018 Plan. As of December 31, 2019,2021, we had 17,233,14423,999,768 shares of Class A common stock availablereserved for future grant.issuance under the 2018 Plan.
Stock-Based Compensation Expense
We used the following weighted-average assumptions in applying the Black-Scholes valuation model:model for determination of option valuation: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended
December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Risk-free interest rate | | | | | | — | | 0.6% | | 1.7% - 2.6% |
| Expected term (years) | | | | | | — | | 6.6 | | 6.4 - 6.7 |
| Expected dividend yield | | | | | | — | | — | | — |
| Expected volatility | | | | | | — | | 71.0% | | 45.7% - 50.2% |
|
| | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | | | |
| Risk-free interest rate | | 1.7% - 2.6% | | 2.5% - 3.1% | | 2.0% - 2.1% |
| Expected term (years) | | 6.4 - 6.7 | | 6.2 - 6.7 | | 6.1 - 6.6 |
| Expected dividend yield | | — | | — | | — |
| Expected volatility | | 45.7% - 50.2% | | 52.4% - 56.1% | | 55.6% - 61.0% |
The following table summarizes the components of stock-based compensation expense in the consolidated statements of operations (in thousands):
| | | | | Years Ended
December 31, | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 | | | | Years Ended
December 31, |
| | | | | As Restated | | As Revised | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | | | | |
| Cost of revenue | | $ | 45,429 |
| | $ | 29,680 |
| | $ | 6,355 |
| Cost of revenue | | | $ | 13,811 | | | $ | 17,475 | | | $ | 45,429 | |
| Research and development | | 40,949 |
| | 39,029 |
| | 5,560 |
| Research and development | | | 20,274 | | | 19,037 | | | 40,949 | |
| Sales and marketing | | 32,478 |
| | 32,284 |
| | 4,685 |
| Sales and marketing | | | 17,085 | | | 10,997 | | | 32,478 | |
| General and administrative | | 77,435 |
| | 67,489 |
| | 12,501 |
| General and administrative | | | 24,962 | | | 26,384 | | | 77,435 | |
| | | $ | 196,291 |
| | $ | 168,482 |
| | $ | 29,101 |
| | | $ | 76,132 | | | $ | 73,893 | | | $ | 196,291 | |
Stock-based Compensation - During the years ended December 31, 2019, 2018 and 2017, we recognized $196.3 million, $168.5 million and $29.1 million of total stock-based compensation costs, respectively. As of December 31, 2019, 20182021, 2020 and 2017,2019, we capitalized $7.3$5.8 million, $13.6$5.9 million and $1.8$7.3 million of stock-based compensation cost, respectively, into inventory and property, plant and equipment.
Stock Option and RSUStock Award Activity
The following table summarizes the stock option activity under our stock plans during the reporting period (in thousands), except per share amounts:period: | | | | | | | | | | | | | Outstanding Options |
| | | Outstanding Options | | | Number of
Shares | | Weighted
Average
Exercise
Price | | Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value |
| | | Number of
Shares | | Weighted
Average
Exercise
Price | | Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value | | | | | | | | |
| | | | | | | | | | | | | | (in thousands) |
| | | | | | | (in thousands) | |
| Balances at December 31, 2017 | | 11,604,403 |
| | $ | 26.42 |
| | 6.01 | | $ | 52,682 |
| |
| | Balances at December 31, 2019 | | Balances at December 31, 2019 | | 17,837,316 | | | $ | 20.76 | | | 6.9 | | $ | 14,964 | |
| Granted | | 4,202,284 |
| | 19.79 |
| | | Granted | | 200,000 | | | 7.30 | | |
| Exercised | | (398,704 | ) | | 3.98 |
| | | Exercised | | (1,341,324) | | | 11.18 | | |
| Cancelled | | (849,563 | ) | | 12.51 |
| | | Cancelled | | (1,341,721) | | | 22.49 | | |
| Balances at December 31, 2018 | | 14,558,420 |
| | 25.93 |
| | 6.78 | | 3,084 |
| |
| Granted | | 4,956,064 |
| | 5.6 |
| | | |
| Balances at December 31, 2020 | | Balances at December 31, 2020 | | 15,354,271 | | 21.27 | | | 6.0 | | 129,855 | |
| | Exercised | | (358,564 | ) | | 4.26 |
| | | Exercised | | (3,460,364) | | 23.05 | | | | |
| Cancelled | | (1,318,604 | ) | | 25.33 |
| | | Cancelled | | (1,156,612) | | 16.33 | | | | |
| Balances at December 31, 2019 | | 17,837,316 |
| | 20.76 |
| | 6.94 | | 14,964 |
| |
| Vested and expected to vest at December 31, 2019 | | 17,159,824 |
| | 21.17 |
| | 6.85 | | 13,471 |
| |
| Exercisable at December 31, 2019 | | 9,161,918 |
| | 28.82 |
| | 4.89 | | 500 |
| |
| Balances at December 31, 2021 | | Balances at December 31, 2021 | | 10,737,295 | | 21.23 | | | 5.2 | | 60,304 | |
| Vested and expected to vest at December 31, 2021 | | Vested and expected to vest at December 31, 2021 | | 10,620,061 | | | 21.36 | | | 5.2 | | 58,772 | |
| Exercisable at December 31, 2021 | | Exercisable at December 31, 2021 | | 8,858,957 | | | 23.67 | | | 4.8 | | 36,441 | |
Stock Options -During the years ended December 31, 2019, 20182021 and 2017,2020, we recognized $36.2 million, $33.3$15.6 million and $29.2$19.1 million of stock-based compensation costs for stock options, respectively.
DuringWe did not grant options in the yearsyear ended December 31, 2019, 20182021 and 2017, the intrinsic valuewe granted 200,000 options of stock options exercised was $2.6 million, $9.2 million and $3.4 million, respectively.
We granted 4,956,064 options for Class A common stock during the year ended December 31, 20192020, and 4,202,284 options for Class A and Class B common stock during the year ended December 31, 2018. The weighted-averageweighted average grant-date fair value of thethose granted awards was $5.60$7.30 per share.
During the years ended December 31, 2021, 2020 and $19.79,2019, the intrinsic value of stock options exercised was $28.9 million, $11.2 million and $2.6 million, respectively.
As of December 31, 20192021 and 2018,2020, we had unrecognized compensation costs related to unvested stock options of $41.9$6.2 million and $70.4$20.7 million, respectively. This cost is expected to be recognized over the remaining weighted-average period of 2.80.9 years and 2.81.8 years, respectively. We had no excess tax benefits in the years ended December 31, 2019 and 2018. Cash received from stock options exercised totaled $1.5$79.7 million and $1.6$15.0 million for the years ended December 31, 20192021 and 2018,2020, respectively.
A summary of our RSUsstock awards activity and related information is as follows:
| | | | | | | | | | | | | | |
| | Number of
Awards
Outstanding | | Weighted
Average Grant
Date Fair
Value |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Unvested Balance at December 31, 2019 | | 10,112,266 | | | $ | 17.29 | |
| Granted | | 4,744,467 | | | 12.43 | |
| Vested | | (7,806,038) | | | 17.48 | |
| Forfeited | | (631,907) | | | 14.93 | |
| Unvested Balance at December 31, 2020 | | 6,418,788 | | | $ | 13.71 | |
| Granted | | 6,475,536 | | | 25.82 | |
| Vested | | (2,904,996) | | | 17.04 | |
| Forfeited | | (1,621,664) | | | 20.97 | |
| Unvested Balance at December 31, 2021 | | 8,367,664 | | | 20.52 | |
|
| | | | | | | |
| | | Number of Awards Outstanding | | Weighted Average Grant Date Fair Value |
| | | | | |
| Unvested Balance at December 31, 2017 | | 3,140,578 |
| | $ | 30.95 |
|
| Granted | | 13,873,506 |
| | 16.02 |
|
| Vested | | (17,793 | ) | | 19.67 |
|
| Forfeited | | (211,491 | ) | | 21.22 |
|
| Unvested Balance at December 31, 2018 | | 16,784,800 |
| | 18.74 |
|
| Granted | | 3,219,959 |
| | 11.81 |
|
| Vested | | (8,921,807 | ) | | 18.03 |
|
| Forfeited | | (970,686 | ) | | 17.34 |
|
| Unvested Balance at December 31, 2019 | | 10,112,266 |
| | 17.29 |
|
Restricted Stock Units (RSUs)Awards - The estimated fair value of RSU awardsRSUs and PSUs is based on the fair value of our Class A common stock on the date of grant. The total weighted-average grant-date fair value of RSUs granted duringFor the years ended December 31, 2019, 20182021 and 2017, was $11.81, $16.02 and $30.96, respectively.
During the years ended December 31, 2019, 2018 and 2017,2020, we recognized $141.3 million, $142.4$50.1 million and $1.3$44.1 million of stock-based compensation costs for RSUs,stock awards, respectively.
As of December 31, 2019,2021 and 2020, we had $52.0$114.9 million and $59.8 million of unrecognized stock-based compensation cost related to unvested RSUs. This cost isstock awards, expected to be recognized over a weighted average period of 1.1 years.2.3 years and 2.2 years, respectively.
Executive Awards
In November 2019, the Board approved stock options ("2019 Executive Awards") to certain executive staff. The 2019 Executive Awards were granted pursuant to the 2018 Plan and consist of 3 vesting tranches with a vesting schedule based on the attainment of market conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2019 Executive Awards are recognized over the service period, even though no tranches of the 2019 Performance Awards vest unless a market condition is achieved. The grant date fair value of the options is determined using a Monte Carlo simulation.
In June 2020, the Board approved stock awards ("2020 Executive Awards") to certain executive staff. The 2020 Executive Awards were PSUs granted pursuant to the 2018 Plan and consist of 3 vesting tranches with an annual vesting schedule based on the attainment of performance conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2020 Executive Awards is recognized over the service period as we evaluate the probability of the achievement of the performance conditions.
In June 2021, the Board approved stock awards ("2021 Executive Awards") to certain executive staff. The 2021 Executive Awards were PSUs granted pursuant to the 2018 Plan and consist of 3 vesting tranches with an annual vesting schedule based on the attainment of performance conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2021 Executive Awards is recognized over the service period as we evaluate the probability of the achievement of the performance conditions.
In May 2021, we issued RSUs and PSUs to our Chief Executive Officer. The RSUs will vest in equal annual installments over five years from the grant date. A portion of the PSUs can be earned based on achieving certain financial performance goals and another portion can be earned based upon achieving certain progressive stock price hurdles. Any shares issued under the PSU awards will be subject to a two-year post-vest holding period in which the award holder will be restricted from selling any shares (net of shares settled for taxes). As of December 31, 2018, we had $163.8 million2021, the unamortized compensation expense for the RSUs and PSUs was $24.0 million. Actual compensation expense is dependent on the performance of unrecognized stock-based compensation cost related to unvested RSUs. This expense wasthe PSUs that vest based upon a performance condition. We estimated the fair value of the PSUs that vest based on a market condition on the date of grant using a Monte Carlo simulation with the following assumptions: (i) expected to be recognized over a weighted average periodvolatility of 0.8 years.71.2%, (ii) risk-free interest rate of 1.6%, and (iii) no expected dividend yield.
The following table presents the stock activity and the total number of shares available for grant under our stock plans as of December 31, 2019:
|
| | | | | | | |
| | Plan Shares Available
for Grant |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Balances at December 31, 20172020 | | 1,037,61620,233,754 |
|
| Added to plan | | 40,924,8618,102,014 |
|
| Granted | | (18,075,790(6,475,536) | ) |
Cancelled | | 1,061,054 |
|
ExpiredCancelled | | (7,489,8942,778,276 | ) |
| Expired | | (491,724) | |
Balances at December 31, 20182021 | | 17,457,84724,146,784 |
|
Added to plan | | 7,585,422 |
|
Granted | | (8,176,023 | ) |
Cancelled | | 2,289,290 |
|
Expired | | (1,923,392 | ) |
Balances at December 31, 2019 | | 17,233,144 |
|
2018 Employee Stock Purchase Plan
In April 2018, we adopted the 2018 Employee Stock Purchase Plan ("ESPP").ESPP. The 2018 ESPP became effective upon our IPOinitial public offering ("IPO") in July 2018. The 2018 ESPP is intended to qualify under Section 423 of the Internal Revenue Code. The aggregate number of our shares that may be issued over the term of our ESPP is 33,333,333 Class A common stock. A total of 3,333,333 shares of our Class A common stock were initially reserved for issuance under the plan. The number of shares reserved for issuance under ourthe 2018 ESPP will increase automatically on the 1st day of January of each of the first nine years following the first offering date by the number of shares equal to 1%1 percent (1%) of the total outstanding sharesnumber of ourClass A common stock, Class B common stock and common stock equivalents (including options, RSUs, warrants and preferred stock on an as ofconverted basis) issued and outstanding on the immediately preceding December 31 (rounded down to the nearest whole share). For; provided, that the year ended December 31, 2019, we added 1,415,507 shares toBoard of Directors or the ESPP under these provisions.Compensation Committee may in its sole discretion reduce the amount of the increase in any particular year.
The 2018 ESPP allows eligible employees to purchase shares, subject to purchase limits of 2,500 shares during each six month period or $25,000 worth of stock for each calendar year, of our Class A common stock through payroll deductions at a price per share equal to 85% of the lesser of the fair market value of our Class A common stock (i) on the first trading day of the applicable offering date and (ii) the last trading day of each purchase date.
During the years ended December 31, 20192021 and 2018,2020, we recognized $10.3$7.7 million and $4.6$5.7 million of stock-based compensation costs for the 2018 ESPP, respectively. We issued 1,718,4331,945,305 shares in 2019the year ended December 31, 2021. During the year ended December 31, 2021, we added an additional 1,902,572 shares and there were 3,030,4072,544,668 shares available for issuance under the ESPP as of December 31, 2019.2021.
As of December 31, 2021, we had $9.8 million of unrecognized stock-based compensation costs, expected to be recognized over a weighted average period of 0.5 years.
We useused the following weighted-average assumptions in applying the Black-Scholes option pricingvaluation model to determine the fair valuefor determination of shares purchased under the 2018 ESPP with the following weighted average assumptions on the date of grant:share valuation:
| | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 | | |
| | | | | | | | | | |
| Risk-free interest rate | | | | | | 0.1% - 2.8% | | 0.12%- 1.51% | | |
| Expected term (years) | | | | | | 0.5 - 2.0 | | 0.5 - 2.0 | | |
| Expected dividend yield | | | | | | — | | — | | |
| Expected volatility | | | | | | 95.0% - 114.5% | | 61.0% - 119.2% | | |
|
| | | | | |
| | | Year Ended
December 31, |
| | | 2019 | | 2018 | |
| | | | | | |
| Risk-free interest rate | | 1.5% - 2.6% | | 2.2% - 2.7% | |
| Expected term (years) | | 0.5 - 2.0 | | 0.6 - 2.0 | |
| Expected dividend yield | | — | | — | |
| Expected volatility | | 45.9% - 54.0% | | 47.0% - 52.7% | |
2019 Executive Awards
In November 2019, the Board of Directors approved stock option awards ("2019 Executive Awards") to certain executive staff. The 2019 Executive Awards consist of three vesting tranches with a vesting schedule based on the attainment of market conditions and assuming continued employment and service through each vesting date.
Stock-based compensation costs associated with the 2019 Executive Awards is recognized over the service period, even though no tranches of the 2019 Performance Awards vest unless a market condition is achieved. The grant date fair value of the options is determined using a Monte Carlo simulation.
Employee Benefit Plan
We maintain a tax-qualified 401(k) retirement plan for all employees who satisfy certain eligibility requirements including requirements relating to age. Under the 401(k) plan, employees may elect to defer up to 60% of eligible compensation, subject to applicable annual IRS Code limits. We do not match any contributions made by employees, including executives, but have the discretion to do so. Therefore, the costs of the plan were immaterial for the years ended December 31, 2019 and 2018. We intend for the 401(k) plan to qualify under Section 401(a) and 501(a) of the Internal Revenue Code so that contributions and income earned on contributions are not taxable to employees until withdrawn from the plan.
13. Power Purchase Agreement Programs11. Portfolio Financings
Overview
In mid-2010, we began offering ourWe have developed various financing options that enable customers' use of the Energy Servers through our Bloom Electrons program, which we denote as Power Purchase Agreement Programs, financed via investment entities. Under these arrangements, an operating entity is created (the "Operating Company") which purchases our Energy Servers from us. The end customer then enters into a power purchase agreement ("PPA") with the Operating Company to purchase the power generated by our Energy Servers at a specified rate per kilowatt hour for a specified term which can range from 10 to 21 years. third-party ownership financing arrangements.
In some cases, similar to direct purchases and leases, the standard one-year warranty and performance guaranties are included in the price of the product. The Operating Company also enters into a master services agreement with us following the first year of service to extend the warranty services and guaranties over the term of the PPA. In other cases, the master services agreements including performance warranties and guaranties are billed on a quarterly basis starting in the first quarter following the placed-in-service date of the Energy Server(s) and continuing over the term of the PPA. The first of such arrangements was considered a sales-type lease and the product revenue from that agreement was recognized upfront in the same manner as direct purchase and lease transactions. Substantially all of our subsequent PPAs have been accounted for as operating leases with the related revenue under those agreements recognized ratably over the PPA term as electricity revenue. We recognize the cost of revenue, primarily product costs and maintenance service costs, over the shorter of the estimated useful life of the Energy Server or the term of the PPA.
We and our third-party equity investors (together "Equity Investors") contribute funds into a limited liability investment entity ("Investment Company") that owns and is parent to the Operating Company (together, the "PPA Entities"). These PPA Entities constitute variable investment entities ("VIEs")VIEs under U.S. GAAP. We have considered the provisions within the contractual agreements which grant us power to manage and make decisions affecting the operations of these VIEs. We consider that the rights granted to the Equity Investors under the contractual agreements are more protective in nature rather than participating. Therefore, we have determined under the power and benefits criterion of ASC 810, - Consolidations thatwe are the primary beneficiary of these VIEs. As the primary beneficiary of these VIEs, we consolidate in our consolidated financial statements the financial position, results of operations and cash flows of the PPA Entities, and all intercompany balances and transactions between us and the PPA Entities are eliminated in the consolidated financial statements.
On June 14, 2019, we entered into a PPA II upgrade of Energy Servers transaction, and as a result we determined that we no longer retained a controlling interest in the Operating Company in PPA II and therefore, the Operating Company was no longer consolidated as a VIE into our consolidated financial statements as of June 30, 2019. See further discussion below. On November 27, 2019, we entered into a PPA IIIb upgrade of Energy Servers transaction where we bought out the equity interest of the third-party investor, decommissioned the Energy Servers in the Operating Company and sold new Energy Servers deployed at customer sites through our managed services financing option. The PPA IIIb Investment Company and Operating Company became wholly-owned by us but no longer met the definition of a VIE. However, we continue consolidating PPA IIIb in our consolidated financial statements. See further discussion below.
In accordance with our Power Purchase Agreement Programs,Portfolio Financings, the Operating Company acquires Energy Servers from us for cash payments that are made on a similar schedule as if the Operating Company were a customer purchasing an Energy Server from us outright. In the consolidated financial statements, the sale of Energy Servers by us to the Operating Company are treated as intercompany transactions and as a result eliminated in consolidation. The acquisition of Energy Servers by the Operating Company is accounted for as a non-cash reclassification from inventory to Energy Servers within property, plant and equipment, net on our consolidated balance sheets. In arrangements qualifying for sales-type leases, we reduce these recorded assets by amounts received from U.S. Treasury Department cash grants and from similar state incentive rebates.
The Operating Company sells the electricity to end customers under PPAs. Cash generated by the electricity sales, as well as receipts from any applicable government incentive program, is used to pay operating expenses (including the management and services we provide to maintain the Energy Servers over the term of the PPA) and to service the non-recourse debt with the remaining cash flows distributed to the Equity Investors. In transactions accounted for as sales-type leases, we recognize subsequent customer billings as electricity revenue over the term of the PPA and amortize any applicable government incentive program grants as a reduction to depreciation expense of the Energy Server over the term of the PPA. In transactions accounted for as operating leases, we recognize subsequent customer payments and any applicable government incentive program grants as electricity revenue and service revenue over the term of the PPA.
Upon sale or liquidation of a PPA Entity, distributions would occur in the order of priority specified in the contractual agreements.
We have established six6 different PPA Entities to date. The contributed funds are restricted for use by the Operating Company to the purchase of our Energy Servers manufactured by us in our normal course of operations. All six6 PPA Entities utilized their entire available financing capacity and have completed the purchase of their Energy Servers. Any debt incurred by
the Operating Companies is non-recourse to us. Under these structures, each Investment Company is treated as a partnership for U.S. federal income tax purposes. Equity Investors receive investment tax credits and accelerated tax depreciation benefits. In 2016, we purchased the tax equity investor’s interest in PPA I, which resulted in a change in our ownership interest in PPA I while we continued to hold the controlling financial interest in this company. In 2019, we bought out the then-existing tax equity investors' interest in DSGH, the PPA II Investment Company, and admitted two new equity investors as a member of the PPA II Operating Company, retaining only a minor contingent future equity interest in the Operating Company. One of the new equity investors became the managing member, which resulted inand as a change in our ownershipresult we determined that we no longer retained a controlling interest in the Operating Company and discontinued our controlling financial interest in the PPA II and therefore, the Operating Company.Company was no longer consolidated as a VIE into our consolidated financial
statements. In December 2019, we purchased the tax equity investors' interest inalso entered into a PPA IIIb which resulted in a change in the ownership structure from a variable interest entity to a wholly owned subsidiary indirectly owned by the Company.
PPA II Upgrade of Energy Servers
Original Transaction
A wholly-owned subsidiary of Bloom and a wholly-owned subsidiary of Credit Suisse Group AG (“Mehetia”) jointly owned Diamond State Generation Holdings, LLC (“Class A Holdco”). Class A Holdco owned 100% of the membership interests in Diamond State Generation Partners, LLC ("DSGP"). Pursuant to an earlier transaction, DSGP owned and operated 30 megawattsupgrade of Energy Servers across two sites in Delaware that achieved operations in 2012 and 2013 and provided alternative energy generation for state tariff rate payers (the “Original Project”). The Original Project had been financed in part bytransaction where we bought out the issuanceequity interest of non-recourse promissory notes to DSGP (the “Project Debt”).
Overall Upgrade
We upgraded the existing 30 megawatts ofthird-party investor, decommissioned the Energy Servers used in the Original Project by replacing them with 27.5 megawatts of new Energy Servers. To effect the full upgrade we repurchased all of existing Energy Servers, the proceeds of which were used by DSGP to pay down the Project DebtOperating Company and to enable Class A Holdco to buy out Mehetia’s interests. To finance thesold new Energy Servers used indeployed at customer sites through our Managed Services Financing option. The PPA IIIb Investment Company and Operating Company became wholly-owned by us but no longer met the upgrade, DSGP raised capital from two new members: SP Diamond State Class B Holdings, LLC (“Class B Holdco”),definition of a wholly owned subsidiary of Southern Power Company (“Southern”) and Assured Guaranty Municipal Corporation (“Class C Holdco”). The existing Energy Servers were removed after we repurchased them from DSGP, priorVIE. We therefore continue to selling and installing the new Energy Servers. The upgrade was done across two phases.
First Upgrade
On June 14, 2019, the Company entered into an agreement committing to repurchase 30 megawatts of existing Energy Servers. The repurchases happened over time in installments, in each case immediately prior to the installation of corresponding new Energy Servers. Mehetia’s equity interests were redeemed in part in connection with each repurchase. The Project Debt was repaid in connection with the first repurchase installment. 19 megawatts of existing Energy Servers were repurchased during the second and third quarter of 2019.
At the same time that Bloom entered into the repurchase agreement, Class B Holdco committed to acquire a majority interest in DSGP. DSGP entered into an agreement governing the engineering, procurement, construction and sale of the new Energy Servers (the “EPC Agreement”). DSGP used the funds contributed by Class B Holdco to purchase 17.7 megawatts of new Energy Servers from the Company in accordance with the EPC Agreement (the “First Upgrade”).
Second Upgrade
On December 23, 2019, we repurchased and removed the remaining 11 megawatts of the existing older generation Energy Servers from DSGP. The proceeds of the repurchase were used to redeem Mehetia’s remaining equity interest in Class A Holdco. After the repurchase, the remaining existing Energy Servers were removed.
At the same time, to finance the purchase of 9.8 megawatts of new Energy Servers, Class C Holdco was admitted to DSGP as a member of DSGP and DSGP entered into another EPC Agreement with the Company for the installation of the new Energy Servers. DSGP used the funds contributed by Class C Holdco to purchase the new Energy Servers from Bloom under the EPC Agreement (the “Second Upgrade”).
As of December 31, 2019, there are three members of DSGP: Class B Holdco which financed the First Upgrade, Class C Holdco, which financed the Second Upgrade, and Class A Holdco, an indirectly wholly owned subsidiary of the Company, which retains a de minimis contingent future equity interest in DSGP.
As of December 31, 2019, 27.5 megawatts of new Energy Servers in Delaware were commissioned.
Commercial Documents
The Company also entered into an operations and maintenance agreement for the ongoing care of all of the new Energy Servers (the “O&M Agreement”). The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.
The terms and conditions of the EPC Agreement and the O&M Agreement, including the suite of guaranties and warranties provided with respect to the performance of the Energy Servers are customary for our transactions of this type. The performance related guaranty and warranty were provided for each investor’s Energy Servers, while the efficiency guaranties and warranties were measured across the entire 27.5 megawatts of Energy Servers.
Credit Support
In the First Upgrade, in addition to standard indemnifications, we agreed to indemnify Class B Holdco for (i) losses incurred in the event of certain regulatory, legal, or legislative developments in connection with the Tariff capped at an aggregate amount of $97.2 million, which cap steps down each year until it is an amount equal to zero after June 30, 2025 and (ii) for the loss of certain federal tax benefits, up to $7.5 million. We posted letters of credit as credit support for both indemnities (“Class B Credit Support”).
In the Second Upgrade, in addition to standard indemnifications, we agreed to indemnify Class C Holdco for (i) losses incurred in the event of certain regulatory, legal, or legislative developments in connection with the Tariff capped at an aggregate amount of $45 million, which cap steps down each year until it is an amount equal to zero after December, 2025. We also indemnified Class C Holdco for the loss of certain federal tax benefits, losses incurred as a result of certain environmental risks and certain failures under the O&M Agreement with respect to the Energy Servers it financed. We amended the initial Class B Credit Support letter of credits and reissued a single letter of credit for the benefit of DSGP (“DSGP Credit Support”) in an amount of $108.7 million which amount will decrease over time. The DSGP Credit Support partially collateralizes our indemnity obligations to Class B Holdco and Class C Holdco. We expect the DSGP Credit Support to be extinguished by 2025.
At the time of the First Upgrade and the Second Upgrade, and as of December 31, 2019, we believe the events giving rise to these indemnifications to be remote and, therefore, no liability has been recordedconsolidate PPA IIIb in our consolidated financial statements with respect thereto.statements.
Impact of First Upgrade and Second Upgrade of Energy Servers on Consolidated Financial Statements
As a result of the First Upgrade, we reconsidered whether we should continue to consolidate DSGP. We use a qualitative approach in assessing the consolidation requirement for each of our PPA Entities. This approach focuses on determining whether we have the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPA Entities. We determined that we no longer retain a controlling interest in DSGP and therefore it will no longer be consolidated as a variable interest entity into our consolidated financial statements as of June 30, 2019. The First Upgrade and Second Upgrade resulted in the following impacts on our consolidated balance sheet as of December 31, 2019: (i) cash, cash equivalents and restricted cash increased by $113.9 million, of which $108.7 million is included in restricted cash. The increase is comprised of approximately $253.9 million cash receipts for the sale of 27.5 megawatts new systems to DSGP, offset by $83.5 million used for the repayment of project debt including $77.6 million of outstanding principal and interest, as well as a make-whole payment fee of $5.9 million, and $56.5 million distribution to Mehetia related to the redemption of noncontrolling interest; (ii) property, plant and equipment, net decreased by $75.1 million due to the depreciation and write-off of 30 megawatts of existing Energy Servers; (iii) noncontrolling interest in Mehetia went down by $56.5 million related to the First Upgrade and Second Upgrade.
Impacts on our consolidated statement of operations for the year ended December 31, 2019 are summarized as follows: (i) net product and installation revenue recognized of $223.9 million, as the result of selling 27.5 megawatts of new Energy Servers to DSGP; (ii) cost of revenue of $153.5 million including both the write-off of decommissioned Energy Systems $52.5 million, accelerated depreciation of $22.6 million of the Energy Servers prior to decommissioning, and the cost of new Energy Servers of $78.4 million; (iii) $5.9 million of administrative costs due to debt payoff make-whole expense; and (iv) $1.2 million of interest expense due to write-off of debt issuance cost.
Impacts on our consolidated statements of cash flows for the year ended December 31, 2019 are summarized as follows: net cash used by financing activities increased $139.2 million due to the repayment of debt of $76.8 million, a debt make-whole payment of $5.9 million, and payments to noncontrolling and redeemable noncontrolling interests of $56.5 million.
PPA IIIb Upgrade of Energy Servers
Transaction Overview
As part of the PPA IIIb project established in 2013, the Company, through a special purpose subsidiary (the “Project Company”), had previously entered into certain agreements for the purpose of developing, financing, owning, operating, maintaining and managing a portfolio of 5.4 megawatts of Energy Servers.
On November 27, 2019, the Company entered into certain agreements through a wholly-owned subsidiary to (i) buy out the existing debt and equity investors in Project Company such that Project Company became indirectly wholly-owned by the Company, and (ii) upgrade 5.4 megawatts of the existing Energy Servers owned and managed by Project Company by selling and installing new Energy Servers.
Immediately following the buyout, Project Company repaid all outstanding loans and indebtedness to Project Company’s lenders in the approximate amount of $24.2 million plus swap breakage costs estimated at approximately $0.2 million, and terminated its agreements, including related liens on Project Company assets, with such lenders. Project Company subsequently entered into a sale-leaseback transaction under our Managed Services Program with Key Equipment Finance, a division of KeyBank National Association, a national banking association (“KeyBank”), to finance the upgrade of the PPA IIIb project Energy Servers, pursuant to which KeyBank will own the assets and Bloom will service them. The sale-leaseback transaction is subject to Bloom’s standard warranties and guaranties.
Previously, the Company had financed multiple Energy Servers with KeyBank by entering into sale-leaseback transactions. As of December 31, 2019, KeyBank has financed approximately 39.9 megawatts of Energy Servers. $20.0 million of the proceeds from the current upgrade financing has been pledged for a seven-year period to secure the Company's operations and maintenance obligations with respect to the totality of the Company's obligations to KeyBank. All or a portion of such funds would be released if we meets certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If the Company does not meet the required criteria within a five-year period, the funds would be released over the following two years as long as the Energy Servers continue to perform in compliance with their warranties.
As of December 31, 2019, 5 megawatts of the PPA IIIb project have been decommissioned and written-off by us, with the remaining 0.4 megawatts located at one site decommissioned during the first quarter of 2020. As of December 31, 2019, we have sold and deployed 5 megawatts of new Energy Servers to the PPA IIIb project, bought out the original PPA IIIb investor, and have paid off the outstanding debt related to the original PPA IIIb project.
Obligations to the PPA IIIb Financiers
We have restricted cash of $20.0 million of the proceeds from the phase two upgrade financing which has been pledged for a seven-year period to secure our operations and maintenance obligations with respect to the totality of our obligations to KeyBank. All or a portion of such funds would be released if we meet certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within a five-year period, the funds would be released to us over the following two years as long as the Energy Servers continue to perform in compliance with their warranties.
Impact of PPA IIIb Upgrade of Energy Servers on Consolidated Financial Statements
The PPA IIIb upgrade was executed and mostly completed during December 2019, resulting in the following summarized impacts on our consolidated balance sheet as of December 31, 2019: (i) cash, cash equivalents and restricted cash increased by $25.2 million, mainly due to $52.0 million received from the financing of new Energy Servers, offset by debt and interest settlement of $24.4 million, and equity buyout of $2.4 million; (ii) other assets decreased $14.6 million primarily due to customer financing lease receivable write-off of $11.3 million associated with 1.6 megawatts of old Energy Servers and decommissioning and write-off costs of $18.0 million associated with 3.4 megawatts of old Energy Servers, offset by $14.7 million increase in property, plant and equipment due to 5 megawatts of new Energy Servers; (iii) liabilities increased by $28 million due to $51.9 million lease liability for new Energy Servers of the Managed Services Program, offset by $23.9 million decrease due to the settlement of all outstanding debt; and (iv) the payment of a deemed dividend to the investor of $2.4 million.
Impacts on our consolidated statement of operations for the year ended December 31, 2019 are summarized as follows: (i) $11.3 million decrease in revenue due to the write-off of the customer financing lease receivable; (ii) an increase in cost of revenue of $19.7 million primarily due to the write-off of decommissioned operating lease Energy Servers of $18.0 million and
accelerated depreciation of $1.7 million; and (iii) administrative costs of $1.8 million primarily due to the write-off of production insurance expense on the decommissioned Energy Servers.
Impacts on our consolidated statement of cash flows for the year ended December 31, 2019 are summarized as follows: net cash used by financing activities increased $26.3 million due to the repayment of debt principal of $23.9 million and the payment of a deemed dividend to the investor of $2.4 million.
PPA Entities' Activities Summary
The table below shows the details of the five3 Investment Companies'Company VIEs that were active during 2019the year ended December 31, 2021 and their cumulative activities from inception to the periodsyears indicated (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | PPA II | | PPA IIIa | | PPA IIIb | | PPA IV | | PPA V |
| Overview: | | | | | | | | | | |
| Maximum size of installation (in megawatts) | | 30 | | 10 | | 6 | | 21 | | 40 |
Installed size (in megawatts) 1 | | — | | 10 | | — | | 19 | | 37 |
| Term of power purchase agreements (in years) | | 21 | | 15 | | 15 | | 15 | | 15 |
| First system installed | | Jun-12 | | Feb-13 | | Aug-13 | | Sep-14 | | Jun-15 |
| Last system installed | | Nov-13 | | Jun-14 | | Jun-15 | | Mar-16 | | Dec-16 |
| Income (loss) and tax benefits allocation to Equity Investor | | 99% | | 99% | | 99% | | 90% | | 99% |
| Cash allocation to Equity Investor | | 99% | | 99% | | 99% | | 90% | | 90% |
| Income (loss), tax and cash allocations to Equity Investor after the flip date | | 5% | | 5% | | 5% | | No flip | | No flip |
| Variable Investment Entity termination | | June 2019 | | N/A | | November 2019 | | N/A | | N/A |
Equity Investor 2 | | N/A | | US Bank | | N/A | | Exelon Corporation | | Exelon Corporation |
Put option date 3 | | N/A | | 1st anniversary of flip point | | N/A | | N/A | | N/A |
| Company cash contributions | | $ | 22,442 |
| | $ | 32,223 |
| | $ | 22,658 |
| | $ | 11,669 |
| | $ | 27,932 |
|
Company non-cash contributions 4 | | $ | — |
| | $ | 8,655 |
| | $ | 2,082 |
| | $ | — |
| | $ | — |
|
| Equity Investor cash contributions | | $ | 139,993 |
| | $ | 36,967 |
| | $ | 20,152 |
| | $ | 84,782 |
| | $ | 227,344 |
|
| Debt financing | | $ | 144,813 |
| | $ | 44,968 |
| | $ | 28,676 |
| | $ | 99,000 |
| | $ | 131,237 |
|
| Activity as of December 31, 2019: | | | | | | | | | | |
| Distributions to Equity Investor | | $ | 176,364 |
| | $ | 4,803 |
| | $ | 4,462 |
| | $ | 6,692 |
| | $ | 70,591 |
|
| Debt repayment—principal | | $ | 144,813 |
| | $ | 6,631 |
| | $ | 28,676 |
| | $ | 18,012 |
| | $ | 9,453 |
|
| Activity as of December 31, 2018: | | | | | | | | | | |
| Distributions to Equity Investor | | $ | 116,942 |
| | $ | 4,063 |
| | $ | 1,807 |
| | $ | 4,568 |
| | $ | 66,745 |
|
| Debt repayment—principal | | $ | 65,114 |
| | $ | 4,431 |
| | $ | 3,953 |
| | $ | 15,543 |
| | $ | 5,780 |
|
| Activity as of December 31, 2017: | | | | | | | | | | |
| Distributions to Equity Investor | | $ | 111,296 |
| | $ | 3,324 |
| | $ | 1,404 |
| | $ | 2,565 |
| | $ | 60,286 |
|
| Debt repayment—principal | | $ | 53,726 |
| | $ | 3,041 |
| | $ | 3,077 |
| | $ | 13,697 |
| | $ | 2,834 |
|
| |
1 Installed base decreased from December 31, 2018 due to the repurchase of 36 megawatts of our Energy Servers during 2019 under the PPA II and PPA IIIb upgrade of Energy Servers. See disclosures above. |
2 Investor name represents ultimate parent of subsidiary financing the project. |
3 Investor right on the certain date, upon giving us advance written notice, to sell the membership interests to us or resign or withdraw from the investment partnership. |
4 Non-cash contributions consisted of warrants that were issued by us to respective lenders to each PPA Entity, as required by such entity’s credit agreements. The corresponding values are amortized using the effective interest method over the debt term. |
Some of our PPA Entities contain structured provisions whereby the allocation of income and equity to the Equity Investors changes at some point in time after the formation of the PPA Entity. The change in allocations to Equity Investors (or the "flip") occurs based either on a specified future date or once the Equity Investors reaches its targeted rate of return. For PPA Entities with a specified future date for the flip, the flip occurs January 1 of the calendar year immediately following the year that includes the fifth anniversary of the date the last site achieves commercial operation. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | PPA IIIa | | | | PPA IV | | PPA V |
| Overview: | | | | | | | | | | | | |
| Maximum size of installation (in megawatts) | | | | | | 10 | | | | 21 | | 40 |
| Installed size (in megawatts) | | | | | | 10 | | | | 19 | | 37 |
| Term of power purchase agreements (in years) | | | | | | 15 | | | | 15 | | 15 |
| First system installed | | | | | | Feb-13 | | | | Sep-14 | | Jun-15 |
| Last system installed | | | | | | Jun-14 | | | | Mar-16 | | Dec-16 |
| Income (loss) and tax benefits allocation to Equity Investor | | | | | | 99% | | | | 90% | | 99% |
| Cash allocation to Equity Investor | | | | | | 99% | | | | 90% | | 90% |
| Income (loss), tax and cash allocations to Equity Investor after the flip date | | | | | | 5% | | | | No flip | | No flip |
Equity Investor 1 | | | | | | US Bank | | | | Exelon Corporation | | Exelon Corporation |
Put option date 2 | | | | | | 1st anniversary of flip point | | | | N/A | | N/A |
| Company cash contributions | | | | | | $ | 32,223 | | | | | $ | 11,669 | | | $ | 27,932 | |
Company non-cash contributions 3 | | | | | | $ | 8,655 | | | | | $ | — | | | $ | — | |
| Equity Investor cash contributions | | | | | | $ | 36,967 | | | | | $ | 84,782 | | | $ | 227,344 | |
| Debt financing | | | | | | $ | 44,968 | | | | | $ | 99,000 | | | $ | 131,237 | |
| Activity as of December 31, 2021: | | | | | | | | | | | | |
| Distributions to Equity Investor | | | | | | $ | 4,897 | | | | | $ | 12,848 | | | $ | 26,601 | |
| Debt repayment—principal | | | | | | $ | 13,899 | | | | | $ | 25,045 | | | $ | 132,587 | |
| Activity as of December 31, 2020: | | | | | | | | | | | | |
| Distributions to Equity Investor | | | | | | $ | 4,847 | | | | | $ | 8,852 | | | $ | 24,809 | |
| Debt repayment—principal | | | | | | $ | 10,513 | | | | | $ | 21,163 | | | $ | 16,475 | |
| Activity as of December 31, 2019: | | | | | | | | | | | | |
| Distributions to Equity Investor | | | | | | $ | 4,803 | | | | | $ | 6,692 | | | $ | 70,591 | |
| Debt repayment—principal | | | | | | $ | 6,631 | | | | | $ | 18,012 | | | $ | 9,453 | |
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1 Investor name represents ultimate parent of subsidiary financing the project. |
2 Investor right on the certain date, upon giving us advance written notice, to sell the membership interests to us or resign or withdraw from the investment partnership. |
3 Non-cash contributions consisted of warrants that were issued by us to respective lenders to each PPA Entity, as required by such entity’s credit agreements. The corresponding values are amortized using the effective interest method over the debt term. |
The noncontrolling interests in PPA IIIa are redeemable as a result of the put option held by the Equity Investors as of December 31, 2019. The noncontrolling interests in PPA II, IIIa2021 and PPA IIIb were redeemable as a result of the put option held
by the Equity Investors as of December 31, 2018. The redemption value is the put amount.2020. At December 31, 2019,2021 and 2018,2020, the carrying value of redeemable noncontrolling interests of $0.4$0.3 million and $57.3$0.4 million, respectively, exceeded the maximum redemption value.
PPA Entities’ Aggregate Assets and Liabilities
Generally, Operating Companythe assets of an operating company owned by an investment company can be used to settle only the Operating Companyoperating company obligations, and Operating Companythe operating company creditors do not have recourse to us. The following are the aggregate carrying values of our VIEs for theirVIEs' assets and liabilities in our consolidated balance sheets, after eliminations of intercompany transactions and balances, were as followsincluding each of the PPA Entities in the PPA IIIa transaction, the PPA IV transaction and the PPA V transaction (in thousands):
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| | | December 31, | | December 31, |
| | 2021 | | 2020 |
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| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 1,541 | | | $ | 1,421 | |
| Restricted cash | | 3,078 | | | 4,698 | |
| Accounts receivable | | 5,112 | | | 4,420 | |
| Customer financing receivable | | 5,784 | | | 5,428 | |
| Prepaid expenses and other current assets | | 3,071 | | | 3,048 | |
| Total current assets | | 18,586 | | | 19,015 | |
| Property and equipment, net | | 228,546 | | | 252,020 | |
| Customer financing receivable, non-current | | 39,484 | | | 45,268 | |
| Restricted cash, non-current | | 23,239 | | | 15,320 | |
| Other long-term assets | | 2,362 | | | 37 | |
| Total assets | | $ | 312,217 | | | $ | 331,660 | |
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| Liabilities | | | | |
| Current liabilities: | | | | |
| | | | |
| Accrued expenses and other current liabilities | | $ | 194 | | | $ | 19,510 | |
| Deferred revenue and customer deposits | | 662 | | | 662 | |
| Non-recourse debt | | 17,483 | | | 120,846 | |
| Total current liabilities | | 18,339 | | | 141,018 | |
| Deferred revenue and customer deposits, non-current | | 5,410 | | | 6,072 | |
| Non-recourse debt, non-current | | 217,417 | | | 102,045 | |
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| Total liabilities | | $ | 241,166 | | | $ | 249,135 | |
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| | | December 31, |
| | | 2019 1 | | 2018 2 |
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| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 1,894 |
| | $ | 5,295 |
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| Restricted cash | | 2,244 |
| | 2,917 |
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| Accounts receivable | | 4,194 |
| | 7,516 |
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| Customer financing receivable | | 5,108 |
| | 5,594 |
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| Prepaid expenses and other current assets | | 3,587 |
| | 4,909 |
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| Total current assets | | 17,027 |
| | 26,231 |
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| Property and equipment, net | | 275,481 |
| | 399,060 |
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| Customer financing receivable, non-current | | 50,747 |
| | 67,082 |
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| Restricted cash | | 15,045 |
| | 27,854 |
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| Other long-term assets | | 607 |
| | 2,692 |
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| Total assets | | $ | 358,907 |
| | $ | 522,919 |
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| Liabilities | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | — |
| | $ | 724 |
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| Accrued expenses and other current liabilities | | 1,391 |
| | 1,442 |
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| Deferred revenue and customer deposits | | 662 |
| | 786 |
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| Current portion of debt | | 12,155 |
| | 21,162 |
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| Total current liabilities | | 14,208 |
| | 24,114 |
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| Derivative liabilities | | 8,459 |
| | 3,626 |
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| Deferred revenue | | 6,735 |
| | 8,696 |
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| Long-term portion of debt | | 223,267 |
| | 323,360 |
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| Other long-term liabilities | | 2,355 |
| | 1,798 |
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| Total liabilities | | $ | 255,024 |
| | $ | 361,594 |
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1These amounts include our VIEs:We consolidated each PPA IIIa,Entity as VIEs in the PPA IV transaction and the PPA V.
2 These amounts include our VIEs: PPA II, PPA IIIa, PPA IIIb, PPA IV and PPA V.
As stated above,V transaction, as we are aremain the minority shareholder in each of these transactions but have determined that we are the PPA Entities for the administrationprimary beneficiary of our Bloom Electrons program.these VIEs. These PPA Entities contain debt that is non-recourse to us. The PPA Entities alsous and own Energy Server assets for which we do not have title. Although we will continue to have Power Purchase Agreement Program entities in the future and offer customers the ability to purchase electricity without the purchase of our Energy Servers, we do not intend to be a minority investor in any new Power Purchase Agreement Program entities.
We believe that by presenting assets and liabilities separate from the PPA Entities, we provide a better view of the true operations of our core business. The table below provides detail into the assets and liabilities of Bloom Energy separate from the PPA Entities. The following table shows Bloom Energy'sprovides our stand-alone assets and liabilities, those of the PPA Entities combined, and theseour consolidated balances as of December 31, 2019,2021 and December 31, 20182020 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 | | |
| | | Bloom Energy | | PPA Entities | | Consolidated | | Bloom Energy | | PPA Entities | | Consolidated | | | | | | |
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| Assets | | | | | | | | | | | | | | | | | | |
| Current assets | | $ | 787,834 | | | $ | 18,586 | | | $ | 806,420 | | | $ | 599,589 | | | $ | 19,015 | | | $ | 618,604 | | | | | | | |
| Long-term assets | | 625,520 | | | 293,631 | | | 919,151 | | | 523,138 | | | 312,645 | | | 835,783 | | | | | | | |
| Total assets | | $ | 1,413,354 | | | $ | 312,217 | | | $ | 1,725,571 | | | $ | 1,122,727 | | | $ | 331,660 | | | $ | 1,454,387 | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | |
| Current liabilities | | $ | 315,792 | | | $ | 856 | | | $ | 316,648 | | | $ | 295,359 | | | $ | 20,172 | | | $ | 315,531 | | | | | | | |
| Current portion of debt | | 8,348 | | | 17,483 | | | 25,831 | | | — | | | 120,846 | | | 120,846 | | | | | | | |
| Long-term liabilities | | 669,759 | | | 5,410 | | | 675,169 | | | 600,489 | | | 6,072 | | | 606,561 | | | | | | | |
| Long-term portion of debt | | 283,482 | | | 217,417 | | | 500,899 | | | 168,008 | | | 102,045 | | | 270,053 | | | | | | | |
| Total liabilities | | $ | 1,277,381 | | | $ | 241,166 | | | $ | 1,518,547 | | | $ | 1,063,856 | | | $ | 249,135 | | | $ | 1,312,991 | | | | | | | |
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| | | December 31, 2019 | | December 31, 2018 |
| | | Bloom Energy | | PPA Entities | | Consolidated | | Bloom Energy | | PPA Entities | | Consolidated |
| | | | | | | | | As Restated | | | | As Restated |
| Assets | | | | | | | | | | | | |
| Current assets | | $ | 455,680 |
| | $ | 17,027 |
| | $ | 472,707 |
| | $ | 637,703 |
| | $ | 26,231 |
| | $ | 663,934 |
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| Long-term assets | | 508,004 |
| | 341,880 |
| | 849,884 |
| | 361,172 |
| | 496,688 |
| | 857,860 |
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| Total assets | | $ | 963,684 |
| | $ | 358,907 |
| | $ | 1,322,591 |
| | $ | 998,875 |
| | $ | 522,919 |
| | $ | 1,521,794 |
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| Liabilities | | | | | | | | | | | | |
| Current liabilities | | $ | 234,328 |
| | $ | 2,053 |
| | $ | 236,381 |
| | $ | 224,503 |
| | $ | 2,952 |
| | $ | 227,455 |
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| Current portion of debt | | 325,428 |
| | 12,155 |
| | 337,583 |
| | 8,686 |
| | 21,162 |
| | 29,848 |
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| Long-term liabilities | | 599,709 |
| | 17,549 |
| | 617,258 |
| | 499,177 |
| | 14,120 |
| | 513,297 |
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| Long-term portion of debt | | 75,962 |
| | 223,267 |
| | 299,229 |
| | 388,073 |
| | 323,360 |
| | 711,433 |
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| Total liabilities | | $ | 1,235,427 |
| | $ | 255,024 |
| | $ | 1,490,451 |
| | $ | 1,120,439 |
| | $ | 361,594 |
| | $ | 1,482,033 |
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14. Commitments and Contingencies
Commitments
Facilities Leases
We lease most of our facilities, office buildings and equipment under operating leases that expire at various dates through December 2028. Our lease for our former corporate offices in Sunnyvale, California expired in December 2018. We entered into a lease for our corporate headquarters located in San Jose, California, for 181,000 square feet of office space commencing January 2019 and expiring in December 2028. Our headquarters is used for administration, research and development and sales and marketing.
Additionally, we lease various manufacturing facilities in Sunnyvale, California and Mountain View, California. Our current lease for our Sunnyvale manufacturing facilities, entered into in April 2005, expires in 2020. Our current lease for our manufacturing facilities at Mountain View, entered into in December 2011, expired in December 2019 and is extended on a month to month arrangement. These plants together comprise approximately 281,265 square feet of space. We lease additional office space as field offices in the United States and around the world including in India, the Republic of Korea, China and Taiwan.
During the years ended December 31, 2019, 2018 and 2017, rent expense for all occupied facilities was $7.8 million, $6.3 million and $5.2 million, respectively.
Equipment Leases
Beginning in December 2015, we are a party to master lease agreements that provide for the sale of our Energy Servers to third parties and the simultaneous leaseback of the systems which we then sublease to customers. The lease agreements expire on various dates through 2025 and there was no recorded rent expense for the years ended December 31, 2019, 2018 and 2017.
At December 31, 2019, future minimum lease payments under operating leases and financing obligations were as follows (in thousands):
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| | Operating Leases Obligations | | Financing Obligations | | Sublease Payments1 |
| 2020 | $ | 7,250 |
| | $ | 37,840 |
| | $ | (37,840 | ) |
| 2021 | 5,495 |
| | 38,726 |
| | (38,726 | ) |
| 2022 | 4,168 |
| | 39,680 |
| | (39,680 | ) |
| 2023 | 4,230 |
| | 40,582 |
| | (40,582 | ) |
| 2024 | 4,357 |
| | 38,442 |
| | (38,442 | ) |
| Thereafter | 17,913 |
| | 117,592 |
| | (117,592 | ) |
| Total lease payments | $ | 43,413 |
| | 312,862 |
| | $ | (312,862 | ) |
| Less: imputed interest | | | (184,184 | ) | |
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| Total lease obligations | | | 128,678 |
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| Less: current obligations | | | (10,993 | ) | |
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| Long-term lease obligations | | | $ | 117,685 |
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1 Sublease Payments primarily represents the fees received by the bank from our end customer for the electricity generated by our Energy Servers leased under our Managed Services and other similar arrangements, which also pay down our financing obligation to the bank.
Managed Services Financing Obligations - Our managed services arrangements are classified as capital leases and are recorded as financing transactions, while the sublease arrangements with the end customer are classified as operating leases. Payments received from the financier are recorded as financing obligations. These obligations are included in each agreements' contract value and are recorded as short-term or long-term liabilities based on the estimated payment dates. The long-term financing obligations were $446.2 million and $385.6 million as of December 31, 2019 and 2018, respectively. The difference between these obligations and the principal obligations in the table above will be offset against the carrying value of the related Energy Servers at the end of the lease and the remainder recognized as a gain at that point. We recognize revenue for the electricity generated by allocating the total proceeds of the sublease payments based on the relative standalone selling prices to electricity revenue and to service revenue.
Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and to ensure an adequate supply of inventories, we have agreements with our component suppliers and contract manufacturers to allow long lead-time component inventory procurement based on a rolling production forecast. We are contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with its forecasts. We can generally give notice of order cancellation at least 90 days prior to the delivery date. However, we issue purchase orders to our component suppliers and third-party manufacturers that may not be cancelable. As of December 31, 2019 and 2018, we had no material open purchase orders with our component suppliers and third-party manufacturers that are not cancelable.
Power Purchase Agreement Program - Under the terms of the Bloom Electrons program (see Note 13, Power Purchase Agreement Programs), customers agree to purchase power from our Energy Servers at negotiated rates, generally for periods of up to twenty-one years. We are responsible for all operating costs necessary to maintain, monitor and repair the Energy Servers, including the fuel necessary to operate the systems under certain PPA contracts. The risk associated with the future market price of fuel purchase obligations is mitigated with commodity contract futures.The PPA Entities guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. The PPA Entities monitor the need for any accruals arising from such guaranties, which are calculated as the difference between committed and actual power output or between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by the contractual rates with the customer. Amounts payable under these guaranties are accrued in periods when the guaranties are not met and are recorded in cost of service revenue in the consolidated statements of operations. We paid $3.5 million, $0.9 million and $3.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of our Energy Servers. The lenders have commitments to a letter of credit ("LC") facility with the aggregate principal amount of $6.2 million. The LC facility is to fund the Debt Service Reserve Account. The amount reserved under the LC as of December 31, 2019 and 2018 was $5.0 million and $5.0 million, respectively.
In 2019, pursuant to the PPA II upgrade of Energy Servers, we agreed to indemnify SPDS for losses that may be incurred in the event of certain regulatory, legal or legislative development and established a cash-collateralized letter of credit for this purpose. As of December 31, 2019, the balance of this cash-collateralized letter of credit was $108.7 million.
In 2019, pursuant to the PPA IIIb upgrade of Energy Servers, we have restricted cash of $20.0 million which has been pledged for a seven-year period to secure our operations and maintenance obligations with respect to the totality of our obligations to the financier. All or a portion of such funds would be released if we meet certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within the first five-year period, the funds would still be released to us over the following two years as long as the Energy Servers continue to perform in compliance with our warranty obligations.
Contingencies
Indemnification Agreements - We enter into standard indemnification agreements with our customers and certain other business partners in the ordinary course of business. Our exposure under these agreements is unknown because it involves future claims that may be made against us but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.
Delaware Economic Development Authority - In March 2012, we entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 million as an incentive to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. The grant contains two types of milestones that we must complete to retain the entire amount of the grant proceeds. The first milestone was to provide employment for 900 full time workers in Delaware by the end of the first recapture period of September 30, 2017. The second milestone was to pay these full-time workers a cumulative total of $108.0 million in compensation by September 30, 2017. There are two additional recapture periods at which time we must continue to employ 900 full time workers and the cumulative total compensation paid by us is required to be at least $324.0 million by September 30, 2023. As of December 31, 2019, we had 323 full time workers in Delaware and paid $120.1 million in cumulative compensation. As of December 31, 2018, we had 335 full time workers in Delaware and paid $92.0 million in cumulative compensation. We have so far received $12.0 million of the grant which is contingent upon meeting the milestones through September 30, 2023. In the event that we do not meet the milestones, we may have to repay the Delaware Economic Development Authority, including up to $3.1 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. As of December 31, 2019, we paid $1.5 million for recapture provisions and have recorded $10.5 million in other long-term liabilities for potential recapture.
Self-Generation Incentive Program ("SGIP") - Our PPA Entities’ customers receive payments under the SGIP which is a program specific to the State of California that provides financial incentives for the installation of qualifying new self-generation equipment that we own. The SGIP program issues 50% of the fully anticipated amount in the first year the equipment is placed into service. The remaining incentive is then paid based on the size of the equipment (i.e., nameplate kilowatt capacity) over the subsequent five years.
The SGIP program has operational criteria primarily related to fuel mixture and minimum output for the first five years after the qualified equipment is placed in service. If the operational criteria are not fulfilled, it could result in a partial refund of funds received. However, for certain PPA Entities, we make SGIP reservations on behalf of the PPA Entity and, therefore, the PPA Entity bears the risk of loss if these funds are not paid.
Investment Tax Credits ("ITCs") - Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives. Ours purchase of Energy Servers were by the PPA Entities and, therefore, the PPA Entities bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future.
Legal Matters - From time to time, we are involved in disputes, claims, litigation, investigations, proceedings and/or other legal actions consisting of commercial, securities and employment matters that arise in the ordinary course of business. We review all legal matters at least quarterly and assesses whether an accrual for loss contingencies needs to be recorded. The assessment reflects the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular situation. We record an accrual for loss contingencies when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so the actual liability in any such matters may be materially different from our estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on our consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.
In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a Statement of Claim with the American Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27, 2014 (the “Confidential Agreement”). On May 7, 2019, KPCB and NEA were dismissed with prejudice. On June 15, 2019, a Second Amended Statement of Claim was filed against us alleging securities fraud, fraudulent inducement, a breach of the Confidential Agreement, and violation of the California unfair competition law. On July 16, 2019, we filed our Answering Statement and Affirmative Defenses. On September 27, 2019, we filed a motion to dismiss the Statement of Claim. On March 24, 2020, the Tribunal denied our motion to dismiss in part, and ordered that Claimant’s relief is limited to rescission of the Confidential Agreement or remedies consistent with rescission, and not expectation damages. We do not believe Claimant’s claims supporting rescission have merit nor that Claimants can remit to us the monetary benefits they already obtained under the Confidential Agreement. We have recorded no loss contingency related to this claim.
In June 2019, Messrs. Daubenspeck and Badger filed a complaint against our CEO, our CFO and our former CFO in the United States District Court for the Northern District of Illinois, Case No. 1:19-cv-04305, asserting nearly identical claims as those in the pending arbitration discussed above. The lawsuit has been stayed pending the outcome of the arbitration. We believe the complaint to be without merit and, as a result, we have recorded no loss contingency related to this claim.
In March 2019, the Lincolnshire Police Pension Fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara, against us, certain members of our senior management, certain of our directors and the underwriters in our initial public offering alleging violations under Sections 11 and 15 of the Securities Act of 1933, as amended, for alleged misleading statements or omissions in our Form S-1 Registration Statement filed with the Securities and Exchange Commission in connection with our July 25, 2018 initial public offering. Two related class action cases were subsequently filed in the Santa Clara County Superior Court against the same defendants containing the same allegations; Rodriquez vs Bloom Energy et al. was filed on April 22, 2019 and Evans vs Bloom Energy et al. was filed on May 7, 2019. These cases have been consolidated. Plaintiffs' Consolidated Amended Complaint was filed with the court on September 12, 2019. On October 4, 2019, defendants moved to stay the lawsuit pending the federal district court action discussed below. On December 7, 2019, the Superior Court issued an order staying the action through resolution of the parallel federal litigation mentioned below. We believe the complaint to be without merit and we intend to vigorously defend.
In May 2019, Elissa Roberts filed a class action complaint in the federal district court for the Northern District of California against us, certain members of our senior management team, and certain of our directors alleging violations under Section 11 and 15 of the Securities Act of 1933, as amended, for alleged misleading statements or omissions in our Form S-1 Registration Statement filed with the Securities and Exchange Commission in connection with our July 25, 2018 initial public offering. On September 3, 2019, James Hunt was appointed as lead plaintiff and Levi & Korsinsky was appointed as plaintiff’s counsel. On November 4, 2019, plaintiffs filed an amended complaint adding the underwriters in our initial public offering, claims under Sections 10b and 20a of the Securities Exchange Act of 1934 and extending the class period to September 16, 2019. We believe the complaint to be without merit and we intend to vigorously defend.
In November 2019, Michael Bolouri filed a class action complaint in the federal district court for the Northern District of California against us, certain members of our senior management, certain of our directors and the underwriters in our initial public offering, alleging violations under Section 11 and 15 of the Securities Act of 1933, as amended, and violations under Sections 10b and 20a of the Securities Exchange Act of 1934 for alleged misleading statements or omissions in our Form S-1 Registration Statement filed with the Securities and Exchange Commission in connection with our July 25, 2018 initial public offering and continuing through September 16, 2019. On December 11, 2019, a notice of voluntary dismissal was filed by the plaintiff and the case has now been dismissed.
In September 2019, we received a books and records demand from purported Company stockholder Dennis Jacob (“Jacob Demand”). The Jacob Demand cites allegations from the September 17, 2019 report prepared by admitted short seller Hindenburg Research. In November 2019, we received a substantially similar books and records demand from the same law firm on behalf of purported Company stockholder Michael Bolouri (“Bolouri Demand” and, together with the Jacob Demand, the “Demands”). On January 13, 2020, Messrs. Jacob and Bolouri filed a complaint in the Delaware Court of Chancery to enforce the Demands in the matter styled Jacob v. Bloom Energy Corp., C.A. No. 2020-0023-JRS. On March 9, 2020, Messrs. Jacob and Bolouri filed an amended complaint in the Delaware Court of Chancery to add allegations regarding the restatement.
In March 2020, Francisco Sanchez filed a class action complaint in Santa Clara County Superior Court against us alleging certain wage and hour violations under the California Labor Code and Industrial Welfare Commission Wage Orders and that we engaged in unfair business practices under the California Business and Professions Code. We are still investigating the allegations but believe the complaint to be without merit and, as a result, we have recorded no loss contingency related to this claim.
15. Segment Information
Segment and the Chief Operating Decision Maker
Our chief operating decision makers ("CODMs"), our Chief Executive Officer and the Chief Financial Officer, review financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The CODMs allocate resources and make operational decisions based on direct involvement with our operations and product development efforts. We are managed under a functionally-based organizational structure with the head of each function reporting to the Chief Executive Officer. The CODMs assess performance, including incentive compensation, based upon consolidated operations performance and financial results on a consolidated basis. As such, we have a single operating unit structure and are a single reporting segment.
Concentration of Geographic Risk
Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. Additionally, we sell our Energy Servers in Japan, China, India, and the Republic of Korea (collectively, our "Asia Pacific region"). In the year ended December 31, 2019 and 2018, total revenue in the Asia Pacific region was 23% and 14%, respectively, of our total revenue.
16.12. Related Party Transactions
Our operations includedinclude the following related party transactions (in thousands):
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| | | 2019 | | 2018 | | 2017 |
| | | | | | | |
| Total revenue from related parties | | $ | 228,100 |
| | $ | 32,381 |
| | $ | 2,176 |
|
| Interest expense to related parties | | 6,756 |
| | 8,893 |
| | 12,265 |
|
Consulting expenses paid to related parties 1 (included in general and administrative expense) | | — |
| | 125 |
| | 206 |
|
1As of July 2019, we no longer have a consultant considered to be a related party. |
As of December 31, 2019 and 2018, we had $55.8 million and $64.1 million, respectively, in debt and convertible notes from investors considered to be related parties. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended
December 31, | | |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | |
| Total revenue from related parties | | | | | | $ | 16,038 | | | $ | 7,562 | | | $ | 228,100 | |
| Interest expense to related parties | | | | | | — | | | 2,513 | | | 6,756 | |
Bloom Energy Japan Limited
In May 2013, we entered into a joint venture with Softbank Corp. ("Softbank"), which iswas accounted for as an equity method investment. Under this arrangement, we sellsold Energy Servers and provideprovided maintenance services to the joint venture. On July 1, 2021 (the "BEJ Closing Date"), we acquired Softbank's 50% interest in the joint venture for a cash payment of $2.0 million and subject to a $3.6 million earn out. As of the BEJ Closing Date, Bloom Energy Japan Limited ("Bloom Energy Japan") is no longer considered a related party. For additional information, see Note 17 - Business Combinations.
For the yearyears ended December 31, 20192021 and 2018,2020, we recognized related party total revenue of $4.2$1.6 million and $32.4$3.4 million, respectively. Accounts receivable from this joint venture was $2.4 million as of December 31, 20192020.
SK ecoplant Joint Venture and $3.3 million as of December 31, 2018.Strategic Partnership
Diamond State Generation Partners, LLC
On June 14,In September 2019, we entered into a transactionjoint venture agreement with SP Diamond State Class B Holdings (SPDS)SK ecoplant to establish a light-assembly facility in the Republic of Korea for sales of certain portions of our Energy Server for the PPA II upgradestationary utility and commercial and industrial market in the Republic of Energy Servers. In connection with the closing of this transaction, SPDS was admittedKorea. The joint venture is majority controlled and managed by us and is accounted for as a member of Diamond State Generation Partners, LLC ("DSGP"). DSGP, an operating company was a wholly owned subsidiary of DSGH prior to June 14, 2019. As a result ofconsolidated subsidiary. For the PPA II upgrade of Energy Servers transaction, we determined that we no longer retain a controlling interest in DSGPyears ended December 31, 2021 and therefore it will no longer be consolidated as a variable interest entity, or VIE, into our consolidated financial statements as of June 30, 2019. DSGP is considered to be a related party as, through our interest in DSGH, we held an interest in DSGP through December 23, 2019. As a result of the PPA II Upgrade,2020, we recognized related party revenue of approximately $223.9 million, comprised of product revenue of approximately $216.9$14.5 million and installation revenue of $7.0$4.2 million, for the year ended December 31, 2019. See Note 13, Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers. We had no accounts receivable from DSGP asrespectively. As of December 31, 2019.2021 and 2020, we had outstanding accounts receivable of $4.4 million and none, respectively.
Consulting Arrangement
On October 23, 2021, we expanded our existing relationship with SK ecoplant. In January 2009,connection with the execution of the strategic partnership, we entered into a consulting agreement with General Colin L. Powell, a member of our board of directors,Securities Purchase Agreement pursuant to which General Powell performswe agreed to sell and issue to SK ecoplant 10,000,000 shares of Series A Redeemable Convertible Preferred Stock. In addition, SK ecoplant acquired an option to acquire a variable number of shares of our Class A Common Stock and acquired certain rights and provisions relating to the arrangement under this strategic planning and advisory services for us. In 2018, General Powell's compensation was revised to $125,000.0 per year, plus reimbursement for reasonable expenses. In July 2019, the consulting agreement was amended to further reduce the compensation payable to General Powell such that he is no longer designated as a related party for reporting purposes.partnership. For additional information, see Note 18 - SK ecoplant Strategic Investment.
Debt to Related Parties
The following is a summary of ourWe had no debt andor convertible notes from investors considered to be related parties as of December 31, 2021.
13. Commitments and Contingencies
Commitments
Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and to ensure an adequate supply of inventories, we have agreements with our component suppliers and contract manufacturers to allow long lead-time component inventory procurement based on a rolling production forecast. We are contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with our forecasts. We can generally give notice of order cancellation at least 90 days prior to the delivery date. However, we issue purchase orders to our component suppliers and third-party manufacturers that may not be cancellable. As of December 31, 2021 and December 31, 2020, we had no material open purchase orders with our component suppliers and third-party manufacturers that are not cancellable.
Portfolio Financings Performance Guarantees - Under the terms of the PPA I transaction, customers agree to purchase power from our Energy Servers at negotiated rates, generally for periods of up to 15 years. We are responsible for all operating costs necessary to maintain, monitor and repair the Energy Servers, including the fuel necessary to operate the systems under certain PPAs. The risk associated with the future market price of fuel purchase obligations is mitigated with commodity contract futures. For additional information, see Note 11 - Portfolio Financings. We guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. The PPA Entities monitor the need for any accruals arising from such guaranties, which are calculated as the difference between committed and actual power output or between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by the contractual rates with the customer. Amounts payable under these guaranties are accrued in periods when the guaranties are not met and are recorded in cost of service revenue in the consolidated statements of operations. We paid $0.3 million and $7.4 million for the years ended December 31, 2021 and 2020, respectively.
Letters of Credit - In 2019, pursuant to the PPA II upgrade of Energy Servers, we agreed to indemnify our financing partner for losses that may be incurred in the event of certain regulatory, legal or legislative development and established a cash-collateralized LC facility for this purpose. As of December 31, 2021, the balance of this cash-collateralized LC was $99.4 million, of which $41.7 million and $57.7 million is recognized as short-term and long-term restricted cash, respectively.
Pledged Funds - In 2019, pursuant to the PPA IIIb upgrade of Energy Servers, we established a restricted cash fund of $20.0 million, which had been pledged for a seven-year period to secure our operations and maintenance obligations with respect to the totality of our obligations to the financier. All or a portion of such funds would be released if we meet certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within the first five-year period, the funds would still be released to us over the following two years as long as the Energy Servers continue to perform in compliance with our warranty obligations. As of December 31, 2021, the balance of the long-term restricted cash fund was $6.7 million.
Contingencies
Indemnification Agreements - We enter into standard indemnification agreements with our customers and certain other business partners in the ordinary course of business. Our exposure under these agreements is unknown because it involves future claims that may be made against us but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.
Delaware Economic Development Authority - In March 2012, we entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 million to us as an incentive to establish a new manufacturing
facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. The grant contains two types of milestones that we must complete to retain the entire amount of the grant proceeds. The first milestone was to provide employment for 900 full time workers in Delaware by the end of the first recapture period of September 30, 2017. The second milestone was to pay these full-time workers a cumulative total of $108.0 million in compensation by September 30, 2017. There are two additional recapture periods at which time we must continue to employ 900 full time workers and the cumulative total compensation paid by us is required to be at least $324.0 million by September 30, 2023. As of December 31, 2021, we had 484 full time workers in Delaware and paid $191.4 million in cumulative compensation. As of December 31, 2020, we had 424 full time workers in Delaware and paid $152.2 million in cumulative compensation. We have so far received $12.0 million of the grant, which is contingent upon meeting the milestones through September 30, 2023. In the event that we do not meet the milestones, we may have to repay the Delaware Economic Development Authority, up to an additional $2.5 million on September 30, 2023. We repaid $1.5 million and $1.0 million of the grant in 2017 and 2021, respectively. As of December 31, 2021, we have recorded $9.5 million in other long-term liabilities for potential future repayments of this grant.
Investment Tax Credits- Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed of or otherwise ceases to be qualified investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction of the incentives. Energy Servers are purchased by the PPA Entities, other financial sponsors, or customers and, therefore, these parties bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future although in certain limited circumstances we do provide indemnification for such risk.
Legal Matters - We are involved in various legal proceedings that arise in the ordinary course of business. We review all legal matters at least quarterly and assess whether an accrual for loss contingencies needs to be recorded. We record an accrual for loss contingencies when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so the actual liability in any such matters may be materially different from our estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on our consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.
In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a statement of claim with the American Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27, 2014 (the “Confidential Agreement”). On May 7, 2019, KPCB and NEA were dismissed with prejudice. On June 15, 2019, a second amended statement of claim was filed against us alleging securities fraud, fraudulent inducement, a breach of the Confidential Agreement, and violation of the California unfair competition law. On July 16, 2019, we filed our answering statement and affirmative defenses. On September 27, 2019, we filed a motion to dismiss the statement of claim. On March 24, 2020, the Tribunal denied our motion to dismiss in part, and ordered that claimant’s relief is limited to rescission of the Confidential Agreement or remedies consistent with rescission, and not expectation damages. On September 14, 2020, the Tribunal issued an interim order dismissing the claimant’s remaining claims and requesting further briefing on the issue of prevailing party. On November 10, 2020, the Tribunal issued an order declaring us the prevailing party and requesting a motion for award of attorney’s fees. On March 17, 2021, we received the final award for attorneys fees and costs. On March 26, 2021, we filed a petition in the Northern District of California to confirm the award. Messrs. Badger and Daubenspeck have taken the position that the award should be vacated, including on the ground that one of the arbitrators made insufficient disclosures or was biased against them. The Northern District of California rejected the arguments made by Messrs. Badger and Daubenspeck and on September 8, 2021, issued an order granting our petition to confirm the award, and entered judgment in our favor for the attorneys fees and costs awarded by the Tribunal. On October 1, 2021, Mr. Badger and Mr. Daubenspeck filed a notice of appeal with the United States Court of Appeal for the Ninth Circuit.
In June 2019, Messrs. Daubenspeck and Badger filed a complaint against our Chief Executive Officer ("CEO") and our former Chief Financial Officer ("CFO") in the United States District Court for the Northern District of Illinois asserting nearly identical claims as those in the pending arbitration discussed above. The lawsuit was stayed pending the outcome of the arbitration. The stay was lifted on October 20, 2020. On March 19, 2021 we filed a motion to dismiss the case on several grounds. On May 3, 2021, plaintiffs filed a motion to stay the lawsuit pending the outcome of the petition to confirm the arbitration award in the Northern District of California. We believe the complaint to be without merit and that the issues were previously tried and dismissed in the arbitration. We are unable to estimate any range of reasonably possible losses.
In March 2019, the Lincolnshire Police Pension Fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara, against us, certain members of our senior management, certain of our directors and the underwriters in our July 25, 2018 IPO alleging violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the "Securities Act"), for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with the IPO. Two related class action cases were subsequently filed in the Santa Clara County Superior Court against the same defendants containing the same allegations; Rodriquez vs Bloom Energy et al. was filed on April 22, 2019 and Evans vs Bloom Energy et al. was filed on May 7, 2019. These cases have been consolidated. Plaintiffs' consolidated amended complaint was filed with the court on September 12, 2019. On October 4, 2019, defendants moved to stay the lawsuit pending the federal district court action discussed below. On December 7, 2019, the Superior Court issued an order staying the action through resolution of the parallel federal litigation mentioned below. We believe the complaint to be without merit and we intend to defend this action vigorously. We are unable to estimate any range of reasonably possible losses.
In May 2019, Elissa Roberts filed a class action complaint in the federal district court for the Northern District of California against us, certain members of our senior management team, and certain of our directors alleging violations under Section 11 and 15 of the Securities Act for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with the IPO. On September 3, 2019, the court appointed a lead plaintiff and lead plaintiffs’ counsel. On November 4, 2019, plaintiffs filed an amended complaint adding the underwriters in the IPO and our auditor as defendants for the Section 11 claim, as well as adding claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act" ) against us, and certain members of our senior management team. The amended complaint alleged a class period for all claims from the time of our IPO until September 16, 2019. On April 21, 2020, plaintiffs filed a second amended complaint, which continued to make the same claims and added allegations pertaining to the restatement and, as to claims under the Exchange Act, extended the putative class period through February 12, 2020. On July 1, 2020, we and the other defendants filed a motion to dismiss the second amended complaint. On September 29, 2021, the court entered an order dismissing with leave to amend (1) five of seven statements or groups of statements alleged to violate Sections 11 and 15 of the Securities Act and (2) all allegations under the Exchange Act. All allegations against our auditors were also dismissed. Plaintiffs elected not to amend the complaint and instead on October 22, 2021 filed a motion for entry of final judgment in favor of our auditors so that plaintiffs could appeal the dismissal of those claims. The court denied that motion on December 1, 2021 and in response plaintiffs have filed a motion asking the court to certify an interlocutory appeal as to the accounting claims. Separately, the claims for violation of Sections 11 and 15 of the Securities Act that were not dismissed by the court are proceeding to discovery. A case schedule has been set, with a trial scheduled for November 2023. We believe the claims to be without merit and we intend to defend this action vigorously. We are unable to predict the outcome of this litigation at this time and accordingly are not able to estimate any range of reasonably possible losses.
In September 2019, we received a books and records demand from purported stockholder Dennis Jacob (“Jacob Demand”). The Jacob Demand cites allegations from the September 17, 2019 report prepared by admitted short seller Hindenburg Research. In November 2019, we received a substantially similar books and records demand from the same law firm on behalf of purported stockholder Michael Bolouri (“Bolouri Demand” and, together with the Jacob Demand, the “Demands”). On January 13, 2020, Messrs. Jacob and Bolouri filed a complaint in the Delaware Court of Chancery to enforce the Demands in the matter styled Jacob, et al. v. Bloom Energy Corp., C.A. No. 2020-0023-JRS. On March 9, 2020, Messrs. Jacob and Bolouri filed an amended complaint in the Delaware Court of Chancery to add allegations regarding the restatement. The court held a one-day trial on December 7, 2020. On February 25, 2021, the Delaware Court of Chancery issued a decision rejecting the Bolouri Demand but granting in part the Jacob Demand allowing limited access to certain books and records pertaining to the allegations made in the Hindenburg Research Report. On March 29, 2021, the Court of Chancery entered a Final Order and Judgment regarding the required production of documents. On April 28, 2021, we produced documents to Mr. Jacob responsive to the Final Order and Judgment. We are unable to estimate any range of reasonably possible losses.
In March 2020, Francisco Sanchez filed a class action complaint in Santa Clara County Superior Court against us alleging certain wage and hour violations under the California Labor Code and Industrial Welfare Commission Wage Orders and that we engaged in unfair business practices under the California Business and Professions Code, and in July 2020 he amended his complaint to add claims under the California Labor Code Private Attorneys General Act ("PAGA"). On November 30, 2020, we filed a motion to compel arbitration and the motion was to be heard on March 5, 2021. On February 24, 2021, Mr. Sanchez dismissed the individual and class action claims without prejudice, leaving one cause of action for enforcement of the Private Attorney Generals Act. In April 2021, an amended complaint reflecting these changes was filed with the Santa Clara Superior Court. The parties attended a mediation on January 10, 2022, and agreed to resolve the PAGA and individual claims for an amount under $1.0 million. The parties are preparing an agreement, which, once executed, will be presented to the court for approval in compliance with PAGA.
In June 2021, we filed a petition for writ of mandate and a complaint for declaratory and injunctive relief in the Santa Clara Superior Court against the City of Santa Clara for failure to issue building permits for two of our customer installations
and asking the court to require the City of Santa Clara to process and issue the building permits. In October 2021, we filed an amended petition and complaint that asserts additional constitutional and tort claims based on the City’s failure to timely issue the Energy Server permits. Discovery has commenced and we are aggressively pursuing all claims. On February 4, 2021, the City of Santa Clara filed a Motion for Demurrer. which will be heard on April 21, 2021. If we are unable to secure building permits for these customer installations in a timely fashion, our customers will terminate their contracts with us and select another energy provider. In addition, if we are no longer able to install our Energy Servers in Santa Clara under building permits, we may not able to secure future customer bookings for installation in the City of Santa Clara.
In February 2022, Plansee SE/Global Tungsten & Powders Corp. ("Plansee/GTP"), a former supplier, filed a request for expedited arbitration with the World Intellectual Property Organization Arbitration and Mediation Center in Geneva Switzerland, for various claims arising under a Supply Agreement between Plansee/GTP and Bloom Energy Corporation including infringement of several claims of U.S. Patent Nos. 8,802,328, 8,753,785 and 9,434,003. We believe Plansee/GTP’s claims to be without merit and we intend to defend this action vigorously. Given that the case is still in its early stages, we are unable to predict the outcome of this arbitration at this time and accordingly are not able to estimate any range of reasonably possible losses.
14. Segment Information
Our chief operating decision makers ("CODM"), the CEO and the CFO, review financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The CODM allocate resources and make operational decisions based on direct involvement with our operations and product development efforts. We are managed under a functionally-based organizational structure with the head of each function reporting to the CEO. The CODM assess performance, including incentive compensation, based upon consolidated operations performance and financial results on a consolidated basis. As such, we have a single operating unit structure and are a single reporting segment.
15. Income Taxes
The components of income (loss) before the provision for income taxes are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | |
| United States | | | | | | $ | (195,208) | | | $ | (179,657) | | | $ | (324,467) | |
| Foreign | | | | | | 2,885 | | | 826 | | | 1,634 | |
| Total | | | | | | $ | (192,323) | | | $ | (178,831) | | | $ | (322,833) | |
|
| | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Net Carrying Value |
| | | | Current | | Long-
Term | | Total |
| | | | | | | | | |
| Recourse debt from related parties: | | | | | | | | |
| 6% convertible promissory notes due December 2020 from related parties | | $ | 20,801 |
| | $ | 20,801 |
| | $ | — |
| | $ | 20,801 |
|
| Non-recourse debt from related parties: | | | | | | | | |
| 7.5% term loan due September 2028 from related parties | | 38,337 |
| | 3,882 |
| | 31,088 |
| | 34,970 |
|
| Total debt from related parties | | $ | 59,138 |
| | $ | 24,683 |
| | $ | 31,088 |
| | $ | 55,771 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | |
| Current: | | | | | | | | | | |
| Federal | | | | | | $ | — | | | $ | — | | | $ | — | |
| State | | | | | | 107 | | | 21 | | | 26 | |
| Foreign | | | | | | 1,012 | | | 472 | | | 595 | |
| Total current | | | | | | 1,119 | | | 493 | | | 621 | |
| Deferred: | | | | | | | | | | |
| Federal | | | | | | — | | | — | | | — | |
| State | | | | | | — | | | — | | | — | |
| Foreign | | | | | | (73) | | | (237) | | | 12 | |
| Total deferred | | | | | | (73) | | | (237) | | | 12 | |
| Total provision for income taxes | | | | | | $ | 1,046 | | | $ | 256 | | | $ | 633 | |
A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | |
| Tax at federal statutory rate | | | | | | $ | (40,387) | | | $ | (37,552) | | | $ | (67,795) | |
| State taxes, net of federal effect | | | | | | 107 | | | 21 | | | 26 | |
| Impact on noncontrolling interest | | | | | | 6,074 | | | 4,522 | | | 4,001 | |
| Elimination of acquiree deferred taxes | | | | | | 2,149 | | | — | | | — | |
| Non-U.S. tax effect | | | | | | 412 | | | 78 | | | 264 | |
| Nondeductible expenses | | | | | | 3,603 | | | 908 | | | 144 | |
| Stock-based compensation | | | | | | 5,307 | | | 5,956 | | | 6,484 | |
| Loss on debt extinguishment | | | | | | — | | | 214 | | | — | |
| U.S. tax on foreign earnings (GILTI) | | | | | | 59 | | | 203 | | | 221 | |
| Acquisition contingent liability | | | | | | (762) | | | — | | | — | |
| Change in valuation allowance | | | | | | 24,484 | | | 25,906 | | | 57,288 | |
| Provision for income taxes | | | | | | $ | 1,046 | | | $ | 256 | | | $ | 633 | |
For the year ended December 31, 2021, we recognized a provision for income taxes of $1.0 million on a pre-tax loss of $192.3 million, for an effective tax rate of (0.5)%. For the year ended December 31, 2020, we recognized a provision for income taxes of $0.3 million on a pre-tax loss of $178.8 million, for an effective tax rate of (0.1)%. For the year ended December 31, 2019, we recognized a provision for income taxes of $0.6 million on a pre-tax loss of $322.8 million, for an effective tax rate of (0.2)%. The effective tax rate for 2021, 2020 and 2019 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.
Significant components of our deferred tax assets and liabilities consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | December 31, |
| | | | | | 2021 | | 2020 |
| | | | | | | | |
| Tax credits and net operating loss carryforwards | | | | | | $ | 562,384 | | | $ | 510,599 | |
| Lease liabilities | | | | | | 151,937 | | | 128,151 | |
| Depreciation and amortization | | | | | | 9,516 | | | 7,541 | |
| Deferred revenue | | | | | | 23,208 | | | 27,134 | |
| Accruals and reserves | | | | | | 14,524 | | | 15,068 | |
| Stock-based compensation | | | | | | 20,138 | | | 35,815 | |
| | | | | | | | |
| Other items - deferred tax assets | | | | | | 28,258 | | | 25,931 | |
| Gross deferred tax assets | | | | | | 809,965 | | | 750,239 | |
| Valuation allowance | | | | | | (689,257) | | | (614,958) | |
| Net deferred tax assets | | | | | | 120,708 | | | 135,281 | |
| Investment in PPA entities | | | | | | (7,911) | | | (10,757) | |
| | | | | | | | |
| Discount upon issuance of debt | | | | | | — | | | (29,513) | |
| Managed services - deferred costs | | | | | | (20,935) | | | (21,898) | |
| Right-of-use assets and leased assets | | | | | | (89,165) | | | (70,818) | |
| Other items - deferred tax liability | | | | | | (1,742) | | | (1,413) | |
| Gross deferred tax liabilities | | | | | | (119,753) | | | (134,399) | |
| Net deferred tax asset | | | | | | $ | 955 | | | $ | 882 | |
Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In August 2020, FASB issued ASU 2020-06. The new standard simplifies the accounting for convertible instruments by eliminating the conversion option separation model for convertible debt that can be settled in cash. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted as early as fiscal years beginning after December 15, 2020. We elected to early adopted ASU 2020-06 as of January 1, 2021, and upon adoption, we combined the previously separated equity component with the liability component of Green Notes that were issued in 2021. There will no longer be a debt discount representing the difference between the carrying value and the principal of the convertible debt instrument. As a result, the deferred tax liabilities for debt discount established at issuance was adjusted accordingly upon the adoption of ASU 2020-06, offset by a corresponding impact to the increase of valuation allowance, thus has no impact on our financial results.
A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, is not more-likely-than-not to be realized. Management believes that, based on available evidence, both positive and negative, it is not more likely than not that the net U.S. deferred tax assets will be utilized. As a result, a full valuation allowance has been recorded.
The following is a summary of our debtvaluation allowance for deferred tax assets was $689.3 million and convertible notes from investors considered to be related parties$615.0 million as of December 31, 20182021 and 2020, respectively. The net change in the total valuation allowance for the years ended December 31, 2021 and 2020 was an increase of $74.3 million and a decrease of $18.6 million, respectively.
At December 31, 2021, we had federal and California net operating loss carryforwards of $2.1 billion and $1.3 billion, respectively, to reduce future taxable income. The expiration of federal and California net operating loss carryforwards is summarized as follows (in billions):
| | | | | | | | | | | | | | |
| | | Federal | | California |
| Expire in 2022 - 2026 | | $ | 0.1 | | | $ | — | |
| Expire in 2027-2031 | | 0.6 | | | 0.5 | |
| Expire beginning in 2032 | | 1.0 | | | 0.8 | |
| Carryforward indefinitely | | 0.4 | | | — | |
| Total | | $ | 2.1 | | | $ | 1.3 | |
At December 31, 2021, we also had other state net operating loss carryforwards of $366.1 million, that will begin to expire in 2022. In addition, we had approximately $26.2 million of federal research credit, $6.6 million of federal investment tax credit, and $15.9 million of state research credit carryforwards.
The expiration of the federal and California credit carryforwards is summarized as follows (in millions):
| | | | | | | | | | | | | | |
| | Federal | | California |
| Expire in 2022 - 2026 | | $ | 1.7 | | | $ | — | |
| Expire in 2027 - 2031 | | 7.2 | | | — | |
| Expire beginning in 2032 | | 23.9 | | | — | |
| Carryforward indefinitely | | — | | | 15.9 | |
| Total | | $ | 32.8 | | | $ | 15.9 | |
We have not reflected deferred tax assets for the federal and state research credit carryforwards as the entire amount of the carryforwards represent unrecognized tax benefits.
Internal Revenue Code Section 382 (“Section 382”) limits the use of net operating loss and tax credit carryforwards in certain situations in which changes occur in our capital stock ownership. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If we should have an ownership change, as defined by the tax law, utilization of the net operating loss and credit carryforwards could be significantly reduced. We completed a Section 382 analysis through December 31, 2021. Based on this analysis, Section 382 limitations will not have a material impact on our net operating loss and credit carryforwards related to any ownership changes.
During the year ended December 31, 2021, the amount of uncertain tax positions increased by $4.3 million. We have not recorded any uncertain tax liabilities associated with our tax positions.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits were as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | Years Ended
December 31, |
| | | | | | 2021 | | 2020 |
| Unrecognized tax benefits beginning balance | | | | | | $ | 37,753 | | | $ | 34,480 | |
| Gross decrease for tax positions of prior year | | | | | | — | | | — | |
| Gross increase for tax positions of prior year | | | | | | 95 | | | 307 | |
| Gross increase for tax positions of current year | | | | | | 4,162 | | | 2,966 | |
| Unrecognized tax benefits end balance | | | | | | $ | 42,010 | | | $ | 37,753 | |
If fully recognized in the future, there would be no impact to the effective tax rate, and $38.7 million would result in adjustments to the valuation allowance. We do not have any tax positions that are expected to significantly increase or decrease within the next 12 months.
Interest and penalties, to the extent there are any, would be included in income tax expense. There were no interest or penalties accrued during or for the years ended December 31, 2021 and 2020.
|
| | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Net Carrying Value |
| | | | Current | | Long-
Term | | Total |
| | | | | | | | | |
| Recourse debt from related parties: | | | | | | | | |
| 6% convertible promissory notes due December 2020 from related parties | | $ | 27,734 |
| | $ | — |
| | $ | 27,734 |
| | $ | 27,734 |
|
| Non-recourse debt from related parties: | | | | | | | | |
| 7.5% term loan due September 2028 from related parties | | 40,538 |
| | 2,200 |
| | 34,119 |
| | 36,319 |
|
| Total debt from related parties | | $ | 68,272 |
| | $ | 2,200 |
| | $ | 61,853 |
| | $ | 64,053 |
|
The Tax Cuts and Jobs Act of 2017 ("Tax Act") includes a provision referred to as Global Intangible Low-Taxed Income ("GILTI") which generally imposes a tax on foreign income in excess of a deemed return on tangible assets. Guidance issued by the Financial Accounting Standards Board in January 2018 allows companies to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which the tax is incurred ("period cost method"), or (ii) account for GILTI in the measurement of deferred taxes ("deferred method"). We elected to account for the tax effects of this provision using the period cost method.
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in the United States on March 27, 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act does not have a material impact on our financial results for the year ended December 31, 2021.
Our accumulated undistributed foreign earnings as of December 31, 2021 have been subject to either the deemed one-time mandatory repatriation under the Tax Act or the current year income inclusion under GILTI regime for U.S. tax purposes. If we were to make actual distributions of some or all of these earnings, including earnings accumulated after December 31, 2017, we would generally incur no additional U.S. income tax but could incur U.S. state income tax and foreign withholding taxes. We have not accrued for these potential U.S. state income tax and foreign withholding taxes because we intend to permanently reinvest our foreign earnings in our international operations. However, any additional income tax associated with the distribution of these earnings would be immaterial.
16. Net Loss per Share Available to Common Stockholders
Net loss per share (basic) available to common stockholders is calculated by dividing net loss available to common stockholders by the weighted-average shares of common stock outstanding for the period. Net loss per share is the same for each class of common stock as they are entitled to the same liquidation and dividend rights. As a result, net loss per share (basic) and net loss per share (diluted) available to common stockholders are the same for both Class A and Class B common stock and are combined for presentation.
Net loss per share (diluted) is computed by using the if-converted method when calculating the potentially dilutive effect, if any, of our convertible notes. Net loss per share (diluted) available to common stockholders is then calculated by dividing the resulting adjusted net loss available to common stockholders by the combined weighted-average number of fully diluted common shares outstanding. There were no adjustments to net loss available to common stockholders (diluted). Equally, there were no adjustments to the weighted average number of outstanding shares of common stock (basic) in arriving at the weighted average number of outstanding shares (diluted), as such adjustments would have been antidilutive.
The following table sets forth the computation of our net loss per share available to common stockholders, basic and diluted (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Numerator: | | | | | | | | | | |
| Net loss attributable to Class A and Class B common stockholders | | | | | | $ | (164,445) | | | $ | (157,553) | | | $ | (304,414) | |
| Deemed dividend | | | | | | — | | | — | | | (2,454) | |
| Net loss available to Class A and Class B common stockholders | | | | | | $ | (164,445) | | | $ | (157,553) | | | $ | (306,868) | |
| Denominator: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Weighted average shares of common stock, basic and diluted | | | | | | 173,438 | | | 138,722 | | | 115,118 | |
| Net loss per share available to Class A and Class B common stockholders, basic and diluted | | | | | | $ | (0.95) | | | $ | (1.14) | | | $ | (2.67) | |
| | | | | | | | | | |
| | |
On December 29, 2021, we issued 10,000,000 shares of Series A Redeemable Convertible Preferred Stock. For additional information, see Note 18 - SK ecoplant Strategic Investment. The following common stock equivalents (in thousands) were excluded from the computation of our net loss per share available to common stockholders, diluted, for the years presented as their inclusion would have been antidilutive:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended
December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| Convertible notes | | | | | | 14,187 | | | 29,729 | | | 27,213 | |
| Redeemable convertible preferred stock | | | | | | 82 | | | — | | | — | |
| Stock options and awards | | | | | | 7,018 | | | 6,109 | | | 4,631 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | 21,287 | | | 35,838 | | | 31,844 | |
17. Business Combinations
On July 1, 2021, we acquired Softbank's 50% interest in Bloom Energy Japan, for an aggregate purchase price of $2.0 million, as set forth in the Share Purchase Agreement between the parties (the "Purchase Agreement"). After purchasing the remaining 50% interest in Bloom Energy Japan from Softbank, we own 100% of Bloom Energy Japan. The transaction was accounted for as a step acquisition, which required the re-measurement of our previously held 50% ownership interest in the joint venture to fair value and the acquired net assets became part of our operations upon closing.
In accordance with ASC 805 Business Combinations, we allocated the purchase price of our acquisitions to the tangible assets, liabilities and intangible assets acquired based on fair values and we recorded the excess purchase price over those fair values as goodwill. The fair value of assets acquired and liabilities assumed as part of this transaction are not material. The fair value of net tangible assets acquired approximated their carrying value. The Purchase Agreement included an earn-out related to a potential sale of Energy Servers to an identified customer (up to 10.5 megawatts of aggregate baseload) for an additional payment of up to approximately $3.6 million, which can be earned on or before the two year anniversary of the BEJ Closing Date.Acquisition-related costs were expensed as incurred and were not material. In the fourth quarter of 2021, we determined that no additional consideration with relation to the earn-out would be paid and the contingency was resolved.
Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the expected benefits of streamlining our marketing and sales activities in Japan. We recognized acquired goodwill of $2.0 million which is recorded in long-term assets as of December 31, 2021. This acquired goodwill is not deductible for tax purposes. In connection with the acquisition and as a result of the re-measurement, we recognized $2.0 million fair value investment on the previously written-off equity investment in our original 50% interest in Bloom Energy Japan as of July 1, 2021 as a gain in other income (expense), net on our consolidated statement of operations. The loss from operations since the acquisition date that had been included in the consolidated statement of operations was $1.1 million.
18. SK ecoplant Strategic Investment
In October 2021, we expanded our existing relationship with SK ecoplant. As part of this arrangement, we amended the previous Preferred Distribution Agreement (“PDA”) and Joint Venture Agreement (“JVA”) with SK ecoplant. The restated PDA establishes SK ecoplant’s purchase commitments for our Energy Servers for the next three years on a take or pay basis as well as the basis for determining the prices at which the Energy Servers and related components will be sold. The restated JVA increases the scope of assembly done by the joint venture facility in the Republic of Korea, which was established in 2019, for the procurement of local parts for our Energy Servers and the assembly of certain portions of the Energy Servers for the South Korean market. We also entered into a new Commercial Cooperation Agreement (the “CCA”) regarding initiatives pertaining to the hydrogen market and general market expansion for our products.
Simultaneous with the execution of the above agreements, we entered into a SPA pursuant to which we agreed to sell and issue to SK ecoplant 10,000,000 shares of Series A RCPS, par value $0.0001 per share, at a purchase price of $25.50 per share for an aggregate purchase price of $255.0 million. On December 29, 2021, the closing of the sale of RCPS was completed and we issued the 10,000,000 shares of RCPS (the "Initial Investment").
In addition to the Initial Investment, the SPA provided SK ecoplant with an option to acquire a variable number of shares of Class A Common Stock (the “Option”). The number of shares SK ecoplant may acquire under the Option (the “Option Shares”) is calculated as the lesser of (i) 11,000,000 shares of Class A Common Stock plus the number of shares of Class A Common Stock that SK ecoplant must hold to become our largest shareholder by no less than 1% of our issued and outstanding capital stock as of the issuance date of the Option Shares; and (ii) 15% of our issued and outstanding capital stock as of the issuance date of the Option Shares. The exercise price of the Option is calculated as the higher of (i) $23.00 per share and (ii) 115% of the volume-weighted average closing price of the 20 consecutive trading day period immediately preceding the exercise of the Option. SK ecoplant may exercise the Option through August 31, 2023, and the transaction must be completed as of November 2019, one related party note holder exchanged $6.930, 2023.
PDA, JVA, CCA and the SPA entered into with SK ecoplant concurrently should be evaluated as a combined contract in accordance with ASC 606 and, to the extent applicable for separated components, under the guidance of Topic 815 - Derivatives and Hedging and applicable subsections and ASC 480 - Distinguishing Liabilities from Equity.
We concluded that the Option is a freestanding financial instrument that should be separately recorded at fair value on the date the SPA was executed. We determined the fair value of the Option on that date to be $9.6 million.
We determined the fair value of the RCPS on the date of issuance thereof to be $218.0 million. We determined that the sale of the RCPS should be recorded at fair value. Accordingly, we allocated the excess of the cash proceeds received of $255.0 million plus the change in fair value of the RCPS between October 23, 2021, and December 29, 2021, of $9.7 million, over the fair value of the RCPS on December 29, 2021, and the fair value of the Option on October 23, 2021, to the PDA. This excess amounted to $37.0 million and will be recognized as revenue over the take or pay period based on an estimate of the revenue we expect to receive under the PDA. Accordingly, during the year ended December 31, 2021, we recognized Product Revenue of $2.8 million in connection with this arrangement. The unrecognized amount of $34.2 million included $7.8 million in deferred revenue and customer deposits and $26.4 million in long-term deferred revenue and customer deposits, non-current, on the consolidated balance sheet.
We revalued the Option to its fair value as of December 31, 2021, and recorded a loss of $3.6 million, which is included in other income (expense), net in our consolidated statements of operations. The fair value of the Option is reflected in Accrued expenses and other current liabilities in our consolidated balance sheet.
The RCPS has been presented outside of permanent equity in the mezzanine section of the consolidated balance sheets because there are certain redemption provisions upon liquidation, dissolution, or deemed liquidation events (which include a change in control and the sale or other disposition of all or substantially all of our assets), which are considered contingent redemption provisions that are not solely within our control.
We incurred transaction costs of $9.8 million in connection with this arrangement. We allocated the transaction costs between the RCPS, and the Option based on their 6% Notesrelative fair values. Accordingly, an amount of $9.4 million is set off against the carrying amount of the RCPS with the balance of $0.4 million included in other income (expense), net in our consolidated statements of operations.
Description of RCPS. The significant rights and preferences of the RCPS are as follows:
Liquidation: Upon the liquidation or dissolution of Bloom, or a deemed liquidation event (which includes a change in control or the sale or other disposition of all or substantially all of our assets), the holders of the RCPS are entitled to receive in preference to the holders of the Common Stock, the greater of (i) their liquidation preference or (ii) an amount they would be entitled to receive on an as-converted basis. The liquidation preference is subject to adjustment in the event of stock splits or combinations, and dividends or other distributions on the Class A Common Stock which are payable in shares of Class A Common Stock. After payment of the liquidation preference to the holders of the RCPS, our remaining assets are available for distribution to the holders of Common Stock on a pro rata basis.
Redemption rights: If approved by a majority of the holders of the RCPS, the RCPS may be redeemed by Bloom after the 10-month anniversary of the issuance date. The redemption price is $25.50 per share.
Additionally, certain redemption provisions apply following liquidation, dissolution, or deemed liquidation events (which include a change in control and the sale or other disposition of all or substantially all of our assets).
Conversion: The RCPS are convertible at any time at SK ecoplant’s option into Class A common stock at $25.50 per share (subject to adjustment in the event of stock splits or combinations, and dividends or other distributions on the Class A Common Stock which are payable in shares of Class A Common Stock).
In addition, on the first anniversary of the issuance date, the RCPS shall automatically convert into shares of Class A Common Stock at the conversion price of $11.25 per share into 616,302 shares of common stock. We repaid $2.2 million and $1.4 million ofin effect at that time.
Protective provisions: Bloom is prohibited from the non-recourse 7.5% term loan principal balance infollowing actions without the years December 31, 2019 and 2018, respectively, and we paid $3.0 million and $3.1 million of interest in the years December 31, 2019 and 2018, respectively. See Note 7, Outstanding Loans and Security Agreements for additional information on our debt facilities.
17. Subsequent Events
Senior Secured Notes Private Placement
On March 31, 2020, we entered into a note purchase agreement (the “Note Purchase Agreement”) with certain investors pursuant to which such investors have agreed to purchase, and we have agreed to issue, $70.0 million of 10.25% Senior Secured Notes due 2027 (the “Senior Secured Notes”) in a private placement (the “Senior Secured Notes Private Placement”). The Senior Secured Notes will be governed by an indenture (the “Senior Secured Notes Indenture”) entered into among us, the guarantors party thereto and U.S. Bank National Association, in its capacity as trustee and collateral agent. The Senior Secured Notes are secured by certain of our operations and maintenance agreements.
The Note Purchase Agreement contains customary representations, warranties and covenants of the parties. Pursuant to the Note Purchase Agreement, the issuance of the Senior Secured Notes and related funding is expected to be consummated no later than May 29, 2020, and is conditioned upon the satisfaction of certain closing conditions set forth in the Note Purchase Agreement, including the release of certain collateral by the 6% Convertible Noteholders, a satisfactory rating by a rating agency and receipt by the Purchasers of customary certificates, legal opinions and other documents.
Interest on the Notes will be payable on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 2020. The Indenture will contain customary events of default and covenants relating to, among other things, the incurrence of debt, affiliate transactions, liens and restricted payments. On or after March 27, 2022, we may redeem all of the Notes at a price equal to 108.00% of the principal amount of the Notes plus accrued and unpaid interest, with such optional redemption prices decreasing to 104.00% on and after March 27, 2023, 102.00% on and after March 27, 2024 and 100.00% on and after March 27, 2026. Before March 27, 2022, we may redeem the Notes upon repayment of a make-whole premium. If we experience a change of control, we must offer to purchase for cash all or any part of each holder’s Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest.
Amendment of Convertible Notes
Amendment Support Agreement
On March 31, 2020, we entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the beneficial owners (the “Noteholders”) of our outstanding 6.0% Convertible Notes due 2020 (the “Convertible Notes”) pursuant to which such Noteholders have agreed to consent to, among other things, certain amendments to the indenture (the “Proposed Amendments”).
The Proposed Amendments will, among other things:
Increase the interest rate of the Convertible Notes to 10% per annum,
Extend the maturity date of the Convertible Notes to December 1, 2021, except that $70.0 million will remain due and payable on September 1, 2020;
Amend the conversion price applicable to the Convertible Notes to $8.00, representing an initial conversion rate of 125.0000 shares of Class B Common Stock per $1,000 principal amount of Notes (subject to customary adjustments);
Add covenants relating to, among other things, the redemption of the Convertible Notes with the proceeds of certain transactions (including equity and debt financings or sales of intellectual property), repayment of outstanding indebtedness and restricted payments and a provision requiring KR Sridhar to remain as CEO of Bloom Energy unless caused by illness, incapacity or death;
Release certain collateral securing the Convertible Notes that will secure the Senior Secured Notes; and
Require that we repay at least $70.0 million of the Convertible Notes on or before September 1, 2020.
Pursuant to the Amendment Support Agreement, the Proposed Amendments were implemented by (i) amending and restating the Original Indenture (as so amended and restated, the “Amended and Restated Indenture”), (ii) amending and restating the Convertible Notes in the form to be attached to the Amended and Restated Indenture, and (iii) executing and delivering an amendment to the security agreement governing the collateral securing the Convertible Notes (the “Security Agreement Amendment” and together with the Amended and Restated Indenture and the Security Agreement Amendment, the “Amendment Documents”), and (iv) executing and delivering certain other documents, instruments, certificates and agreements in connection with and/or as required by the foregoing, in each case on or prior to April 20, 2020 and subject to the satisfaction
of certain customary and other conditions set forth in the Amendment Support Agreement, including the payment of expenses and the delivery of customary certificates, legal opinions and other documents.
On March 31, 2020, we also entered into a Support Agreement (the “Stockholder Support Agreement”) with KR Sridhar, the Chief Executive Officer of the Company (in such capacity, the “Stockholder”) and the beneficial owneraffirmative vote of a majority of the voting powerholders of the Company, pursuant to whichRCPS: (i) increasing the Stockholder has agreed to vote in favorauthorized number of permitting us to settle all conversions of Convertible Notes in shares of ourRCPS; (ii) authorizing or creating any new class of stock that is senior to or on a parity with the RCPS or increasing or decreasing the authorized number of shares of any such new class of stock; (iii) amending the rights, preferences or privileges of the RCPS; and (iv) redeeming the RCPS.
Voting and dividend rights: The holders of the RCPS have no voting rights except on matters related to the RCPS and are not entitled to dividends.
Investor Agreement. In connection with the Initial Investment, we entered into an Investor Agreement with SK ecoplant, which provides for certain rights and restrictions relating to the Initial Investment and the subsequent purchase of the Option Shares:
•Board composition: Following the purchase of the Option Shares and continuing until it owns less than 5% of the Class A Common Stock, orthe holders of the RCPS will be entitled to nominate one member to our board of directors.
•Voting rights: From the date on which SK ecoplant purchases the Option Shares until the date on which it owns less than 5% of the Class BA Common Stock, as applicable,SK ecoplant shall vote in complianceaccordance with all applicable rulesthe majority of our Board of Directors, except that SK ecoplant may vote in its sole discretion on matters regarding any transactions between us and any Korean companies operating in the construction business.
•Restrictions on dispositions: SK ecoplant cannot sell the Option Shares without the prior consent of the New Yorkmajority of our board of directors during the period commencing on the date on which the Options Shares are purchased and continuing until the 2nd anniversary thereof. SK ecoplant has the right to sell the Class A Common Stock Exchange (the “Stockholder Approval”).
Convertible Note Purchase Agreement
In connection with the execution and deliveryreceived on conversion of the Amendment Documents,RCPS prior to its exercise of the Option. However, if SK ecoplant holds the Class A Common Stock received on March 31, 2020, we entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with Foris Ventures, LLC and New Enterprise Associates 10, Limited Partnership (together,conversion of the “Purchasers”), both affiliates of ours, pursuantRCPS at the time it exercises the Option, these share are also subject to which such Purchasers were issued $30 million aggregate principal amount of additional Convertible Notes (the “Additional Convertible Notes”) under the Amended and Restated Indenture. Theaforementioned restriction on disposition.
•Restrictions on beneficial ownership: Following the issuance of the Additional Convertible Notes is expected to occur substantially concurrently withRCPS and continuing until the execution and deliverylater of (i) the second anniversary of the Amendment Documents.
Constellation Note Modification Agreement
In connection with the execution and deliverydate of issuance of the Amendment Documents,Option Shares; (ii) the date on March 31, 2020,which SK ecoplant no longer has the right to designate a director to the board; and (iii) the date on which SK ecoplant owns less than 5% of the shares of Class A Common Stock, SK ecoplant may not, without Bloom’s consent: (i) acquire shares of Class A Common Stock other than as provided by the SPA; (ii) call any stockholders meeting or propose any matter to be voted on by the board; (iii) nominate any person not approved by the board; (iv) support any tender for Bloom’s securities; (v) solicit any proxies; (vi) propose any merger or business combination; or (vii) propose any restructuring or liquidation (amongst other actions).
•Preemptive rights: Subsequent to the purchase of the Option Shares, if we entered into an Amendedissue any shares, SK ecoplant has the right to purchase the number of shares as are required to maintain its ownership percentage, on the same terms and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”) pursuant to which certain terms of our outstanding Amendedconditions and Restated Subordinated Secured Convertible Noteat the same price as issued to Constellation were modified to be no less favorable than the corresponding terms of the Convertible Notes as amended by the Amended and Restated Indenture.other investors.
COVID-19 Pandemic
The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand. Although we have been able to maintain certain of our operations as an “Essential Business” in California and Delaware, other operations have been delayed or suspended under applicable government orders and guidance.
Our headquarters and certain of our manufacturing facilities are located in Santa Clara County, California. On March 17, 2020, Santa Clara County became subject to a government mandated “shelter in place” order, which was superseded by an Executive Order issued by the Governor of California that extends indefinitely. Similarly, effective March 25, 2020, our manufacturing facilities in Newark, Delaware became subject to the Governor of Delaware’s Declaration of a State of Emergency Due to a Public Health Threat initially issued on March 12, 2020 and in effect until further notice. As our manufacturing operations have been designated as “Essential Businesses”, both manufacturing facilities are continuing to operate. However, our installation activities in all areas, but especially New York, Connecticut, New Jersey, California and Massachusetts, are adversely impacted by similar mandates in these jurisdictions, as well as where certain of our customers have shut down or otherwise limited access to their facilities. Additionally, while construction activities have to date been deemed “Essential Businesses” and allowed to proceed in many jurisdictions, we have experienced interruptions and delays caused by confusion related to exemptions for “Essential Businesses” amongst our suppliers and their sub-contractors.
In response, we have closed our headquarters building and directed employees, unless they are directly supporting essential manufacturing production operations or maintenance activities, to work from their homes. This has caused disruptions in certain of our operations, including our research and development, sales, marketing, installation and operations and maintenance activities.
We are also experiencing delays from certain vendors and suppliers that have been affected more directly by COVID-19. Our international operations, including in South Korea and India, have been disrupted by the COVID-19 pandemic and by governmental responses to the pandemic. In India, orders by the National Disaster Management Authority and the Ministry of Home Affairs issued March 24, 2020 have “prescribed a lockdown for containment of COVID-19 Epidemic in the country,” according to the Press Information Bureau of the Government of India. These orders have had the effect of disrupting the supply chain on which we rely for certain parts critical to our manufacturing and maintenance capabilities, which impacts both our sale and installation of new products and our operations and maintenance of previously-sold Energy Servers. Both the primary and secondary sources of a particular part on which we rely are in India. As of the filing of this Form 10-K, we have identified an alternative supplier based in China which is expected to be able to provide the necessary parts by the end of April
2020. Relative to South Korea, we have not seen significant impacts to date in orders and as we do not perform installation services in South Korea, our risks in South Korea are further limited.
We also rely on third party financing for our customer’s purchases of our Energy Servers. We have already experienced one delayed closing due to a financier’s inability to close in light of its own liquidity concerns.
We have also experienced delays and interruptions to our installation activities where customers have shut down or otherwise limited access to their facilities. Additionally, while construction activities have to date been deemed “essential business” and allowed to proceed in many jurisdictions, we have experienced interruptions and delays caused by confusion related to exemptions for “Essential Businesses” amongst our suppliers and their sub-contractors.
The COVID-19 pandemic is expected to negatively impact our results of operations, financial position, and liquidity, but we cannot reasonably estimate the future impact at this time.
Other19. Subsequent Events
There have been no other subsequent events that occurred during the period subsequent to the date of these consolidated financial statements that would require adjustment to our disclosure in the consolidated financial statements as presented.
18. Unaudited Selected Quarterly Financial Data
The consolidated statements of operations data, presented on a quarterly basis for the years ended December 31, 2019 and 2018, are unaudited. These data have been prepared in accordance with U.S. GAAP for interim financial information and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented.
We have restated herein our previously issued unaudited selected quarterly financial data for the quarters ended March 31, 2019, June 30, 2019 and 2018, September 30, 2019 and 2018, and December 31, 2018 and revised our unaudited selected quarterly financial data for the quarter ended March 31, 2018. See Note 2, Restatement and Revision of Previously Issued Consolidated Financial Statements, for further information.
In addition, our unaudited selected quarterly financial data for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019, as previously reported, did not originally reflect the adoption of ASU 2014-09 related to the presentation of ASC 606 Revenue From Contracts With Customers. ASC 606 was adopted in the fourth quarter of 2019 and was applied on the modified retrospective method for periods commencing January 1, 2019. Our condensed consolidated statements of operations data for the interim periods within fiscal year 2019 have been recast accordingly. See Note 1, Accounting Guidance Implemented in Fiscal Year 2019, Revenue Recognition, for additional information related to our adoption of ASU 2014-09.
The following presents our consolidated statements of operations by quarter (in thousands) (unaudited): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 |
| | | Three Months Ended |
| | | Dec. 31 | | Sept. 30 | | June 30 | | March 31 | | Dec. 31 | | Sept. 30 | | June 30 | | March 31 |
| | | | | As Restated and Recast | | As Restated | | As Revised |
| Revenue: | | | | | | | | | | | | | | | | |
| Product | | $ | 158,427 |
| | $ | 163,902 |
| | $ | 144,081 |
| | $ | 90,926 |
| | $ | 103,937 |
| | $ | 102,433 |
| | $ | 78,497 |
| | $ | 115,771 |
|
| Installation | | 14,429 |
| | 21,102 |
| | 13,076 |
| | 12,219 |
| | 11,066 |
| | 24,691 |
| | 19,643 |
| | 12,795 |
|
| Service | | 25,628 |
| | 23,665 |
| | 23,026 |
| | 23,467 |
| | 21,778 |
| | 21,056 |
| | 20,299 |
| | 20,134 |
|
| Electricity | | 15,059 |
| | 15,638 |
| | 20,143 |
| | 20,389 |
| | 20,364 |
| | 20,439 |
| | 19,863 |
| | 19,882 |
|
| Total revenue | | 213,543 |
| | 224,307 |
| | 200,326 |
| | 147,001 |
| | 157,145 |
| | 168,619 |
| | 138,302 |
| | 168,582 |
|
| Cost of revenue: | | | | | | | | | | | | | | | | |
| Product | | 141,782 |
| | 91,697 |
| | 113,228 |
| | 88,772 |
| | 86,154 |
| | 69,053 |
| | 49,603 |
| | 76,465 |
|
| Installation | | 16,901 |
| | 26,141 |
| | 17,685 |
| | 15,760 |
| | 20,651 |
| | 35,506 |
| | 29,951 |
| | 9,198 |
|
| Service | | 17,127 |
| | 36,427 |
| | 18,763 |
| | 27,921 |
| | 31,818 |
| | 24,470 |
| | 19,702 |
| | 24,699 |
|
| Electricity | | 12,785 |
| | 27,317 |
| | 22,300 |
| | 12,984 |
| | 11,601 |
| | 12,180 |
| | 12,062 |
| | 13,785 |
|
| Total cost of revenue | | 188,595 |
| | 181,582 |
| | 171,976 |
| | 145,437 |
| | 150,224 |
| | 141,209 |
| | 111,318 |
| | 124,147 |
|
| Gross profit | | 24,948 |
| | 42,725 |
| | 28,350 |
| | 1,564 |
| | 6,921 |
| | 27,410 |
| | 26,984 |
| | 44,435 |
|
| Operating expenses: | | | | | | | | | | | | | | | | |
| Research and development | | 22,148 |
| | 23,389 |
| | 29,772 |
| | 28,859 |
| | 32,970 |
| | 27,021 |
| | 14,413 |
| | 14,731 |
|
| Sales and marketing | | 17,357 |
| | 17,649 |
| | 18,194 |
| | 20,373 |
| | 24,951 |
| | 21,396 |
| | 8,167 |
| | 8,293 |
|
| General and administrative | | 33,315 |
| | 36,599 |
| | 43,662 |
| | 39,074 |
| | 47,471 |
| | 40,999 |
| | 15,359 |
| | 14,988 |
|
| Total operating expenses | | 72,820 |
| | 77,637 |
| | 91,628 |
| | 88,306 |
| | 105,392 |
| | 89,416 |
| | 37,939 |
| | 38,012 |
|
| Income (loss) from operations | | (47,872 | ) | | (34,912 | ) | | (63,278 | ) | | (86,742 | ) | | (98,471 | ) | | (62,006 | ) | | (10,955 | ) | | 6,423 |
|
| Interest income | | 862 |
| | 1,214 |
| | 1,700 |
| | 1,885 |
| | 1,996 |
| | 1,467 |
| | 444 |
| | 415 |
|
| Interest expense | | (21,635 | ) | | (21,323 | ) | | (22,722 | ) | | (21,800 | ) | | (21,757 | ) | | (22,125 | ) | | (27,147 | ) | | (25,992 | ) |
| Interest expense to related parties | | (1,933 | ) | | (1,605 | ) | | (1,606 | ) | | (1,612 | ) | | (1,628 | ) | | (1,966 | ) | | (2,672 | ) | | (2,627 | ) |
| Other income (expense), net | | 138 |
| | 525 |
| | (222 | ) | | 265 |
| | 636 |
| | (705 | ) | | (855 | ) | | (75 | ) |
| Gain (loss) on revaluation of warrant liabilities and embedded derivatives | | (540 | ) | | (540 | ) | | (540 | ) | | (540 | ) | | 192 |
| | 900 |
| | (19,197 | ) | | (4,034 | ) |
| Loss before income taxes | | (70,980 | ) | | (56,641 | ) | | (86,668 | ) | | (108,544 | ) | | (119,032 | ) | | (84,435 | ) | | (60,382 | ) | | (25,890 | ) |
| Income tax provision (benefit) | | 31 |
| | 136 |
| | 258 |
| | 208 |
| | 1,079 |
| | (3 | ) | | 128 |
| | 333 |
|
| Net loss | | (71,011 | ) | | (56,777 | ) | | (86,926 | ) | | (108,752 | ) | | (120,111 | ) | | (84,432 | ) | | (60,510 | ) | | (26,223 | ) |
| Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (5,178 | ) | | (5,027 | ) | | (5,015 | ) | | (3,832 | ) | | (4,662 | ) | | (3,930 | ) | | (4,512 | ) | | (4,632 | ) |
| Net loss attributable to Class A and Class B common stockholders | | (65,833 | ) | | (51,750 | ) | | (81,911 | ) | | (104,920 | ) | | (115,449 | ) | | (80,502 | ) | | (55,998 | ) | | (21,591 | ) |
| Less: deemed dividend to noncontrolling interest | | (2,454 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net loss available to Class A and Class B common stockholders | | $ | (68,287 | ) | | $ | (51,750 | ) | | $ | (81,911 | ) | | $ | (104,920 | ) | | $ | (115,449 | ) | | $ | (80,502 | ) | | $ | (55,998 | ) | | $ | (21,591 | ) |
| Net loss per share attributable to Class A and Class B common stockholders, basic and diluted | | $ | (0.58 | ) | | $ | (0.44 | ) | | $ | (0.72 | ) | | $ | (0.94 | ) | | $ | (1.06 | ) | | $ | (0.99 | ) | | $ | (5.31 | ) | | $ | (2.08 | ) |
| Weighted average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted | | 118,588 |
| | 116,330 |
| | 113,624 |
| | 111,842 |
| | 109,416 |
| | 81,321 |
| | 10,536 |
| | 10,404 |
|
Restatement and Recasting and Revision of Previously Issued Unaudited Financial Data
Following are the restatement and recasting of previously reported condensed consolidated balance sheets for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019, restatement of previously reported condensed consolidated balance sheets for the quarters ended June 30, 2018 and September 30, 2018, and revision of previously reported condensed consolidated balance sheet for the quarter ended March 31, 2018.
|
| | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Assets | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 320,414 |
| | $ | — |
| | $ | 320,414 |
| | $ | — |
| | $ | 320,414 |
|
| Restricted cash | | 18,419 |
| | — |
| | 18,419 |
| | — |
| | 18,419 |
|
| Accounts receivable | | 84,070 |
| | 3,995 |
| 1 | 88,065 |
| | (2,418 | ) | | 85,647 |
|
| Inventories | | 116,544 |
| | 3,327 |
| 2 | 119,871 |
| | — |
| | 119,871 |
|
| Deferred cost of revenue | | 66,316 |
| | (13,405 | ) | 3 | 52,911 |
| | — |
| | 52,911 |
|
| Customer financing receivable | | 5,717 |
| | — |
| | 5,717 |
| | — |
| | 5,717 |
|
| Prepaid expenses and other current assets | | 28,362 |
| | 1,582 |
| 4 | 29,944 |
| | 129 |
| | 30,073 |
|
| Total current assets | | 639,842 |
| | (4,501 | ) | | 635,341 |
| | (2,289 | ) | | 633,052 |
|
| Property, plant and equipment, net | | 475,385 |
| | 236,246 |
| 5 | 711,631 |
| | — |
| | 711,631 |
|
| Customer financing receivable, non-current | | 65,620 |
| | — |
| | 65,620 |
| | — |
| | 65,620 |
|
| Restricted cash (noncurrent) | | 31,101 |
| | — |
| | 31,101 |
| | — |
| | 31,101 |
|
| Deferred cost of revenue, non-current | | 72,516 |
| | (70,583 | ) | 3 | 1,933 |
| | — |
| | 1,933 |
|
| Other long-term assets | | 34,386 |
| | 8,486 |
| 6 | 42,872 |
| | 2,575 |
| | 45,447 |
|
| Total assets | | $ | 1,318,850 |
| | $ | 169,648 |
| | $ | 1,488,498 |
| | $ | 286 |
| | $ | 1,488,784 |
|
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Accounts payable | | $ | 64,425 |
| | $ | — |
| | $ | 64,425 |
| | $ | — |
| | $ | 64,425 |
|
| Accrued warranty | | 16,736 |
| | (1,219 | ) | 7 | 15,517 |
| | (1,280 | ) | | 14,237 |
|
| Accrued expenses and other current liabilities | | 67,966 |
| | (3,893 | ) | 8 | 64,073 |
| | — |
| | 64,073 |
|
| Financing obligations | | — |
| | 8,819 |
| 10 | 8,819 |
| | — |
| | 8,819 |
|
| Deferred revenue and customer deposits | | 89,557 |
| | (16,153 | ) | 11 | 73,404 |
| | 1,665 |
| | 75,069 |
|
| Current portion of recourse debt | | 15,683 |
| | — |
| | 15,683 |
| | — |
| | 15,683 |
|
| Current portion of non-recourse debt | | 19,486 |
| | — |
| | 19,486 |
| | — |
| | 19,486 |
|
| Current portion of non-recourse debt from related parties | | 2,341 |
| | — |
| | 2,341 |
| | — |
| | 2,341 |
|
| Total current liabilities | | 276,194 |
| | (12,446 | ) | | 263,748 |
| | 385 |
| | 264,133 |
|
| Derivative liabilities | | 11,166 |
| | 4,556 |
| | 15,722 |
| | — |
| | 15,722 |
|
| Deferred revenue and customer deposits, net of current portion | | 201,863 |
| | (115,432 | ) | 11 | 86,431 |
| | 17,320 |
| | 103,751 |
|
| Financing obligations, non-current | | — |
| | 394,037 |
| 10 | 394,037 |
| | — |
| | 394,037 |
|
| Long-term portion of recourse debt | | 357,876 |
| | — |
| | 357,876 |
| | — |
| | 357,876 |
|
| Long-term portion of non-recourse debt | | 284,541 |
| | — |
| | 284,541 |
| | — |
| | 284,541 |
|
| Long-term portion of recourse debt from related parties | | 27,734 |
| | — |
| | 27,734 |
| | — |
| | 27,734 |
|
| Long-term portion of non-recourse debt from related parties | | 33,417 |
| | — |
| | 33,417 |
| | — |
| | 33,417 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Other long-term liabilities | | 58,032 |
| | (29,062 | ) | 8 | 28,970 |
| | — |
| | 28,970 |
|
| Total liabilities | | 1,250,823 |
| | 241,653 |
| | 1,492,476 |
| | 17,705 |
| | 1,510,181 |
|
| | | | | | | | | | |
| Redeemable noncontrolling interest | | 58,802 |
| | — |
| | 58,802 |
| | — |
| | 58,802 |
|
| Stockholders’ deficit: | | | | | | | | | | |
| Common stock | | 11 |
| | — |
| | 11 |
| | — |
| | 11 |
|
| Additional paid-in capital | | 2,551,256 |
| | 755 |
| 12 | 2,552,011 |
| | — |
| | 2,552,011 |
|
| Accumulated other comprehensive income | | 5 |
| | — |
| | 5 |
| | — |
| | 5 |
|
| Accumulated deficit | | (2,656,711 | ) | | (72,760 | ) | | (2,729,471 | ) | | (17,419 | ) | | (2,746,890 | ) |
| Total stockholders’ deficit | | (105,439 | ) | | (72,005 | ) | | (177,444 | ) | | (17,419 | ) | | (194,863 | ) |
| Noncontrolling interest | | 114,664 |
| | — |
| | 114,664 |
| | — |
| | 114,664 |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,318,850 |
| | $ | 169,648 |
| | $ | 1,488,498 |
| | $ | 286 |
| | $ | 1,488,784 |
|
| | | | | | | | | | | |
1Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation cost of $3.8 million and reclassification of inventories of $0.5 million held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $13.9 million (short-term) and $70.6 million (long-term), net capitalization of stock-based compensation costs of $2.1 million into current deferred cost of revenue, and the correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $1.7 million.
4Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $232.6 million. This includes a net capitalization of stock-based compensation cost for these assets of $3.6 million.
6Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
7Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements, reducing accrued warranty by $0.4 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued warranty by $0.8 million.
8Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within other expense, net.
|
| | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Assets | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 308,009 |
| | $ | — |
| | $ | 308,009 |
| | $ | — |
| | $ | 308,009 |
|
| Restricted cash | | 23,706 |
| | — |
| | 23,706 |
| | — |
| | 23,706 |
|
| Accounts receivable | | 38,296 |
| | 4,172 |
| 1 | 42,468 |
| | (2,430 | ) | | 40,038 |
|
| Inventories | | 104,934 |
| | 1,955 |
| 2 | 106,889 |
| | — |
| | 106,889 |
|
| Deferred cost of revenue | | 86,434 |
| | (6,127 | ) | 3 | 80,307 |
| | — |
| | 80,307 |
|
| Customer financing receivable | | 5,817 |
| | — |
| | 5,817 |
| | — |
| | 5,817 |
|
| Prepaid expenses and other current assets | | 25,088 |
| | 1,252 |
| 4 | 26,340 |
| | 143 |
| | 26,483 |
|
| Total current assets | | 592,284 |
| | 1,252 |
| | 593,536 |
| | (2,287 | ) | | 591,249 |
|
| Property, plant and equipment, net | | 406,610 |
| | 234,649 |
| 5 | 641,259 |
| | — |
| | 641,259 |
|
| Customer financing receivable, non-current | | 64,146 |
| | — |
| | 64,146 |
| | — |
| | 64,146 |
|
| Restricted cash (noncurrent) | | 39,351 |
| | — |
| | 39,351 |
| | — |
| | 39,351 |
|
| Deferred cost of revenue, non-current | | 59,213 |
| | (55,367 | ) | 3 | 3,846 |
| | — |
| | 3,846 |
|
| Other long-term assets | | 60,975 |
| | 9,118 |
| 6 | 70,093 |
| | 2,743 |
| | 72,836 |
|
| Total assets | | $ | 1,222,579 |
| | $ | 189,652 |
| | $ | 1,412,231 |
| | $ | 456 |
| | $ | 1,412,687 |
|
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Accounts payable | | 61,427 |
| | — |
| | 61,427 |
| | — |
| | 61,427 |
|
| Accrued warranty | | 12,393 |
| | (1,154 | ) | 7 | 11,239 |
| | (999 | ) | | 10,240 |
|
| Accrued expenses and other current liabilities | | 109,722 |
| | (4,329 | ) | 8 | 105,393 |
| | — |
| | 105,393 |
|
| Financing obligations | | — |
| | 10,027 |
| 10 | 10,027 |
| | — |
| | 10,027 |
|
| Deferred revenue and customer deposits | | 129,321 |
| | (13,847 | ) | 11 | 115,474 |
| | 3,264 |
| | 118,738 |
|
| Current portion of recourse debt | | 15,681 |
| | — |
| | 15,681 |
| | — |
| | 15,681 |
|
| Current portion of non-recourse debt | | 7,654 |
| | — |
| | 7,654 |
| | — |
| | 7,654 |
|
| Current portion of non-recourse debt from related parties | | 2,889 |
| | — |
| | 2,889 |
| | — |
| | 2,889 |
|
| Total current liabilities | | 339,087 |
| | (9,303 | ) | | 329,784 |
| | 2,265 |
| | 332,049 |
|
| Derivative liabilities | | 13,079 |
| | 5,096 |
| | 18,175 |
| | — |
| | 18,175 |
|
| Deferred revenue and customer deposits, net of current portion | | 181,221 |
| | (95,840 | ) | 11 | 85,381 |
| | 25,369 |
| | 110,750 |
|
| Financing obligations, non-current | | — |
| | 400,078 |
| 10 | 400,078 |
| | — |
| | 400,078 |
|
| Long-term portion of recourse debt | | 362,424 |
| | — |
| | 362,424 |
| | — |
| | 362,424 |
|
| Long-term portion of non-recourse debt | | 219,182 |
| | — |
| | 219,182 |
| | — |
| | 219,182 |
|
| Long-term portion of recourse debt from related parties | | 27,734 |
| | — |
| | 27,734 |
| | — |
| | 27,734 |
|
| Long-term portion of non-recourse debt from related parties | | 32,643 |
| | — |
| | 32,643 |
| | — |
| | 32,643 |
|
| Other long-term liabilities | | 58,417 |
| | (28,438 | ) | 8 | 29,979 |
| | — |
| | 29,979 |
|
| Total liabilities | | 1,233,787 |
| | 271,593 |
| | 1,505,380 |
| | 27,634 |
| | 1,533,014 |
|
| | | | | | | | | | | |
| Redeemable noncontrolling interest | | 505 |
| | — |
| | 505 |
| | — |
| | 505 |
|
| Stockholders’ deficit: | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Common stock | | 11 |
| | — |
| | 11 |
| | — |
| | 11 |
|
| Additional paid-in capital | | 2,603,279 |
| | 755 |
| 12 | 2,604,034 |
| | — |
| | 2,604,034 |
|
| Accumulated other comprehensive loss | | (148 | ) | | — |
| | (148 | ) | | — |
| | (148 | ) |
| Accumulated deficit | | (2,718,927 | ) | | (82,696 | ) | | (2,801,623 | ) | | (27,178 | ) | | (2,828,801 | ) |
| Total stockholders’ deficit | | (115,785 | ) | | (81,941 | ) | | (197,726 | ) | | (27,178 | ) | | (224,904 | ) |
| Noncontrolling interest | | 104,072 |
| | — |
| | 104,072 |
| | — |
| | 104,072 |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,222,579 |
| | $ | 189,652 |
| | $ | 1,412,231 |
| | $ | 456 |
| | $ | 1,412,687 |
|
| | | | | | | | | | | |
1Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $2.0 million.
3Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $7.4 million (short-term) and $55.4 million (long-term), and net capitalization of stock-based compensation costs of $3.7 million into current deferred cost of revenue, and the correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $2.5 million.
4Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $230.9 million. This includes a net capitalization of stock-based compensation costs for these assets of $3.7 million.
6Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
7Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements, reducing accrued warranty by $0.2 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued warranty by $0.9 million.
8Accrued expenses and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within other expense, net.
|
| | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Assets | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 226,499 |
| | $ | — |
| | $ | 226,499 |
| | $ | — |
| | $ | 226,499 |
|
| Restricted cash | | 14,486 |
| | — |
| | 14,486 |
| | — |
| | 14,486 |
|
| Accounts receivable | | 26,737 |
| | 4,216 |
| 1 | 30,953 |
| | (4,600 | ) | | 26,353 |
|
| Inventories | | 140,372 |
| | (7,765 | ) | 2 | 132,607 |
| | — |
| | 132,607 |
|
| Deferred cost of revenue | | 50,707 |
| | (9,665 | ) | 3 | 41,042 |
| | — |
| | 41,042 |
|
| Customer financing receivable | | 5,919 |
| | — |
| | 5,919 |
| | — |
| | 5,919 |
|
| Prepaid expenses and other current assets | | 25,639 |
| | 2,830 |
| 4 | 28,469 |
| | 173 |
| | 28,642 |
|
| Total current assets | | 490,359 |
| | (10,384 | ) | | 479,975 |
| | (4,427 | ) | | 475,548 |
|
| Property, plant and equipment, net | | 384,377 |
| | 243,008 |
| 5 | 627,385 |
| | — |
| | 627,385 |
|
| Customer financing receivable, non-current | | 62,615 |
| | — |
| | 62,615 |
| | — |
| | 62,615 |
|
| Restricted cash (noncurrent) | | 116,890 |
| | — |
| | 116,890 |
| | — |
| | 116,890 |
|
| Deferred cost of revenue, non-current | | 57,286 |
| | (53,562 | ) | 3 | 3,724 |
| | — |
| | 3,724 |
|
| Other long-term assets | | 58,400 |
| | 9,319 |
| 6 | 67,719 |
| | 3,232 |
| | 70,951 |
|
| Total assets | | $ | 1,169,927 |
| | $ | 188,381 |
| | $ | 1,358,308 |
| | $ | (1,195 | ) | | $ | 1,357,113 |
|
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Accounts payable | | $ | 81,060 |
| | $ | — |
| | $ | 81,060 |
| | $ | — |
| | $ | 81,060 |
|
| Accrued warranty | | 15,295 |
| | (1,159 | ) | 7 | 14,136 |
| | (1,274 | ) | | 12,862 |
|
| Accrued expense and other current liabilities | | 82,150 |
| | (2,534 | ) | 8 | 79,616 |
| | — |
| | 79,616 |
|
| Financing obligations | | — |
| | 10,420 |
| 10 | 10,420 |
| | — |
| | 10,420 |
|
| Deferred revenue and customer deposits | | 88,060 |
| | (13,856 | ) | 11 | 74,204 |
| | 3,347 |
| | 77,551 |
|
| Current portion of recourse debt | | 15,678 |
| | — |
| | 15,678 |
| | — |
| | 15,678 |
|
| Current portion of non-recourse debt | | 7,983 |
| | — |
| | 7,983 |
| | — |
| | 7,983 |
|
| Current portion of non-recourse debt from related parties | | 3,500 |
| | — |
| | 3,500 |
| | — |
| | 3,500 |
|
| Total current liabilities | | 293,726 |
| | (7,129 | ) | | 286,597 |
| | 2,073 |
| | 288,670 |
|
| Derivative liabilities | | 14,648 |
| | 5,636 |
| | 20,284 |
| | — |
| | 20,284 |
|
| Deferred revenue and customer deposits, net of current portion | | 179,712 |
| | (92,390 | ) | 11 | 87,322 |
| | 34,954 |
| | 122,276 |
|
| Financing obligations, non-current | | — |
| | 397,272 |
| 10 | 397,272 |
| | — |
| | 397,272 |
|
| Long-term portion of recourse debt | | 359,959 |
| | — |
| | 359,959 |
| | — |
| | 359,959 |
|
| Long-term portion of non-recourse debt | | 217,334 |
| | — |
| | 217,334 |
| | — |
| | 217,334 |
|
| Long-term portion of recourse debt from related parties | | 27,734 |
| | — |
| | 27,734 |
| | — |
| | 27,734 |
|
| Long-term portion of non-recourse debt from related parties | | 31,781 |
| | — |
| | 31,781 |
| | — |
| | 31,781 |
|
| Other long-term liabilities | | 56,117 |
| | (27,264 | ) | 8 | 28,853 |
| | (1 | ) | | 28,852 |
|
| Total liabilities | | 1,181,011 |
| | 276,125 |
| | 1,457,136 |
| | 37,026 |
| | 1,494,162 |
|
| | | | | | | | | | | |
| Redeemable noncontrolling interest | | 557 |
| | — |
| | 557 |
| | — |
| | 557 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Stockholders’ deficit: | | | | | | | | | | |
| Common stock | | 12 |
| | — |
| | 12 |
| | — |
| | 12 |
|
| Additional paid-in capital | | 2,647,118 |
| | 756 |
| 12 | 2,647,874 |
| | — |
| | 2,647,874 |
|
| Accumulated other comprehensive loss | | (147 | ) | | — |
| | (147 | ) | | — |
| | (147 | ) |
| Accumulated deficit | | (2,753,830 | ) | | (88,500 | ) | | (2,842,330 | ) | | (38,221 | ) | | (2,880,551 | ) |
| Total stockholders’ deficit | | (106,847 | ) | | (87,744 | ) | | (194,591 | ) | | (38,221 | ) | | (232,812 | ) |
| Noncontrolling interest | | 95,206 |
| | — |
| | 95,206 |
| | — |
| | 95,206 |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,169,927 |
| | $ | 188,381 |
| | $ | 1,358,308 |
| | $ | (1,195 | ) | | $ | 1,357,113 |
|
| | | | | | | | | | | |
1Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $3.7 million, and reclassification of inventories of $11.5 million on held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $7.4 million (short-term) and $53.6 million (long-term), and net capitalization of stock-based compensation costs of $0.8 million into current deferred cost of revenue, andthe correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $3.1 million.
4Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $239.3 million. This includes a net capitalization of stock-based compensation costs for these assets of $3.7 million.
6Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
7Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements, reducing accrued warranty by $0.1 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued warranty by $1.1 million.
8Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within other expense, net.
|
| | | | | | | | | | | | |
| | | March 31, 2018 |
| | | As Previously Reported | | Revision Impacts | | As Revised |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 88,227 |
| | $ | — |
| | $ | 88,227 |
|
| Restricted cash | | 22,998 |
| | — |
| | 22,998 |
|
| Short-term investments | | 20,138 |
| | — |
| | 20,138 |
|
| Accounts receivable | | 58,520 |
| | 3,476 |
| 1 | 61,996 |
|
| Inventories | | 97,079 |
| | (3,047 | ) | 2 | 94,032 |
|
| Deferred cost of revenue | | 81,229 |
| | (37,814 | ) | 3 | 43,415 |
|
| Customer financing receivable | | 5,303 |
| | — |
| | 5,303 |
|
| Prepaid expenses and other current assets | | 27,836 |
| | 1,108 |
| 4 | 28,944 |
|
| Total current assets | | 401,330 |
| | (36,277 | ) | | 365,053 |
|
| Property, plant and equipment, net | | 487,169 |
| | 215,059 |
| 5 | 702,228 |
|
| Customer financing receivable, non-current | | 71,337 |
| | — |
| | 71,337 |
|
| Restricted cash (noncurrent) | | 32,367 |
| | — |
| | 32,367 |
|
| Deferred cost of revenue, non-current | | 155,658 |
| | (155,605 | ) | 3 | 53 |
|
| Other long-term assets | | 36,773 |
| | 6,406 |
| 6 | 43,179 |
|
| Total assets | | $ | 1,184,634 |
| | $ | 29,583 |
| | $ | 1,214,217 |
|
| Liabilities, Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 47,755 |
| | $ | — |
| | $ | 47,755 |
|
| Accrued warranty | | 16,723 |
| | (329 | ) | 7 | 16,394 |
|
| Accrued expenses and other current liabilities | | 57,683 |
| | (4,029 | ) | 8 | 53,654 |
|
| Financing obligations | | — |
| | 6,556 |
| 10 | 6,556 |
|
| Deferred revenue and customer deposits | | 99,449 |
| | (27,963 | ) | 11 | 71,486 |
|
| Current portion of recourse debt | | 6,017 |
| | — |
| | 6,017 |
|
| Current portion of non-recourse debt | | 17,583 |
| | — |
| | 17,583 |
|
| Current portion of non-recourse debt from related parties | | 1,525 |
| | — |
| | 1,525 |
|
| Total current liabilities | | 246,735 |
| | (25,765 | ) | | 220,970 |
|
| Preferred stock warrant liabilities | | 6,554 |
| | — |
| | 6,554 |
|
| Derivative liabilities | | 163,854 |
| | 4,217 |
| | 168,071 |
|
| Deferred revenue and customer deposits, net of current portion | | 306,153 |
| | (216,652 | ) | 11 | 89,501 |
|
| Financing obligations, non-current | | — |
| | 321,682 |
| 10 | 321,682 |
|
| Long-term portion of recourse debt | | 517,483 |
| | — |
| | 517,483 |
|
| Long-term portion of non-recourse debt | | 302,345 |
| | — |
| | 302,345 |
|
| Long-term portion of recourse debt from related parties | | 70,202 |
| | — |
| | 70,202 |
|
| Long-term portion of non-recourse debt from related parties | | 35,312 |
| | — |
| | 35,312 |
|
| Other long-term liabilities | | 51,860 |
| | (30,107 | ) | 8 | 21,753 |
|
| Total liabilities | | 1,700,498 |
| | 53,375 |
| | 1,753,873 |
|
| | | | | | |
|
| | | | | | | | | | | | |
| | | March 31, 2018 |
| | | As Previously Reported | | Revision Impacts | | As Revised |
| Redeemable noncontrolling interest | | 58,176 |
| | — |
| | 58,176 |
|
| Convertible redeemable preferred stock | | 1,465,841 |
| | — |
| | 1,465,841 |
|
| Stockholders’ deficit: | | | | | | |
| Common stock | | 1 |
| | — |
| | 1 |
|
| Additional paid-in capital | | 158,605 |
| | — |
| | 158,605 |
|
| Accumulated other comprehensive income | | 117 |
| | — |
| | 117 |
|
| Accumulated deficit | | (2,348,363 | ) | | (23,792 | ) | | (2,372,155 | ) |
| Total stockholders’ deficit | | (2,189,640 | ) | | (23,792 | ) | | (2,213,432 | ) |
| Noncontrolling interest | | 149,759 |
| | — |
| | 149,759 |
|
| Total liabilities, redeemable noncontrolling interest, convertible redeemable preferred stock, stockholders' deficit and noncontrolling interest | | $ | 1,184,634 |
| | $ | 29,583 |
| | $ | 1,214,217 |
|
| | | | | | | |
1Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $0.3 million, and reclassification of inventories of $3.4 million held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $38.2 million (short-term) and $155.6 million (long-term), and net capitalization of stock-based compensation costs of $0.3 million into current deferred cost of revenue.
4Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $214.1 million. This includes a net capitalization of stock-based compensation costs for these assets of $0.9 million.
6Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
7Accrued warranty — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities of $0.3 million.
8Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.
|
| | | | | | | | | | | | |
| | | June 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 91,596 |
| | $ | — |
| | $ | 91,596 |
|
| Restricted cash | | 25,860 |
| | — |
| | 25,860 |
|
| Short-term investments | | 15,703 |
| | — |
| | 15,703 |
|
| Accounts receivable | | 36,804 |
| | 3,638 |
| 1 | 40,442 |
|
| Inventories | | 136,433 |
| | (7,149 | ) | 2 | 129,284 |
|
| Deferred cost of revenue | | 55,476 |
| | (19,822 | ) | 3 | 35,654 |
|
| Customer financing receivable | | 5,398 |
| | — |
| | 5,398 |
|
| Prepaid expenses and other current assets | | 23,003 |
| | 1,817 |
| 4 | 24,820 |
|
| Total current assets | | 390,273 |
| | (21,516 | ) | | 368,757 |
|
| Property, plant and equipment, net | | 477,765 |
| | 219,579 |
| 5 | 697,344 |
|
| Customer financing receivable, non-current | | 69,963 |
| | — |
| | 69,963 |
|
| Restricted cash (noncurrent) | | 32,416 |
| | — |
| | 32,416 |
|
| Deferred cost of revenue, non-current | | 148,934 |
| | (148,874 | ) | 3 | 60 |
|
| Other long-term assets | | 38,386 |
| | 6,855 |
| 6 | 45,241 |
|
| Total assets | | $ | 1,157,737 |
| | $ | 56,044 |
| | $ | 1,213,781 |
|
| Liabilities, Redeemable Noncontrolling Interest, convertible redeemable preferred stock, Stockholders’ Deficit and Noncontrolling Interest | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 53,798 |
| | $ | — |
| | $ | 53,798 |
|
| Accrued warranty | | 14,928 |
| | (641 | ) | 7 | 14,287 |
|
| Accrued expenses and other current liabilities | | 54,832 |
| | (4,900 | ) | 8 | 49,932 |
|
| Financing obligations | | — |
| | 6,792 |
| 10 | 6,792 |
|
| Deferred revenue and customer deposits | | 94,582 |
| | (28,528 | ) | 11 | 66,054 |
|
| Current portion of recourse debt | | 10,351 |
| | — |
| | 10,351 |
|
| Current portion of non-recourse debt | | 18,025 |
| | — |
| | 18,025 |
|
| Current portion of non-recourse debt from related parties | | 1,630 |
| | — |
| | 1,630 |
|
| Total current liabilities | | 248,146 |
| | (27,277 | ) | | 220,869 |
|
| Preferred stock warrant liabilities | | 2,369 |
| | — |
| | 2,369 |
|
| Derivative liabilities | | 188,199 |
| | 4,217 |
| | 192,416 |
|
| Deferred revenue and customer deposits, net of current portion | | 301,550 |
| | (212,920 | ) | 11 | 88,630 |
|
| Financing obligations, non-current | | — |
| | 356,727 |
| 10 | 356,727 |
|
| Long-term portion of recourse debt | | 524,934 |
| | — |
| | 524,934 |
|
| Long-term portion of non-recourse debt | | 298,048 |
| | — |
| | 298,048 |
|
| Long-term portion of recourse debt from related parties | | 72,087 |
| | — |
| | 72,087 |
|
| Long-term portion of non-recourse debt from related parties | | 35,054 |
| | — |
| | 35,054 |
|
| Other long-term liabilities | | 52,153 |
| | (30,589 | ) | 8 | 21,564 |
|
| Total liabilities | | 1,722,540 |
| | 90,158 |
| | 1,812,698 |
|
| | | | | | | |
|
| | | | | | | | | | | | |
| | | June 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Redeemable noncontrolling interest | | 54,940 |
| | — |
| | 54,940 |
|
| Convertible redeemable preferred stock | | 1,465,841 |
| | — |
| | 1,465,841 |
|
| Stockholders’ deficit: | | | | | | |
| Common stock | | 1 |
| | — |
| | 1 |
|
| Additional paid-in capital | | 166,805 |
| | — |
| | 166,805 |
|
| Accumulated other comprehensive income | | 217 |
| | — |
| | 217 |
|
| Accumulated deficit | | (2,394,040 | ) | | (34,114 | ) | | (2,428,154 | ) |
| Total stockholders’ deficit | | (2,227,017 | ) | | (34,114 | ) | | (2,261,131 | ) |
| Noncontrolling interest | | 141,433 |
| | — |
| | 141,433 |
|
| Total liabilities, redeemable noncontrolling interest, convertible redeemable preferred stock, stockholders' deficit and noncontrolling interest | | $ | 1,157,737 |
| | $ | 56,044 |
| | $ | 1,213,781 |
|
| | | | | | | |
1Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation expenses of $0.9 million, and reclassification of inventories of $8.0 million held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
3Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net, a decrease for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $20.1 million (short-term) and $148.9 million (long-term), and the cumulative net absorption in current deferred cost of revenue for overhead in related to stock-based compensation expenses of $0.3 million.
4Prepaid expenses and other current assets — The correction of these misstatements resulted from the cumulative net change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance payments are now classified within prepaid expenses.
5Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $218.6 million. This includes a net capitalization of stock-based compensation costs for these assets of $1.0 million.
6Other long-term assets — The correction of these misstatements resulted from the cumulative net change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within long term prepaid expenses, rather than offset against long-term deferred revenue.
7Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements of $0.4 million and also includes the cumulative net change of accounting for the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements of $0.3 million.
8Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the cumulative change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the cumulative net change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as an accrued liability.
|
| | | | | | | | | | | | |
| | | September 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 395,516 |
| | $ | — |
| | $ | 395,516 |
|
| Restricted cash | | 17,931 |
| | — |
| | 17,931 |
|
| Short-term investments | | 4,494 |
| | — |
| | 4,494 |
|
| Accounts receivable | | 41,485 |
| | 3,776 |
| 1 | 45,261 |
|
| Inventories | | 134,725 |
| | 3,053 |
| 2 | 137,778 |
|
| Deferred cost of revenue | | 66,009 |
| | (20,826 | ) | 3 | 45,183 |
|
| Customer financing receivable | | 5,496 |
| | — |
| | 5,496 |
|
| Prepaid expenses and other current assets | | 32,876 |
| | 3,623 |
| 4 | 36,499 |
|
| Total current assets | | 698,532 |
| | (10,374 | ) | | 688,158 |
|
| Property, plant and equipment, net | | 471,074 |
| | 227,049 |
| 5 | 698,123 |
|
| Customer financing receivable, non-current | | 68,535 |
| | — |
| | 68,535 |
|
| Restricted cash (noncurrent) | | 30,779 |
| | — |
| | 30,779 |
|
| Deferred cost of revenue, non-current | | 139,217 |
| | (139,172 | ) | 3 | 45 |
|
| Other long-term assets | | 37,008 |
| | 7,389 |
| 6 | 44,397 |
|
| Total assets | | $ | 1,445,145 |
| | $ | 84,892 |
| | $ | 1,530,037 |
|
| Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 59,818 |
| | $ | — |
| | $ | 59,818 |
|
| Accrued warranty | | 17,975 |
| | (663 | ) | 7 | 17,312 |
|
| Accrued expenses and other current liabilities | | 66,873 |
| | (2,887 | ) | 8 | 63,986 |
|
| Financing obligations | | — |
| | 7,780 |
| 10 | 7,780 |
|
| Deferred revenue and customer deposits | | 105,265 |
| | (32,527 | ) | 11 | 72,738 |
|
| Current portion of recourse debt | | 1,686 |
| | — |
| | 1,686 |
|
| Current portion of non-recourse debt | | 18,499 |
| | — |
| | 18,499 |
|
| Current portion of non-recourse debt from related parties | | 1,737 |
| | — |
| | 1,737 |
|
| Total current liabilities | | 271,853 |
| | (28,297 | ) | | 243,556 |
|
| Derivative liabilities | | 9,441 |
| | 4,217 |
| | 13,658 |
|
| Deferred revenue and customer deposits, net of current portion | | 290,481 |
| | (201,277 | ) | 11 | 89,204 |
|
| Financing obligations, non-current | | — |
| | 375,254 |
| 10 | 375,254 |
|
| Long-term portion of recourse debt | | 358,363 |
| | — |
| | 358,363 |
|
| Long-term portion of non-recourse debt | | 293,593 |
| | — |
| | 293,593 |
|
| Long-term portion of recourse debt from related parties | | 32,168 |
| | — |
| | 32,168 |
|
| Long-term portion of non-recourse debt from related parties | | 34,765 |
| | — |
| | 34,765 |
|
| Other long-term liabilities | | 48,161 |
| | (29,724 | ) | 8 | 18,437 |
|
| Total liabilities | | 1,338,825 |
| | 120,173 |
| | 1,458,998 |
|
|
| | | | | | | | | | | | |
| | | September 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| | | | | | | |
| Redeemable noncontrolling interest | | 56,446 |
| | — |
| | 56,446 |
|
| Stockholders’ deficit: | | | | | | |
| Common stock | | 11 |
| | — |
| | 11 |
|
| Additional paid-in capital | | 2,387,361 |
| | 755 |
| 12 | 2,388,116 |
|
| Accumulated other comprehensive income | | 272 |
| | — |
| | 272 |
|
| Accumulated deficit | | (2,472,619 | ) | | (36,036 | ) | | (2,508,655 | ) |
| Total stockholders’ deficit | | (84,975 | ) | | (35,281 | ) | | (120,256 | ) |
| Noncontrolling interest | | 134,849 |
| | — |
| | 134,849 |
|
| Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest | | $ | 1,445,145 |
| | $ | 84,892 |
| | $ | 1,530,037 |
|
| | | | | | | |
1Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation costs of $7.2 million, and reclassification of inventories of $4.1 million held for shipments to customers under the Managed Services Program and similar arrangements to construction in progress within property, plant and equipment, net.
3Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $23.8 million (short-term) and $139.2 million (long-term), and net capitalization of stock-based compensation costs of $3.0 million into current deferred cost of revenue.
4Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install costs of goods sold are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $224.6 million. This includes a net capitalization of stock-based compensation costs for these assets of $2.4 million.
6Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and where prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
7Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements, reducing accrued warranty by $0.4 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities of $0.3 million.
8Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within other expense, net.
.
The following tables contain the restatement and recasting of previously reported unaudited condensed consolidated statements of operations for the three-month period ended March 31, 2019, the three- and six-month periods ended June 30, 2019 and the three- and nine-month periods ended September 30, 2019, the restatement of previously reported unaudited condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2018 and the three- and nine-month periods ended September 30, 2018 and the revision of the previously reported unaudited condensed consolidated statement of operations for the three-month period ended March 31, 2018. Reconciliation to the previously reported unaudited condensed consolidated statements of comprehensive loss is not provided, as there is no change to those statements for any period, with the exception of the change to net loss, described in the tables below. Reconciliation to the previously reported unaudited condensed consolidated statements of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficit and noncontrolling is not provided, as there is no change to those statements for any period, with the exception of the correction of an uncorrected misstatement within additional paid-in capital for $0.8 million in the three months ended September 30, 2018.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Revenue: | | | | | | | | | | |
| Product | | $ | 141,734 |
| | $ | (48,171 | ) | a | $ | 93,563 |
| | $ | (2,637 | ) | | $ | 90,926 |
|
| Installation | | 22,258 |
| | (11,195 | ) | a | 11,063 |
| | 1,156 |
| | 12,219 |
|
| Service | | 23,290 |
| | (574 | ) | a | 22,716 |
| | 751 |
| | 23,467 |
|
| Electricity | | 13,425 |
| | 6,964 |
| a | 20,389 |
| | — |
| | 20,389 |
|
| Total revenue | | 200,707 |
| | (52,976 | ) | | 147,731 |
| | (730 | ) | | 147,001 |
|
| Cost of revenue: | | | | | | | | | | |
| Product | | 124,000 |
| | (34,980 | ) | c, d | 89,020 |
| | (248 | ) | | 88,772 |
|
| Installation | | 24,166 |
| | (8,406 | ) | c | 15,760 |
| | — |
| | 15,760 |
|
| Service | | 27,557 |
| | 1,331 |
| b, d | 28,888 |
| | (967 | ) | | 27,921 |
|
| Electricity | | 9,229 |
| | 3,755 |
| c | 12,984 |
| | — |
| | 12,984 |
|
| Total cost of revenue | | 184,952 |
| | (38,300 | ) | | 146,652 |
| | (1,215 | ) | | 145,437 |
|
| Gross profit | | 15,755 |
| | (14,676 | ) | | 1,079 |
| | 485 |
| | 1,564 |
|
| Operating expenses: | | | | | | | | | | |
| Research and development | | 28,859 |
| | — |
| | 28,859 |
| | — |
| | 28,859 |
|
| Sales and marketing | | 20,463 |
| | 2 |
| e | 20,465 |
| | (92 | ) | | 20,373 |
|
| General and administrative | | 39,074 |
| | — |
| | 39,074 |
| | — |
| | 39,074 |
|
| Total operating expenses | | 88,396 |
| | 2 |
| | 88,398 |
| | (92 | ) | | 88,306 |
|
| Income (loss) from operations | | (72,641 | ) | | (14,678 | ) | | (87,319 | ) | | 577 |
| | (86,742 | ) |
| Interest income | | 1,885 |
| | — |
| | 1,885 |
| | — |
| | 1,885 |
|
| Interest expense | | (15,962 | ) | | (5,838 | ) | f | (21,800 | ) | | — |
| | (21,800 | ) |
| Interest expense to related parties | | (1,612 | ) | | — |
| | (1,612 | ) | | — |
| | (1,612 | ) |
| Other income (expense), net | | 265 |
| | — |
| | 265 |
| | — |
| | 265 |
|
| Loss on revaluation of warrant liabilities and embedded derivatives | | — |
| | (540 | ) | g | (540 | ) | | — |
| | (540 | ) |
| Loss before income taxes | | (88,065 | ) | | (21,056 | ) | | (109,121 | ) | | 577 |
| | (108,544 | ) |
| Income tax provision | | 208 |
| | — |
| | 208 |
| | — |
| | 208 |
|
| Net loss | | (88,273 | ) | | (21,056 | ) | | (109,329 | ) | | 577 |
| | (108,752 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (3,832 | ) | | — |
| | (3,832 | ) | | — |
| | (3,832 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (84,441 | ) | | $ | (21,056 | ) | | $ | (105,497 | ) | | $ | 577 |
| | $ | (104,920 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in the accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $37.5 million and installation cost of revenue of $9.2 million, offset by an increase in electricity cost of revenue of $3.7 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.8 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net increase to product cost of revenue of $2.5 million and an increase in service cost of revenue of $1.4 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $0.5 million.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Revenue: | | | | | | | | | | |
| Product | | $ | 179,899 |
| | $ | (22,757 | ) | a | $ | 157,142 |
| | $ | (13,061 | ) | | $ | 144,081 |
|
| Installation | | 17,285 |
| | (5,900 | ) | a | 11,385 |
| | 1,691 |
| | 13,076 |
|
| Service | | 23,659 |
| | (586 | ) | a | 23,073 |
| | (47 | ) | | 23,026 |
|
| Electricity | | 12,939 |
| | 7,204 |
| a | 20,143 |
| | — |
| | 20,143 |
|
| Total revenue | | 233,782 |
| | (22,039 | ) | | 211,743 |
| | (11,417 | ) | | 200,326 |
|
| Cost of revenue: | | | | | | | | | | |
| Product | | 131,952 |
| | (19,005 | ) | c, d | 112,947 |
| | 281 |
| | 113,228 |
|
| Installation | | 22,116 |
| | (4,431 | ) | c | 17,685 |
| | — |
| | 17,685 |
|
| Service | | 19,599 |
| | 920 |
| b, d | 20,519 |
| | (1,756 | ) | | 18,763 |
|
| Electricity | | 18,442 |
| | 3,858 |
| c | 22,300 |
| | — |
| | 22,300 |
|
| Total cost of revenue | | 192,109 |
| | (18,658 | ) | | 173,451 |
| | (1,475 | ) | | 171,976 |
|
| Gross profit | | 41,673 |
| | (3,381 | ) | | 38,292 |
| | (9,942 | ) | | 28,350 |
|
| Operating expenses: | | | | | | | | | | |
| Research and development | | 29,772 |
| | — |
| | 29,772 |
| | — |
| | 29,772 |
|
| Sales and marketing | | 18,359 |
| | 17 |
| e | 18,376 |
| | (182 | ) | | 18,194 |
|
| General and administrative | | 43,662 |
| | — |
| | 43,662 |
| | — |
| | 43,662 |
|
| Total operating expenses | | 91,793 |
| | 17 |
| | 91,810 |
| | (182 | ) | | 91,628 |
|
| Loss from operations | | (50,120 | ) | | (3,398 | ) | | (53,518 | ) | | (9,760 | ) | | (63,278 | ) |
| Interest income | | 1,700 |
| | — |
| | 1,700 |
| | — |
| | 1,700 |
|
| Interest expense | | (16,725 | ) | | (5,997 | ) | f | (22,722 | ) | | — |
| | (22,722 | ) |
| Interest expense to related parties | | (1,606 | ) | | — |
| | (1,606 | ) | | — |
| | (1,606 | ) |
| Other income (expense), net | | (222 | ) | | — |
| | (222 | ) | | — |
| | (222 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | — |
| | (540 | ) | g | (540 | ) | | — |
| | (540 | ) |
| Loss before income taxes | | (66,973 | ) | | (9,935 | ) | | (76,908 | ) | | (9,760 | ) | | (86,668 | ) |
| Income tax provision | | 258 |
| | — |
| | 258 |
| | — |
| | 258 |
|
| Net loss | | (67,231 | ) | | (9,935 | ) | | (77,166 | ) | | (9,760 | ) | | (86,926 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (5,015 | ) | | — |
| | (5,015 | ) | | — |
| | (5,015 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (62,216 | ) | | $ | (9,935 | ) | | $ | (72,151 | ) | | $ | (9,760 | ) | | $ | (81,911 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $18.1 million and installation cost of revenue of $5.2 million, offset by an increase in electricity cost of revenue of $3.8 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.8 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.9 million and an increase in service cost of revenue of $1.0 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $0.5 million.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Revenue: | | | | | | | | | | |
| Product | | $ | 182,616 |
| | $ | (1,292 | ) | a | $ | 181,324 |
| | $ | (17,422 | ) | | $ | 163,902 |
|
| Installation | | 19,010 |
| | (460 | ) | a | 18,550 |
| | 2,552 |
| | 21,102 |
|
| Service | | 23,597 |
| | (779 | ) | a | 22,818 |
| | 847 |
| | 23,665 |
|
| Electricity | | 8,248 |
| | 7,390 |
| a | 15,638 |
| | — |
| | 15,638 |
|
| Total revenue | | 233,471 |
| | 4,859 |
| | 238,330 |
| | (14,023 | ) | | 224,307 |
|
| Cost of revenue: | | | | | | | | | | |
| Product | | 94,056 |
| | (2,085 | ) | c, d | 91,971 |
| | (274 | ) | | 91,697 |
|
| Installation | | 26,162 |
| | (21 | ) | c | 26,141 |
| | — |
| | 26,141 |
|
| Service | | 36,539 |
| | 2,073 |
| b, d | 38,612 |
| | (2,185 | ) | | 36,427 |
|
| Electricity | | 23,249 |
| | 4,068 |
| c | 27,317 |
| | — |
| | 27,317 |
|
| Total cost of revenue | | 180,006 |
| | 4,035 |
| | 184,041 |
| | (2,459 | ) | | 181,582 |
|
| Gross profit | | 53,465 |
| | 824 |
| | 54,289 |
| | (11,564 | ) | | 42,725 |
|
| Operating expenses: | | | | | | | | | | |
| Research and development | | 23,389 |
| | — |
| | 23,389 |
| | — |
| | 23,389 |
|
| Sales and marketing | | 18,125 |
| | 43 |
| e | 18,168 |
| | (519 | ) | | 17,649 |
|
| General and administrative | | 36,599 |
| | — |
| | 36,599 |
| | — |
| | 36,599 |
|
| Total operating expenses | | 78,113 |
| | 43 |
| | 78,156 |
| | (519 | ) | | 77,637 |
|
| Income (loss) from operations | | (24,648 | ) | | 781 |
| | (23,867 | ) | | (11,045 | ) | | (34,912 | ) |
| Interest income | | 1,214 |
| | — |
| | 1,214 |
| | — |
| | 1,214 |
|
| Interest expense | | (15,280 | ) | | (6,043 | ) | f | (21,323 | ) | | — |
| | (21,323 | ) |
| Interest expense to related parties | | (1,605 | ) | | — |
| | (1,605 | ) | | — |
| | (1,605 | ) |
| Other income, net | | 525 |
| | — |
| | 525 |
| | — |
| | 525 |
|
| Loss on revaluation of warrant liabilities and embedded derivatives | | — |
| | (540 | ) | g | (540 | ) | | — |
| | (540 | ) |
| Loss before income taxes | | (39,794 | ) | | (5,802 | ) | | (45,596 | ) | | (11,045 | ) | | (56,641 | ) |
| Income tax provision | | 136 |
| | — |
| | 136 |
| | — |
| | 136 |
|
| Net loss | | (39,930 | ) | | (5,802 | ) | | (45,732 | ) | | (11,045 | ) | | (56,777 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (5,027 | ) | | — |
| | (5,027 | ) | | — |
| | (5,027 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (34,903 | ) | | $ | (5,802 | ) | | $ | (40,705 | ) | | $ | (11,045 | ) | | $ | (51,750 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $1.1 million, a decrease of installation cost of revenue of $0.6 million, offset by an increase in electricity cost of revenue of $4.0 million together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.6 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $1.0 million and an increase in service cost of revenue of $2.2 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $0.5 million.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Revenue: | | | | | | | | | | |
| Product | | $ | 321,633 |
| | $ | (70,928 | ) | a | $ | 250,705 |
| | $ | (15,698 | ) | | $ | 235,007 |
|
| Installation | | 39,543 |
| | (17,095 | ) | a | 22,448 |
| | 2,847 |
| | 25,295 |
|
| Service | | 46,949 |
| | (1,160 | ) | a | 45,789 |
| | 704 |
| | 46,493 |
|
| Electricity | | 26,364 |
| | 14,168 |
| a | 40,532 |
| | — |
| | 40,532 |
|
| Total revenue | | 434,489 |
| | (75,015 | ) | | 359,474 |
| | (12,147 | ) | | 347,327 |
|
| Cost of revenue: | | | | | | | | | | |
| Product | | 255,952 |
| | (53,985 | ) | c, d | 201,967 |
| | 33 |
| | 202,000 |
|
| Installation | | 46,282 |
| | (12,837 | ) | c | 33,445 |
| | — |
| | 33,445 |
|
| Service | | 47,156 |
| | 2,251 |
| b, d | 49,407 |
| | (2,723 | ) | | 46,684 |
|
| Electricity | | 27,671 |
| | 7,613 |
| c | 35,284 |
| | — |
| | 35,284 |
|
| Total cost of revenue | | 377,061 |
| | (56,958 | ) | | 320,103 |
| | (2,690 | ) | | 317,413 |
|
| Gross profit | | 57,428 |
| | (18,057 | ) | | 39,371 |
| | (9,457 | ) | | 29,914 |
|
| Operating expenses: | | | | | | | | | | |
| Research and development | | 58,631 |
| | — |
| | 58,631 |
| | — |
| | 58,631 |
|
| Sales and marketing | | 38,822 |
| | 19 |
| e | 38,841 |
| | (274 | ) | | 38,567 |
|
| General and administrative | | 82,736 |
| | — |
| | 82,736 |
| | — |
| | 82,736 |
|
| Total operating expenses | | 180,189 |
| | 19 |
| | 180,208 |
| | (274 | ) | | 179,934 |
|
| Loss from operations | | (122,761 | ) | | (18,076 | ) | | (140,837 | ) | | (9,183 | ) | | (150,020 | ) |
| Interest income | | 3,585 |
| | — |
| | 3,585 |
| | — |
| | 3,585 |
|
| Interest expense | | (32,687 | ) | | (11,835 | ) | f | (44,522 | ) | | — |
| | (44,522 | ) |
| Interest expense to related parties | | (3,218 | ) | | — |
| | (3,218 | ) | | — |
| | (3,218 | ) |
| Other income, net | | 43 |
| | — |
| | 43 |
| | — |
| | 43 |
|
| Loss on revaluation of warrant liabilities and embedded derivatives | | — |
| | (1,080 | ) | g | (1,080 | ) | | — |
| | (1,080 | ) |
| Loss before income taxes | | (155,038 | ) | | (30,991 | ) | | (186,029 | ) | | (9,183 | ) | | (195,212 | ) |
| Income tax provision | | 466 |
| | — |
| | 466 |
| | — |
| | 466 |
|
| Net loss | | (155,504 | ) | | (30,991 | ) | | (186,495 | ) | | (9,183 | ) | | (195,678 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (8,847 | ) | | — |
| | (8,847 | ) | | — |
| | (8,847 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (146,657 | ) | | $ | (30,991 | ) | | $ | (177,648 | ) | | $ | (9,183 | ) | | $ | (186,831 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.2 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $55.6 million and installation cost of revenue of $14.4 million, offset by an increase in electricity cost of revenue of $7.5 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $1.6 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net increase to product cost of revenue of $1.6 million, and an increase in service cost of revenue of $2.4 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $1.1 million.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Revenue: | | | | | | | | | | |
| Product | | $ | 504,249 |
| | $ | (72,220 | ) | a | $ | 432,029 |
| | $ | (33,120 | ) | | $ | 398,909 |
|
| Installation | | 58,553 |
| | (17,555 | ) | a | 40,998 |
| | 5,399 |
| | 46,397 |
|
| Service | | 70,546 |
| | (1,939 | ) | a | 68,607 |
| | 1,551 |
| | 70,158 |
|
| Electricity | | 34,612 |
| | 21,558 |
| a | 56,170 |
| | — |
| | 56,170 |
|
| Total revenue | | 667,960 |
| | (70,156 | ) | | 597,804 |
| | (26,170 | ) | | 571,634 |
|
| Cost of revenue: | | | | | | | | | | |
| Product | | 350,008 |
| | (56,070 | ) | c, d | 293,938 |
| | (241 | ) | | 293,697 |
|
| Installation | | 72,444 |
| | (12,858 | ) | c | 59,586 |
| | — |
| | 59,586 |
|
| Service | | 83,695 |
| | 4,324 |
| b, d | 88,019 |
| | (4,908 | ) | | 83,111 |
|
| Electricity | | 50,920 |
| | 11,681 |
| c | 62,601 |
| | — |
| | 62,601 |
|
| Total cost of revenue | | 557,067 |
| | (52,923 | ) | | 504,144 |
| | (5,149 | ) | | 498,995 |
|
| Gross profit | | 110,893 |
| | (17,233 | ) | | 93,660 |
| | (21,021 | ) | | 72,639 |
|
| Operating expenses: | | | | | | | | | | |
| Research and development | | 82,020 |
| | — |
| | 82,020 |
| | — |
| | 82,020 |
|
| Sales and marketing | | 56,947 |
| | 62 |
| e | 57,009 |
| | (793 | ) | | 56,216 |
|
| General and administrative | | 119,335 |
| | — |
| | 119,335 |
| | — |
| | 119,335 |
|
| Total operating expenses | | 258,302 |
| | 62 |
| | 258,364 |
| | (793 | ) | | 257,571 |
|
| Loss from operations | | (147,409 | ) | | (17,295 | ) | | (164,704 | ) | | (20,228 | ) | | (184,932 | ) |
| Interest income | | 4,799 |
| | — |
| | 4,799 |
| | — |
| | 4,799 |
|
| Interest expense | | (47,967 | ) | | (17,878 | ) | f | (65,845 | ) | | — |
| | (65,845 | ) |
| Interest expense to related parties | | (4,823 | ) | | — |
| | (4,823 | ) | | — |
| | (4,823 | ) |
| Other income, net | | 568 |
| | — |
| | 568 |
| | — |
| | 568 |
|
| Loss on revaluation of warrant liabilities and embedded derivatives | | — |
| | (1,620 | ) | g | (1,620 | ) | | — |
| | (1,620 | ) |
| Loss before income taxes | | (194,832 | ) | | (36,793 | ) | | (231,625 | ) | | (20,228 | ) | | (251,853 | ) |
| Income tax provision | | 602 |
| | — |
| | 602 |
| | — |
| | 602 |
|
| Net loss | | (195,434 | ) | | (36,793 | ) | | (232,227 | ) | | (20,228 | ) | | (252,455 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (13,874 | ) | | — |
| | (13,874 | ) | | — |
| | (13,874 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (181,560 | ) | | $ | (36,793 | ) | | $ | (218,353 | ) | | $ | (20,228 | ) | | $ | (238,581 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.3 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $56.7 million and installation cost of revenue of $15.0 million, offset by an increase in electricity cost of revenue of $11.6 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $2.1 million
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net increase to product cost of revenue of $0.6 million and an increase in service cost of revenue of $4.6 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased resulting in a loss of $1.6 million.
|
| | | | | | | | | | | | |
| | | Three Months Ended March 31, 2018 |
| | | As Previously Reported | | Revision Impacts | | As Revised |
| Revenue: | | | | | | |
| Product | | $ | 121,307 |
| | $ | (5,536 | ) | a | $ | 115,771 |
|
| Installation | | 14,118 |
| | (1,323 | ) | a | 12,795 |
|
| Service | | 19,907 |
| | 227 |
| a | 20,134 |
|
| Electricity | | 14,029 |
| | 5,853 |
| a | 19,882 |
|
| Total revenue | | 169,361 |
| | (779 | ) | | 168,582 |
|
| Cost of revenue: | | | | | | |
| Product | | 80,355 |
| | (3,890 | ) | c, d | 76,465 |
|
| Installation | | 10,438 |
| | (1,240 | ) | c | 9,198 |
|
| Service | | 24,253 |
| | 446 |
| d | 24,699 |
|
| Electricity | | 10,649 |
| | 3,136 |
| c | 13,785 |
|
| Total cost of revenue | | 125,695 |
| | (1,548 | ) | | 124,147 |
|
| Gross profit | | 43,666 |
| | 769 |
| | 44,435 |
|
| Operating expenses: | | | | | | |
| Research and development | | 14,731 |
| | — |
| | 14,731 |
|
| Sales and marketing | | 8,262 |
| | 31 |
| e | 8,293 |
|
| General and administrative | | 14,988 |
| | — |
| | 14,988 |
|
| Total operating expenses | | 37,981 |
| | 31 |
| | 38,012 |
|
| Income from operations | | 5,685 |
| | 738 |
| | 6,423 |
|
| Interest income | | 415 |
| | — |
| | 415 |
|
| Interest expense | | (21,379 | ) | | (4,613 | ) | f | (25,992 | ) |
| Interest expense to related parties | | (2,627 | ) | | — |
| | (2,627 | ) |
| Other expense, net | | (75 | ) | | — |
| | (75 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | (4,034 | ) | | — |
| | (4,034 | ) |
| Loss before income taxes | | (22,015 | ) | | (3,875 | ) | | (25,890 | ) |
| Income tax provision | | 333 |
| | — |
| | 333 |
|
| Net loss | | (22,348 | ) | | (3,875 | ) | | (26,223 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (4,632 | ) | | — |
| | (4,632 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (17,716 | ) | | $ | (3,875 | ) | | $ | (21,591 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $3.6 million and installation cost of revenue of $1.2 million, offset by an increase in electricity cost of revenue of $3.1 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.3 million and an increase in service cost of revenue of $0.4 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
|
| | | | | | | | | | | | |
| | | Three Months Ended June 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Revenue: | | | | | | |
| Product | | $ | 108,654 |
| | $ | (30,157 | ) | a | $ | 78,497 |
|
| Installation | | 26,245 |
| | (6,602 | ) | a | 19,643 |
|
| Service | | 19,975 |
| | 324 |
| a | 20,299 |
|
| Electricity | | 14,007 |
| | 5,856 |
| a | 19,863 |
|
| Total revenue | | 168,881 |
| | (30,579 | ) | | 138,302 |
|
| Cost of revenue: | | | | | | |
| Product | | 70,802 |
| | (21,199 | ) | c, d | 49,603 |
|
| Installation | | 37,099 |
| | (7,148 | ) | c | 29,951 |
|
| Service | | 19,260 |
| | 442 |
| d | 19,702 |
|
| Electricity | | 8,949 |
| | 3,113 |
| c | 12,062 |
|
| Total cost of revenue | | 136,110 |
| | (24,792 | ) | | 111,318 |
|
| Gross profit | | 32,771 |
| | (5,787 | ) | | 26,984 |
|
| Operating expenses: | | | | | | |
| Research and development | | 14,413 |
| | — |
| | 14,413 |
|
| Sales and marketing | | 8,254 |
| | (87 | ) | e | 8,167 |
|
| General and administrative | | 15,359 |
| | — |
| | 15,359 |
|
| Total operating expenses | | 38,026 |
| | (87 | ) | | 37,939 |
|
| Loss from operations | | (5,255 | ) | | (5,700 | ) | | (10,955 | ) |
| Interest income | | 444 |
| | — |
| | 444 |
|
| Interest expense | | (22,525 | ) | | (4,622 | ) | f | (27,147 | ) |
| Interest expense to related parties | | (2,672 | ) | | — |
| | (2,672 | ) |
| Other expense, net | | (855 | ) | | — |
| | (855 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | (19,197 | ) | | — |
| | (19,197 | ) |
| Loss before income taxes | | (50,060 | ) | | (10,322 | ) | | (60,382 | ) |
| Income tax provision | | 128 |
| | — |
| | 128 |
|
| Net loss | | (50,188 | ) | | (10,322 | ) | | (60,510 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (4,512 | ) | | — |
| | (4,512 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (45,676 | ) | | $ | (10,322 | ) | | $ | (55,998 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which impacted our service revenue allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation costs of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $20.3 million and installation cost of revenue of $7.1 million, offset by an increase in electricity cost of revenue of $3.1 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.9 million and an increase in service cost of revenue of $0.4 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
|
| | | | | | | | | | | | |
| | | Three Months Ended September 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Revenue: | | | | | | |
| Product | | $ | 125,690 |
| | $ | (23,257 | ) | a | $ | 102,433 |
|
| Installation | | 29,690 |
| | (4,999 | ) | a | 24,691 |
|
| Service | | 20,751 |
| | 305 |
| a | 21,056 |
|
| Electricity | | 14,059 |
| | 6,380 |
| a | 20,439 |
|
| Total revenue | | 190,190 |
| | (21,571 | ) | | 168,619 |
|
| Cost of revenue: | | | | | | |
| Product | | 95,357 |
| | (26,304 | ) | c, d | 69,053 |
|
| Installation | | 40,118 |
| | (4,612 | ) | c | 35,506 |
|
| Service | | 22,651 |
| | 1,819 |
| d | 24,470 |
|
| Electricity | | 8,679 |
| | 3,501 |
| c | 12,180 |
|
| Total cost of revenue | | 166,805 |
| | (25,596 | ) | | 141,209 |
|
| Gross profit | | 23,385 |
| | 4,025 |
| | 27,410 |
|
| Operating expenses: | | | | | | |
| Research and development | | 27,021 |
| | — |
| | 27,021 |
|
| Sales and marketing | | 21,476 |
| | (80 | ) | e | 21,396 |
|
| General and administrative | | 40,999 |
| | — |
| | 40,999 |
|
| Total operating expenses | | 89,496 |
| | (80 | ) | | 89,416 |
|
| Loss from operations | | (66,111 | ) | | 4,105 |
| | (62,006 | ) |
| Interest income | | 1,467 |
| | — |
| | 1,467 |
|
| Interest expense | | (16,853 | ) | | (5,272 | ) | f | (22,125 | ) |
| Interest expense to related parties | | (1,966 | ) | | — |
| | (1,966 | ) |
| Other expense, net | | (705 | ) | | — |
| | (705 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | 1,655 |
| | (755 | ) | g | 900 |
|
| Loss before income taxes | | (82,513 | ) | | (1,922 | ) | | (84,435 | ) |
| Income tax provision | | (3 | ) | | — |
| | (3 | ) |
| Net loss | | (82,510 | ) | | (1,922 | ) | | (84,432 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (3,930 | ) | | — |
| | (3,930 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (78,580 | ) | | $ | (1,922 | ) | | $ | (80,502 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $14.0 million and installation cost of revenue of $4.6 million, offset by an increase in electricity cost of revenue of $3.5 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $12.3 million and an increase in service cost revenue of $1.8 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the correction of a misstatement in the valuation of our 6% Notes derivative, resulting in $0.8 million of additional loss in the period.
|
| | | | | | | | | | | | |
| | | Three Months Ended December 31, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Revenue: | | | | | | |
| Product | | $ | 156,671 |
| | $ | (52,734 | ) | a | $ | 103,937 |
|
| Installation | | 21,363 |
| | (10,297 | ) | a | 11,066 |
|
| Service | | 21,752 |
| | 26 |
| a | 21,778 |
|
| Electricity | | 13,820 |
| | 6,544 |
| a | 20,364 |
|
| Total revenue | | 213,606 |
| | (56,461 | ) | | 157,145 |
|
| Cost of revenue: | | | | | | |
| Product | | 128,076 |
| | (41,922 | ) | c, d | 86,154 |
|
| Installation | | 31,819 |
| | (11,168 | ) | c | 20,651 |
|
| Service | | 28,475 |
| | 3,343 |
| b, d | 31,818 |
|
| Electricity | | 7,988 |
| | 3,613 |
| c | 11,601 |
|
| Total cost of revenue | | 196,358 |
| | (46,134 | ) | | 150,224 |
|
| Gross profit | | 17,248 |
| | (10,327 | ) | | 6,921 |
|
| Operating expenses: | | | | | | |
| Research and development | | 32,970 |
| | — |
| | 32,970 |
|
| Sales and marketing | | 24,983 |
| | (32 | ) | e | 24,951 |
|
| General and administrative | | 47,471 |
| | — |
| e | 47,471 |
|
| Total operating expenses | | 105,424 |
| | (32 | ) | | 105,392 |
|
| Loss from operations | | (88,176 | ) | | (10,295 | ) | | (98,471 | ) |
| Interest income | | 1,996 |
| | — |
| | 1,996 |
|
| Interest expense | | (16,178 | ) | | (5,579 | ) | f | (21,757 | ) |
| Interest expense to related parties | | (1,628 | ) | | — |
| | (1,628 | ) |
| Other expense, net | | 636 |
| | — |
| | 636 |
|
| Gain (loss) on revaluation of warrant liabilities and embedded derivatives | | (14 | ) | | 206 |
| g | 192 |
|
| Loss before income taxes | | (103,364 | ) | | (15,668 | ) | | (119,032 | ) |
| Income tax provision | | 1,079 |
| | — |
| | 1,079 |
|
| Net loss | | (104,443 | ) | | (15,668 | ) | | (120,111 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (4,662 | ) | | — |
| | (4,662 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (99,781 | ) | | $ | (15,668 | ) | | $ | (115,449 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in accounting for our grid escalation guarantees that resulted in a decrease of service cost of revenue of $0.5 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $37.1 million and installation cost of revenue of $12.1 million, offset by an increase in electricity cost of revenue $3.6 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.9 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $4.8 million and an increase in service cost of $3.8 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
gGain (loss) on revaluation of warrant liabilities and embedded derivatives —The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value of the liability decreased resulting in a gain of $0.2 million.
|
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Revenue: | | | | | | |
| Product | | $ | 229,961 |
| | $ | (35,693 | ) | a | $ | 194,268 |
|
| Installation | | 40,363 |
| | (7,925 | ) | a | 32,438 |
|
| Service | | 39,882 |
| | 551 |
| a | 40,433 |
|
| Electricity | | 28,036 |
| | 11,709 |
| a | 39,745 |
|
| Total revenue | | 338,242 |
| | (31,358 | ) | | 306,884 |
|
| Cost of revenue: | | | | | | |
| Product | | 151,157 |
| | (25,089 | ) | c, d | 126,068 |
|
| Installation | | 47,537 |
| | (8,388 | ) | c | 39,149 |
|
| Service | | 43,513 |
| | 888 |
| d | 44,401 |
|
| Electricity | | 19,598 |
| | 6,249 |
| c | 25,847 |
|
| Total cost of revenue | | 261,805 |
| | (26,340 | ) | | 235,465 |
|
| Gross profit | | 76,437 |
| | (5,018 | ) | | 71,419 |
|
| Operating expenses: | | | | | | |
| Research and development | | 29,144 |
| | — |
| | 29,144 |
|
| Sales and marketing | | 16,516 |
| | (56 | ) | e | 16,460 |
|
| General and administrative | | 30,347 |
| | — |
| | 30,347 |
|
| Total operating expenses | | 76,007 |
| | (56 | ) | | 75,951 |
|
| Loss from operations | | 430 |
| | (4,962 | ) | | (4,532 | ) |
| Interest income | | 859 |
| | — |
| | 859 |
|
| Interest expense | | (43,904 | ) | | (9,235 | ) | f | (53,139 | ) |
| Interest expense to related parties | | (5,299 | ) | | — |
| | (5,299 | ) |
| Other expense, net | | (930 | ) | | — |
| | (930 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | (23,231 | ) | | — |
| | (23,231 | ) |
| Loss before income taxes | | (72,075 | ) | | (14,197 | ) | | (86,272 | ) |
| Income tax provision | | 461 |
| | — |
| | 461 |
|
| Net loss | | (72,536 | ) | | (14,197 | ) | | (86,733 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (9,144 | ) | | — |
| | (9,144 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (63,392 | ) | | $ | (14,197 | ) | | $ | (77,589 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which impacted our service revenue allocation.
b .Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in decreases in product cost of revenue of $23.9 million and installation cost of revenue of $8.4 million, offset by an increase in electricity cost of revenue of $6.2 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $1.2 million and an increase in service cost of revenue of $0.9 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
|
| | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Revenue: | | | | | | |
| Product | | $ | 355,651 |
| | $ | (58,950 | ) | a | $ | 296,701 |
|
| Installation | | 70,053 |
| | (12,924 | ) | a | 57,129 |
|
| Service | | 60,633 |
| | 856 |
| a | 61,489 |
|
| Electricity | | 42,095 |
| | 18,089 |
| a | 60,184 |
|
| Total revenue | | 528,432 |
| | (52,929 | ) | | 475,503 |
|
| Cost of revenue: | | | | | | |
| Product | | 246,514 |
| | (51,393 | ) | c, d | 195,121 |
|
| Installation | | 87,655 |
| | (13,000 | ) | c | 74,655 |
|
| Service | | 66,164 |
| | 2,707 |
| d | 68,871 |
|
| Electricity | | 28,277 |
| | 9,750 |
| c | 38,027 |
|
| Total cost of revenue | | 428,610 |
| | (51,936 | ) | | 376,674 |
|
| Gross profit | | 99,822 |
| | (993 | ) | | 98,829 |
|
| Operating expenses: | | | | | | |
| Research and development | | 56,165 |
| | — |
| | 56,165 |
|
| Sales and marketing | | 37,992 |
| | (136 | ) | e | 37,856 |
|
| General and administrative | | 71,346 |
| | — |
| e | 71,346 |
|
| Total operating expenses | | 165,503 |
| | (136 | ) | | 165,367 |
|
| Loss from operations | | (65,681 | ) | | (857 | ) | | (66,538 | ) |
| Interest income | | 2,326 |
| | — |
| | 2,326 |
|
| Interest expense | | (60,757 | ) | | (14,507 | ) | f | (75,264 | ) |
| Interest expense to related parties | | (7,265 | ) | | — |
| | (7,265 | ) |
| Other expense, net | | (1,635 | ) | | — |
| | (1,635 | ) |
| Loss on revaluation of warrant liabilities and embedded derivatives | | (21,576 | ) | | (755 | ) | g | (22,331 | ) |
| Loss before income taxes | | (154,588 | ) | | (16,119 | ) | | (170,707 | ) |
| Income tax provision | | 458 |
| | — |
| | 458 |
|
| Net loss | | (155,046 | ) | | (16,119 | ) | | (171,165 | ) |
| Net loss attributable to noncontrolling interests and redeemable noncontrolling interests | | (13,074 | ) | | — |
| | (13,074 | ) |
| Net loss attributable to Class A and Class B common stockholders | | $ | (141,972 | ) | | $ | (16,119 | ) | | $ | (158,091 | ) |
a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Not used.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $37.9 million and installation cost of revenue of $13.0 million, offset by an increase in electricity cost of revenue of $9.7 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $13.5 million and an increase in service cost of revenue of $2.7 million due to the expensing of stock-based compensation related to field replacement units.
eSales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the correction of a misstatement in the valuation of our 6% Notes derivative, resulting in $0.8 million of additional expense in the period.
The following tables contain the restatement and recasting of previously reported unaudited condensed consolidated statements of cash flows for the three-month period ended March 31, 2019, the six-month periods ended June 30, 2019 and the nine-month period ended September 30, 2019, the restatement of previously reported unaudited condensed consolidated statements of cash flows for the six-month period ended June 30, 2018 and the nine-month period ended September 30, 2018 and the revision of the previously reported unaudited condensed consolidated statement of cash flows for the three-month period ended March 31, 2018.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Cash flows from operating activities: | | | | | | | | | | |
| Net loss | | $ | (88,273 | ) | | $ | (21,056 | ) | | $ | (109,329 | ) | | $ | 577 |
| | $ | (108,752 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
| Depreciation and amortization | | 11,271 |
| | 2,954 |
| A | 14,225 |
| | — |
| | 14,225 |
|
| Write-off of property, plant and equipment, net | | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Revaluation of derivative contracts | | (453 | ) | | 540 |
| B | 87 |
| | — |
| | 87 |
|
| Stock-based compensation | | 63,882 |
| | 3,940 |
| C | 67,822 |
| | — |
| | 67,822 |
|
| Loss on long-term REC purchase contract | | 59 |
| | — |
| | 59 |
| | — |
| | 59 |
|
| Amortization of debt issuance cost | | 5,152 |
| | — |
| | 5,152 |
| | — |
| | 5,152 |
|
| Changes in operating assets and liabilities: | | | | | | | | | | |
| Accounts receivable | | 816 |
| | (98 | ) | D | 718 |
| | 3,413 |
| | 4,131 |
|
| Inventories | | 15,932 |
| | (4,845 | ) | E | 11,087 |
| | — |
| | 11,087 |
|
| Deferred cost of revenue | | 26,014 |
| | (37,098 | ) | F | (11,084 | ) | | — |
| | (11,084 | ) |
| Customer financing receivable and other | | 1,339 |
| | — |
| | 1,339 |
| | — |
| | 1,339 |
|
| Prepaid expenses and other current assets | | 5,194 |
| | 1,423 |
| G | 6,617 |
| | 11 |
| | 6,628 |
|
| Other long-term assets | | 83 |
| | (396 | ) | H | (313 | ) | | (103 | ) | | (416 | ) |
| Accounts payable | | (2,464 | ) | | — |
| | (2,464 | ) | | — |
| | (2,464 | ) |
| Accrued warranty | | (2,500 | ) | | 50 |
| I | (2,450 | ) | | (247 | ) | | (2,697 | ) |
| Accrued expenses and other current liabilities | | 823 |
| | (1,196 | ) | J | (373 | ) | | — |
| | (373 | ) |
| Deferred revenue and customer deposits | | (44,533 | ) | | 49,428 |
| K | 4,895 |
| | (3,651 | ) | | 1,244 |
|
| Other long-term liabilities | | 3,487 |
| | 679 |
| L | 4,166 |
| | — |
| | 4,166 |
|
| Net cash used in operating activities | | (4,170 | ) | | (5,675 | ) | | (9,845 | ) | | — |
| | (9,845 | ) |
| Cash flows from investing activities: | |
|
| |
|
| |
| |
| |
|
| Purchase of property, plant and equipment | | (8,543 | ) | | (3,403 | ) | M | (11,946 | ) | | — |
| | (11,946 | ) |
| Payments for acquisition of intangible assets | | (848 | ) | | — |
| | (848 | ) | | — |
| | (848 | ) |
| Proceeds from maturity of marketable securities | | 104,500 |
| | — |
| | 104,500 |
| | — |
| | 104,500 |
|
| Net cash provided by investing activities | | 95,109 |
| | (3,403 | ) | | 91,706 |
| | — |
| | 91,706 |
|
| Cash flows from financing activities: | | | | | | | | | | |
| Repayment of debt | | (5,016 | ) | | — |
| | (5,016 | ) | | — |
| | (5,016 | ) |
| Repayment of debt to related parties | | (778 | ) | | — |
| | (778 | ) | | — |
| | (778 | ) |
| Proceeds from financing obligations | | — |
| | 10,961 |
| N | 10,961 |
| | — |
| | 10,961 |
|
| Repayment of financing obligations | | — |
| | (1,883 | ) | N | (1,883 | ) | | — |
| | (1,883 | ) |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (3,189 | ) | | — |
| | (3,189 | ) | | — |
| | (3,189 | ) |
| Proceeds from issuance of common stock | | 7,493 |
| | — |
| | 7,493 |
| | — |
| | 7,493 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Net cash provided by (used in) financing activities | | (1,490 | ) | | 9,078 |
| | 7,588 |
| | — |
| | 7,588 |
|
| Net increase in cash, cash equivalents, and restricted cash | | 89,449 |
| | — |
| | 89,449 |
| | — |
| | 89,449 |
|
| Cash, cash equivalents, and restricted cash: | | | | | | | | | | |
| Beginning of period | | 280,485 |
| | — |
| | 280,485 |
| | — |
| | 280,485 |
|
| End of period | | $ | 369,934 |
| | $ | — |
| | $ | 369,934 |
| | $ | — |
| | $ | 369,934 |
|
| | | | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | | | |
| Cash paid during the period for interest | | $ | 14,545 |
| | $ | 5,838 |
| N | $ | 20,383 |
| | $ | — |
| | $ | 20,383 |
|
| Cash paid during the period for taxes | | 222 |
| | — |
| | 222 |
| | — |
| | 222 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote. We now consider the commitments a derivative liability, with the initial value of recorded as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $4.4 million. The correction of this misstatement also resulted in the capitalization of $0.5 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant and equipment, net.
DAccounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $37.2 million, and the net capitalization of stock-based compensation expenses of $0.1 million.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where prepaid property tax and insurance payments are now classified within prepaid expenses.
HOther long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements. The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote and therefore, no accrual was made. We now have a $0.1 million accrual, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
MPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Cash flows from operating activities: | | | | | | | | | | |
| Net loss | | $ | (155,504 | ) | | $ | (30,991 | ) | | $ | (186,495 | ) | | $ | (9,183 | ) | | $ | (195,678 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
| Depreciation and amortization | | 31,023 |
| | 6,011 |
| A | 37,034 |
| | — |
| | 37,034 |
|
| Write-off of property, plant and equipment, net | | 2,704 |
| | — |
| | 2,704 |
| | — |
| | 2,704 |
|
| Write-off of PPA II and PPA IIIb decommissioned assets | | 25,613 |
| | — |
| | 25,613 |
| | — |
| | 25,613 |
|
| Debt make-whole expense | | 5,934 |
| | — |
| | 5,934 |
| | — |
| | 5,934 |
|
| Revaluation of derivative contracts | | 555 |
| | 1,081 |
| B | 1,636 |
| | — |
| | 1,636 |
|
| Stock-based compensation | | 115,100 |
| | 4,086 |
| C | 119,186 |
| | — |
| | 119,186 |
|
| Loss on long-term REC purchase contract | | 60 |
| | — |
| | 60 |
| | — |
| | 60 |
|
| Amortization of debt issuance cost | | 11,255 |
| | — |
| | 11,255 |
| | — |
| | 11,255 |
|
| Changes in operating assets and liabilities: | | | | | | | | | | |
| Accounts receivable | | 46,591 |
| | (274 | ) | D | 46,317 |
| | 3,424 |
| | 49,741 |
|
| Inventories | | 27,542 |
| | (5,345 | ) | E | 22,197 |
| | — |
| | 22,197 |
|
| Deferred cost of revenue | | 19,198 |
| | (57,991 | ) | F | (38,793 | ) | | — |
| | (38,793 | ) |
| Customer financing receivable and other | | 2,713 |
| | — |
| | 2,713 |
| | — |
| | 2,713 |
|
| Prepaid expenses and other current assets | | 8,477 |
| | 1,752 |
| G | 10,229 |
| | (2 | ) | | 10,227 |
|
| Other long-term assets | | 1,028 |
| | (1,029 | ) | H | (1 | ) | | (271 | ) | | (272 | ) |
| Accounts payable | | (5,461 | ) | | — |
| | (5,461 | ) | | — |
| | (5,461 | ) |
| Accrued warranty | | (6,843 | ) | | 114 |
| I | (6,729 | ) | | 33 |
| | (6,696 | ) |
| Accrued expenses and other current liabilities | | 7,213 |
| | (1,632 | ) | J | 5,581 |
| | — |
| | 5,581 |
|
| Deferred revenue and customer deposits | | (25,411 | ) | | 71,325 |
| K | 45,914 |
| | 5,999 |
| | 51,913 |
|
| Other long-term liabilities | | 3,419 |
| | 1,303 |
| L | 4,722 |
| | — |
| | 4,722 |
|
| Net cash provided by operating activities | | 115,206 |
| | (11,590 | ) | | 103,616 |
| | — |
| | 103,616 |
|
| Cash flows from investing activities: | | | | | | | | | | |
| Purchase of property, plant and equipment | | (18,882 | ) | | (4,737 | ) | M | (23,619 | ) | | — |
| | (23,619 | ) |
| Payments for acquisition of intangible assets | | (970 | ) | | — |
| | (970 | ) | | — |
| | (970 | ) |
| Proceeds from maturity of marketable securities | | 104,500 |
| | — |
| | 104,500 |
| | — |
| | 104,500 |
|
| Net cash provided by investing activities | | 84,648 |
| | (4,737 | ) | | 79,911 |
| | — |
| | 79,911 |
|
| Cash flows from financing activities: | | | | | | | | | | |
| Repayment of debt | | (83,997 | ) | | — |
| | (83,997 | ) | | — |
| | (83,997 | ) |
| Repayment of debt to related parties | | (1,220 | ) | | — |
| | (1,220 | ) | | — |
| | (1,220 | ) |
| Debt make-whole payment | | (5,934 | ) | | — |
| | (5,934 | ) | | — |
| | (5,934 | ) |
| Proceeds from financing obligations | | — |
| | 20,333 |
| N | 20,333 |
| | — |
| | 20,333 |
|
| Repayment of financing obligations | | — |
| | (4,006 | ) | N | (4,006 | ) | | — |
| | (4,006 | ) |
| Payments to noncontrolling and redeemable noncontrolling interests | | (18,690 | ) | | — |
| | (18,690 | ) | | — |
| | (18,690 | ) |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (7,753 | ) | | — |
| | (7,753 | ) | | — |
| | (7,753 | ) |
| Proceeds from issuance of common stock | | 8,321 |
| | — |
| | 8,321 |
| | — |
| | 8,321 |
|
| Net cash used in financing activities | | (109,273 | ) | | 16,327 |
| | (92,946 | ) | | — |
| | (92,946 | ) |
| Net increase in cash, cash equivalents, and restricted cash | | 90,581 |
| | — |
| | 90,581 |
| | — |
| | 90,581 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Cash, cash equivalents, and restricted cash: | | | | | | | | | | |
| Beginning of period | | 280,485 |
| | — |
| | 280,485 |
| | — |
| | 280,485 |
|
| End of period | | $ | 371,066 |
| | $ | — |
| | $ | 371,066 |
| | $ | — |
| | $ | 371,066 |
|
| | | | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | | | |
| Cash paid during the period for interest | | $ | 23,867 |
| | $ | 11,835 |
| N | $ | 35,702 |
| | $ | — |
| | $ | 35,702 |
|
| Cash paid during the period for taxes | | 497 |
| | — |
| | 497 |
| | — |
| | 497 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote. We now consider the commitments a derivative liability, with the initial value recorded as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $4.7 million. The correction of this misstatement resulted in the capitalization of $0.6 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant and equipment, net.
DAccounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
FDeferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $56.5 million, and the net capitalization of stock-based compensation costs of $1.5 million.
GPrepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
HOther long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end customers and the payments received from the financing entity, is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements. The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote. We now maintain a $0.3 million accrual, with the initial value of treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
MPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the bank proceeds received are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Cash flows from operating activities: | | | | | | | | | | |
| Net loss | | $ | (195,434 | ) | | $ | (36,793 | ) | | $ | (232,227 | ) | | $ | (20,228 | ) | | $ | (252,455 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
| Depreciation and amortization | | 55,816 |
| | 9,132 |
| A | 64,948 |
| | — |
| | 64,948 |
|
| Write-off of property, plant and equipment, net | | 2,987 |
| | — |
| | 2,987 |
| | — |
| | 2,987 |
|
| Write-off of PPA II and PPA IIIb decommissioned assets | | 25,613 |
| | — |
| | 25,613 |
| | — |
| | 25,613 |
|
| Debt make-whole expense | | 5,934 |
| | — |
| | 5,934 |
| | — |
| | 5,934 |
|
| PPA I decommissioning, net | | — |
| | — |
| | — |
| | — |
| | — |
|
| Revaluation of derivative contracts | | 1,335 |
| | 1,620 |
| B | 2,955 |
| | — |
| | 2,955 |
|
| Stock-based compensation | | 154,955 |
| | 5,278 |
| C | 160,233 |
| | — |
| | 160,233 |
|
| Loss on long-term REC purchase contract | | 61 |
| | — |
| | 61 |
| | — |
| | 61 |
|
| Amortization of debt issuance cost | | 16,295 |
| | — |
| | 16,295 |
| | — |
| | 16,295 |
|
| Changes in operating assets and liabilities: | | | | | | | | | | |
| Accounts receivable | | 58,150 |
| | (318 | ) | D | 57,832 |
| | 5,594 |
| | 63,426 |
|
| Inventories | | (7,896 | ) | | 6,121 |
| E | (1,775 | ) | | — |
| | (1,775 | ) |
| Deferred cost of revenue | | 56,854 |
| | (59,198 | ) | F | (2,344 | ) | | — |
| | (2,344 | ) |
| Customer financing receivable and other | | 4,142 |
| | — |
| | 4,142 |
| | — |
| | 4,142 |
|
| Prepaid expenses and other current assets | | 7,928 |
| | 176 |
| G | 8,104 |
| | (33 | ) | | 8,071 |
|
| Other long-term assets | | 3,281 |
| | (1,229 | ) | H | 2,052 |
| | (758 | ) | | 1,294 |
|
| Accounts payable | | 14,171 |
| | — |
| | 14,171 |
| | — |
| | 14,171 |
|
| Accrued warranty | | (3,941 | ) | | 109 |
| I | (3,832 | ) | | (242 | ) | | (4,074 | ) |
| Accrued expenses and other current liabilities | | 5,029 |
| | 162 |
| J | 5,191 |
| | — |
| | 5,191 |
|
| Deferred managed services revenue | | — |
| | — |
| | — |
| | — |
| | — |
|
| Deferred revenue and customer deposits | | (68,180 | ) | | 74,765 |
| K | 6,585 |
| | 15,667 |
| | 22,252 |
|
| Other long-term liabilities | | 2,083 |
| | 2,477 |
| L | 4,560 |
| | — |
| | 4,560 |
|
| Net cash provided by operating activities | | 139,183 |
| | 2,302 |
| | 141,485 |
| | — |
| | 141,485 |
|
| Cash flows from investing activities: | | | | | | | | | | |
| Purchase of property, plant and equipment | | (23,474 | ) | | (16,216 | ) | M | (39,690 | ) | | — |
| | (39,690 | ) |
| Payments for acquisition of intangible assets | | (1,478 | ) | | — |
| | (1,478 | ) | | — |
| | (1,478 | ) |
| Proceeds from maturity of marketable securities | | 104,500 |
| | — |
| | 104,500 |
| | — |
| | 104,500 |
|
| Net cash provided by investing activities | | 79,548 |
| | (16,216 | ) | | 63,332 |
| | — |
| | 63,332 |
|
| Cash flows from financing activities: | | | | | | | | | | |
| Repayment of debt | | (93,263 | ) | | — |
| | (93,263 | ) | | — |
| | (93,263 | ) |
| Repayment of debt to related parties | | (1,691 | ) | | — |
| | (1,691 | ) | | — |
| | (1,691 | ) |
| Debt make-whole payment | | (5,934 | ) | | — |
| | (5,934 | ) | | — |
| | (5,934 | ) |
| Proceeds from financing obligations | | — |
| | 20,333 |
| N | 20,333 |
| | — |
| | 20,333 |
|
| Repayment of financing obligations | | — |
| | (6,419 | ) | N | (6,419 | ) | | — |
| | (6,419 | ) |
| Payments to noncontrolling and redeemable noncontrolling interests | | (43,713 | ) | | — |
| | (43,713 | ) | | — |
| | (43,713 | ) |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (9,363 | ) | | — |
| | (9,363 | ) | | — |
| | (9,363 | ) |
| Proceeds from issuance of common stock | | 12,623 |
| | — |
| | 12,623 |
| | — |
| | 12,623 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2019 |
| | | As Previously Reported | | Restatement Impacts | | As Restated | | ASC 606 Adoption Impacts | | As Restated & Recast |
| Net cash used in financing activities | | (141,341 | ) | | 13,914 |
| | (127,427 | ) | | — |
| | (127,427 | ) |
| Net increase in cash, cash equivalents, and restricted cash | | 77,390 |
| | — |
| | 77,390 |
| | — |
| | 77,390 |
|
| Cash, cash equivalents, and restricted cash: | | | | | | | | | | |
| Beginning of period | | 280,485 |
| | — |
| | 280,485 |
| | — |
| | 280,485 |
|
| End of period | | $ | 357,875 |
| | $ | — |
| | $ | 357,875 |
| | $ | — |
| | $ | 357,875 |
|
| | | | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | | | |
| Cash paid during the period for interest | | $ | 35,894 |
| | $ | 17,878 |
| N | $ | 53,772 |
| | $ | — |
| | $ | 53,772 |
|
| Cash paid during the period for taxes | | 715 |
| | — |
| | 715 |
| | — |
| | 715 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote. We now consider the commitments a derivative liability, with the initial value of recorded as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $5.9 million. The correction of this misstatement also resulted in the capitalization of $0.6 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant and equipment, net.
DAccounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
FDeferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $60.6 million and the net capitalization of stock-based compensation expenses of $1.4 million.
GPrepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
HOther long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements. The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote. We now maintain a $0.4 million accrual, with the initial value treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
MPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
NProceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the bank proceeds received are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
|
| | | | | | | | | | | | |
| | | Three Months Ended March 31, 2018 |
| | | As Previously Reported | | Revision Impacts | | As Revised |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (22,348 | ) | | $ | (3,875 | ) | | $ | (26,223 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
| Depreciation and amortization | | 10,847 |
| | 2,457 |
| A | 13,304 |
|
| Revaluation of derivative contracts | | 7,157 |
| | — |
| | 7,157 |
|
| Stock-based compensation | | 7,956 |
| | 191 |
| B | 8,147 |
|
| Loss on long-term REC purchase contract | | 12 |
| | — |
| | 12 |
|
| Revaluation of preferred stock warrants | | (3,271 | ) | | — |
| | (3,271 | ) |
| Common stock warrant valuation | | (100 | ) | | — |
| | (100 | ) |
| Amortization of debt issuance cost | | 7,168 |
| | — |
| | 7,168 |
|
| Changes in operating assets and liabilities: | | | | | | |
| Accounts receivable | | (28,203 | ) | | (32 | ) | C | (28,235 | ) |
| Inventories | | (6,818 | ) | | 3,291 |
| D | (3,527 | ) |
| Deferred cost of revenue | | 16,282 |
| | (3,541 | ) | E | 12,741 |
|
| Customer financing receivable and other | | 1,306 |
| | — |
| | 1,306 |
|
| Prepaid expenses and other current assets | | (446 | ) | | 929 |
| F | 483 |
|
| Other long-term assets | | 1,266 |
| | (418 | ) | G | 848 |
|
| Accounts payable | | (827 | ) | | — |
| | (827 | ) |
| Accrued warranty | | (87 | ) | | 10 |
| H | (77 | ) |
| Accrued expenses and other current liabilities | | (10,083 | ) | | (515 | ) | I | (10,598 | ) |
| Deferred revenue and customer deposits | | (22,347 | ) | | 6,620 |
| J | (15,727 | ) |
| Other long-term liabilities | | 8,049 |
| | 981 |
| K | 9,030 |
|
| Net cash used in operating activities | | (34,487 | ) | | 6,098 |
| | (28,389 | ) |
| Cash flows from investing activities: | | | | | | |
| Purchase of property, plant and equipment | | (223 | ) | | (4,635 | ) | L | (4,858 | ) |
| Purchase of marketable securities | | (8,991 | ) | | — |
| | (8,991 | ) |
| Proceeds from maturity of marketable securities | | 15,750 |
| | — |
| | 15,750 |
|
| Net cash provided by investing activities | | 6,536 |
| | (4,635 | ) | | 1,901 |
|
| Cash flows from financing activities: | | | | | | |
| Repayment of debt | | (4,489 | ) | | — |
| | (4,489 | ) |
| Repayment of debt to related parties | | (290 | ) | | — |
| | (290 | ) |
| Repayment of financing obligations | | — |
| | (1,463 | ) | M | (1,463 | ) |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (3,832 | ) | | — |
| | (3,832 | ) |
| Proceeds from issuance of common stock | | 120 |
| | — |
| | 120 |
|
| Payments of initial public offering issuance costs | | (578 | ) | | — |
| | (578 | ) |
| Net cash used in financing activities | | (9,069 | ) | | (1,463 | ) | | (10,532 | ) |
| Net decrease in cash, cash equivalents, and restricted cash | | (37,020 | ) | | — |
| | (37,020 | ) |
| Cash, cash equivalents, and restricted cash: | | | | | | |
| Beginning of period | | 180,612 |
| | — |
| | 180,612 |
|
|
| | | | | | | | | | | | |
| | | Three Months Ended March 31, 2018 |
| | | As Previously Reported | | Revision Impacts | | As Revised |
| End of period | | $ | 143,592 |
| | $ | — |
| | $ | 143,592 |
|
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid during the period for interest | | 11,216 |
| | 4,613 |
| M | 15,829 |
|
| Cash paid during the period for taxes | | 401 |
| | — |
| | 401 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $0.6 million. The correction of this misstatement also resulted in the capitalization of costs of $0.8 million related to assets under the Managed Services Program now recorded as construction in progress within property, plant and equipment, net.
C Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
D Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
E Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $3.2 million and the net capitalization of stock-based compensation expenses of $0.3 million.
F Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
G Other long-term assets —The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
H Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis on our Managed Services Agreements and similar arrangements.
I Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
J Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
KOther long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
LPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
M Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
|
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (72,536 | ) | | $ | (14,197 | ) | | $ | (86,733 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
| Depreciation and amortization | | 21,554 |
| | 4,912 |
| A | 26,466 |
|
| Write-off of property, plant and equipment, net | | 661 |
| | — |
| | 661 |
|
| Revaluation of derivative contracts | | 28,611 |
| | — |
| | 28,611 |
|
| Stock-based compensation | | 15,773 |
| | (292 | ) | B | 15,481 |
|
| Loss on long-term REC purchase contract | | 100 |
| | — |
| | 100 |
|
| Revaluation of stock warrants | | (7,456 | ) | | — |
| | (7,456 | ) |
| Revaluation of preferred stock warrants | | (166 | ) | | — |
| | (166 | ) |
| Amortization of debt issuance cost | | 14,420 |
| | — |
| | 14,420 |
|
| Changes in operating assets and liabilities: | | | | | | |
| Accounts receivable | | (6,486 | ) | | (195 | ) | C | (6,681 | ) |
| Inventories | | (46,172 | ) | | 7,915 |
| D | (38,257 | ) |
| Deferred cost of revenue | | 48,760 |
| | (28,362 | ) | E | 20,398 |
|
| Customer financing receivable and other | | 2,439 |
| | — |
| | 2,439 |
|
| Prepaid expenses and other current assets | | 4,544 |
| | 220 |
| F | 4,764 |
|
| Other long-term assets | | 15 |
| | (866 | ) | G | (851 | ) |
| Accounts payable | | 5,217 |
| | — |
| | 5,217 |
|
| Accrued warranty | | (1,883 | ) | | (300 | ) | H | (2,183 | ) |
| Accrued expenses and other current liabilities | | (12,815 | ) | | (1,386 | ) | I | (14,201 | ) |
| Deferred revenue and customer deposits | | (31,817 | ) | | 9,787 |
| J | (22,030 | ) |
| Other long-term liabilities | | 18,652 |
| | 497 |
| K | 19,149 |
|
| Net cash used in operating activities | | (18,585 | ) | | (22,267 | ) | | (40,852 | ) |
| Cash flows from investing activities: | | | | | | |
| Purchase of property, plant and equipment | | (1,595 | ) | | (11,550 | ) | L | (13,145 | ) |
| Purchase of marketable securities | | (15,732 | ) | | — |
| | (15,732 | ) |
| Proceeds from maturity of marketable securities | | 27,000 |
| | — |
| | 27,000 |
|
| Net cash provided by (used in) investing activities | | 9,673 |
| | (11,550 | ) | | (1,877 | ) |
| Cash flows from financing activities: | | | | | | |
| Repayment of debt | | (9,201 | ) | | — |
| | (9,201 | ) |
| Repayment of debt to related parties | | (627 | ) | | — |
| | (627 | ) |
| Proceeds from financing obligations | | — |
| | 36,799 |
| M | 36,799 |
|
| Repayment of financing obligations | | — |
| | (2,982 | ) | M | (2,982 | ) |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (11,582 | ) | | — |
| | (11,582 | ) |
| Proceeds from issuance of common stock | | 742 |
| | — |
| | 742 |
|
| Payments of initial public offering issuance costs | | (1,160 | ) | | — |
| | (1,160 | ) |
| Net cash provided by (used in) financing activities | | (21,828 | ) | | 33,817 |
| | 11,989 |
|
| Net decrease in cash, cash equivalents, and restricted cash | | (30,740 | ) | | — |
| | (30,740 | ) |
| Cash, cash equivalents, and restricted cash: | | | | | | |
|
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Beginning of period | | 180,612 |
| | — |
| | 180,612 |
|
| End of period | | $ | 149,872 |
| | $ | — |
| | $ | 149,872 |
|
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid during the period for interest | | $ | 16,540 |
| | $ | 9,233 |
| M | $ | 25,773 |
|
| Cash paid during the period for taxes | | 625 |
| | — | | 625 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation costs into inventory of $1.0 million. The correction of this misstatement also resulted in the capitalization of $0.7 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant and equipment, net.
C Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
DInventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
E Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $28.1 million and the net capitalization of stock-based compensation costs of $0.3 million.
F Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
GOther long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, including the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
H Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements.
I Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
J Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
K Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements where instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next twelve months are classified as a lease loan liability.
L Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
M Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
|
| | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (155,046 | ) | | $ | (16,119 | ) | | $ | (171,165 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
| Depreciation and amortization | | 32,141 |
| | 7,616 |
| A | 39,757 |
|
| Write-off of property, plant and equipment, net | | 901 |
| | — |
| | 901 |
|
| Revaluation of derivative contracts | | 26,761 |
| | 755 |
| B | 27,516 |
|
| Stock-based compensation | | 87,451 |
| | (10,777 | ) | C | 76,674 |
|
| Loss on long-term REC purchase contract | | 150 |
| | — |
| | 150 |
|
| Revaluation of stock warrants | | (9,109 | ) | | — |
| | (9,109 | ) |
| Amortization of debt issuance cost | | 20,279 |
| | — |
| | 20,279 |
|
| Changes in operating assets and liabilities: | | | | | | |
| Accounts receivable | | (11,168 | ) | | (332 | ) | D | (11,500 | ) |
| Inventories | | (44,465 | ) | | 4,037 |
| E | (40,428 | ) |
| Deferred cost of revenue | | 47,945 |
| | (34,343 | ) | F | 13,602 |
|
| Customer financing receivable and other | | 3,736 |
| | — |
| | 3,736 |
|
| Prepaid expenses and other current assets | | (6,514 | ) | | (1,585 | ) | G | (8,099 | ) |
| Other long-term assets | | 1,052 |
| | (1,398 | ) | H | (346 | ) |
| Accounts payable | | 11,236 |
| | — |
| | 11,236 |
|
| Accrued warranty | | 1,164 |
| | (324 | ) | I | 840 |
|
| Accrued expenses and other current liabilities | | 1,885 |
| | 626 |
| J | 2,511 |
|
| Deferred revenue and customer deposits | | (32,203 | ) | | 17,431 |
| K | (14,772 | ) |
| Other long-term liabilities | | 10,156 |
| | 1,362 |
| L | 11,518 |
|
| Net cash used in operating activities | | (13,648 | ) | | (33,051 | ) | | (46,699 | ) |
| Cash flows from investing activities: | | | | | | |
| Purchase of property, plant and equipment | | (4,333 | ) | | (20,283 | ) | M | (24,616 | ) |
| Payments for acquisition of intangible assets | | (2,762 | ) | | — |
| | (2,762 | ) |
| Purchase of marketable securities | | (15,732 | ) | | — |
| | (15,732 | ) |
| Proceeds from maturity of marketable securities | | 38,250 |
| | — |
| | 38,250 |
|
| Net cash provided by (used in) investing activities | | 15,423 |
| | (20,283 | ) | | (4,860 | ) |
| Cash flows from financing activities: | | | | | | |
| Repayment of debt | | (14,036 | ) | | — |
| | (14,036 | ) |
| Repayment of debt to related parties | | (990 | ) | | — |
| | (990 | ) |
| Proceeds from financing obligations | | — |
| | 57,897 |
| N | 57,897 |
|
| Repayment of financing obligations | | — |
| | (4,563 | ) | N | (4,563 | ) |
| Distributions to noncontrolling and redeemable noncontrolling interests | | (14,192 | ) | | — |
| | (14,192 | ) |
| Proceeds from issuance of common stock | | 1,456 |
| | — |
| | 1,456 |
|
| Proceeds from public offerings, net of underwriting discounts and commissions | | 292,529 |
| | — |
| | 292,529 |
|
| Payments of initial public offering issuance costs | | (2,928 | ) | | — |
| | (2,928 | ) |
| Net cash provided by financing activities | | 261,839 |
| | 53,334 |
| | 315,173 |
|
| Net increase in cash, cash equivalents, and restricted cash | | 263,614 |
| | — |
| | 263,614 |
|
|
| | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2018 |
| | | As Previously Reported | | Restatement Impacts | | As Restated |
| Cash, cash equivalents, and restricted cash: | | | | | | |
| Beginning of period | | 180,612 |
| | — |
| | 180,612 |
|
| End of period | | $ | 444,226 |
| | $ | — |
| | $ | 444,226 |
|
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid during the period for interest | | $ | 30,601 |
| | $ | 14,505 |
| N | $ | 45,106 |
|
| Cash paid during the period for taxes | | 1,052 |
| | — |
| | 1,052 |
|
ADepreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under the Managed Services Program and similar arrangements that would have been product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of this misstatement resulted from the cumulative net change in the valuation of our embedded derivatives in our 6% Notes. The change in the valuation was recorded in loss on revaluation of embedded derivatives.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $10.1 million. The correction of this misstatement also resulted in the capitalization of $0.7 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant and equipment, net.
DAccounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under the Managed Services Program and similar arrangements now accounted for as construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the cumulative net change of accounting moving deferred cost of revenue to property, plant and equipment, net for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $31.4 million and the net capitalization of stock-based compensation expenses of $3.0 million.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby prepaid property tax and insurance payments are now classified within prepaid expenses.
HOther long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and payments received from the financing entity is recorded within long term receivables and commission payments are now classified within long term prepaid commissions.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a lease loan liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and whereby prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
MPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party.
NProceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act, of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) as appropriate, to allow for timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2019.2021. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2019,2021, our disclosure controls and procedures were effective.
Inherent Limitations on Effectiveness of Internal Controls
Our management, including the Chief Executive Officer and Chief Financial Officer, does not effectiveexpect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the material weakness described below.inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in business conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2021, there were no changes in our internal controls over financial reporting, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management, with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)15d15(f) under the Exchange Act). Our to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP.
Management assessed the effectiveness of our internal control over financial reporting includesas of December 31, 2021, the end of our fiscal year. Management based its assessment on the framework established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 COSO framework”). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and procedures designedour overall control environment. This assessment is supported by testing and monitoring performed by our internal audit and finance personnel utilizing the 2013 COSO framework.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of fiscal 2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.U.S. GAAP.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the
The effectiveness of our internal control over financial reporting as of December 31, 2019, based on the criteria establishedend of fiscal 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in Internal Control -- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, our management has concluded that, as of December 31, 2019, our internal control over financial reporting was not effective because of the material weakness described below.their report, which is included elsewhere herein.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We identified a material weakness, whereby we did not design and maintain an effective control environment with a sufficient complement of resources with an appropriate level of accounting knowledge, expertise and training to evaluate the accounting implications of complex or non-routine transactions commensurate with our financial reporting requirements. This material weakness resulted in errors in the accounting for certain transactions, which resulted in a restatement of our consolidated financial statements as of and for the year ended December 31, 2018, as of and for the three month period ended March 31, 2019, as of and for the three and six month periods ended June 30, 2019 and 2018 and as of and for the three and nine month periods ended September 30, 2019 and 2018, and revisions to our consolidated financial statements as of and for the year ended December 31, 2017 and as of and for the three month period ended March 31, 2018. Additionally, this material weakness could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Activities
We are currently in the process of remediating the material weakness and have taken and continue to take steps that we believe will address the underlying causes of the material weakness which resulted from an insufficient complement of resources with an appropriate level of accounting knowledge, expertise and training to evaluate the accounting implications of complex or non-routine transactions commensurate with our financial reporting requirements. Steps we are taking include increasing the use of qualified internal or third-party technical resources with accounting expertise on complex or non-routine transactions who will provide accounting interpretation guidance to assist us in identifying and addressing any issues that affect our consolidated financial statements.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
None.
ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
Part III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 20202022 Annual Meeting of Stockholders to be filed with the Securities and Exchange CommissionSEC within 120 days of the year ended December 31, 2019.2021.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item 11 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 20202022 Annual Meeting of Stockholders to be filed with the Securities and Exchange CommissionSEC within 120 days of the year ended December 31, 2019.2021.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 40312 of Regulation S-KAnnual Report on Form 10-K is incorporated by reference herein to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 2020 Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange CommissionSEC within 120 days of the year ended December 31, 2019.2021.
Securities Authorized for Issuance under Equity Compensation Plans
|
| | | | | | | | | | |
| Plan Category | | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights 1 | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans 2 | |
Equity compensation plans approved by stockholders 3 | | 28,443,704 |
| | 20.96 |
| | 20,263,551 |
| 4 |
| Equity compensation plans not approved by stockholders | | — |
| | — |
| | — |
| |
| Totals | | 28,443,704 |
| | | | 20,263,551 |
| |
1 The weighted average exercise price does not take into account outstanding restricted stock units (RSUs) since those units vest without any cash consideration or other payment required for such shares.
2 Included in this amount are 3,030,407 shares available for future issuance under the 2018 Employee Stock Purchase Plan ("2018 ESPP").
3 Includes our 2002 Plan, 2012 Plan, 2018 EIP and our 2018 ESPP.
4 The number of shares of Class A common stock available for grant and issuance under the 2018 EIP shall be increased on January 1, of each of 2019 through 2028, by the lesser of (a) four percent (4%) of the number of the Company's Class A common stock, the Company’s Class B common stock and common stock equivalents (including options, RSUs, warrants and preferred stock on an as-converted basis) issued and outstanding on each December 31 immediately prior to the date of increase and (b) such number Class A common shares determined by the Board. On each January 1 of each calendar year, the aggregatenumber of shares of Class A common stock reserved for issuance under the 2018 ESPP shall be increased automatically by the number of shares equal to one percent (1%) of the total number of outstanding shares of Class A common stock, Class B common stock of the Company, and common stock equivalents (including options, restricted stock units, warrants and preferred stock on an as converted basis) outstanding on the immediately preceding December 31 (rounded down to the nearest whole share); provided, that the Board or its Compensation Committee may in its sole discretion reduce the amount of the increase in any particular year.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 20202022 Annual Meeting of Stockholders to be filed with the Securities and Exchange CommissionSEC within 120 days of the year ended December 31, 2019.2021.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of Annual Report on Form 10-K is incorporated by reference herein to our Proxy Statement for the 20202022 Annual Meeting of Stockholders to be filed with the Securities and Exchange CommissionSEC within 120 days of the year ended December 31, 2019.2021.
Part IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENTSSTATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Financial Statements
See "Index to Consolidated Financial Statements and Supplementary Data" within the Consolidated Financial Statements herein.
2. Financial Statement Schedules
All financial statement schedules have been omitted since the required information was not applicable or was not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements or the accompanying notes.
3. Exhibits
See the following Index to Exhibits.
Index to Exhibits
The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | |
| | | Incorporated by Reference |
| Exhibit Number | | Description | Form | File No. | Exhibit | Filing Date |
| | Restated Certificate of Incorporation | 10-Q | 001-38598 | 3.1 | 9/7/2018 |
| | Amended and Restated Bylaws, effective November 5, 2020 | 8-K | 001-38598 | 3.2 | 11/12/2020 |
| | Certificate of Designation of Series A Redeemable Convertible Preferred Stock | 8-K | 001-38598 | 3.1 | 12/30/2021 |
| | Form of Common Stock Certificate of the Registrant | S-1/A | 333-225571 | 4.1 | 7/9/2018 |
| | Agreement and Warrant to Purchase Series F Preferred Stock by and between PE12GVVC (US Direct) Ltd. and the Registrant, dated July 1, 2014 | S-1 | 333-225571 | 4.11 | 6/12/2018 |
| | Agreement and Warrant to Purchase Series F Preferred Stock by and between PE12PXVC (US Direct) Ltd. and the Registrant, dated July 1, 2014 | S-1 | 333-225571 | 4.12 | 6/12/2018 |
| | Warrant to Purchase Preferred Stock by and between Atel Ventures, Inc., in its capacity as Trustee for its assignee affiliated funds, and the Registrant, dated December 31, 2012 | S-1 | 333-225571 | 4.13 | 6/12/2018 |
| | Plain English Warrant Agreement by and between Triplepoint Capital LLC, a Delaware limited liability company, and the Registrant, dated September 27, 2012 | S-1 | 333-225571 | 4.14 | 6/12/2018 |
| | Form of Holder Voting Agreement, between KR Sridhar and certain parties thereto | S-1/A | 333-225571 | 4.26 | 7/9/2018 |
| | Description of Company's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended | | | | Filed herewith |
| | Form of Indenture for Senior Secured Notes due 2027 | 10-Q | 001-38598 | 4.4 | 5/11/2020 |
| | Form of 10.25% Senior Secured Notes due 2027 | 10-Q | 001-38598 | 4.5 | 5/11/2020 |
|
| | | | | | |
| | | | Incorporated by Reference |
| Exhibit Number | | Description | Form | File No. | Exhibit | Filing Date |
| | Restated Certificate of Incorporation. | 10-Q | 001-38598 | 3.1 | 9/7/2018 |
| | Amended and Restated Bylaws, effective August 8, 2019
| 10-Q | 001-38598 | 3.2 | 8/14/2019 |
| | Form of Common Stock Certificate of the Registrant | S-1/A | 333-225571 | 4.1 | 7/9/2018 |
| | Indenture by and among the Registrant, certain guarantors party thereto and U.S. Bank National Association, as trustee, dated as of December 15, 2015 | S-1 | 333-225571 | 4.4 | 6/12/2018 |
| | Form of 5% Convertible Senior Secured PIK Note due 2020 (included in Exhibit 4.2) | S-1 | 333-225571 | 4.4 | 6/12/2018 |
| | Security Agreement by and among the Registrant, certain guarantors party thereto and U.S. Bank National Association, as collateral agent, dated as of December 15, 2015 | S-1 | 333-225571 | 4.6 | 6/12/2018 |
| | Plain English Warrant Agreement by and between Triplepoint Capital LLC, a Delaware limited liability company, and the Registrant, dated December 31, 2010 | S-1 | 333-225571 | 4.9 | 6/12/2018 |
| | Amended and Restated Plain English Warrant Agreement by and between Triplepoint Capital LLC, a Delaware limited liability company, and the Registrant, dated December 15, 2011 | S-1 | 333-225571 | 4.10 | 6/12/2018 |
| | Agreement and Warrant to Purchase Series F Preferred Stock by and between PE12GVVC (US Direct) Ltd. and the Registrant, dated July 1, 2014 | S-1 | 333-225571 | 4.11 | 6/12/2018 |
| | Agreement and Warrant to Purchase Series F Preferred Stock by and between PE12PXVC (US Direct) Ltd. and the Registrant, dated July 1, 2014 | S-1 | 333-225571 | 4.12 | 6/12/2018 |
| | | | | | | | | | | | | | | | | | | | |
| | Form of Security Agreement for Senior Secured Notes due 2027 | 10-Q | 001-38598 | 4.6 | 5/11/2020 |
| | Indenture, dated as of August 11, 2020, between Bloom Energy Corporation and U.S. Bank National Association, as trustee | 8-K | 001-38598 | 4.1 | 8/11/2020 |
| | Form of certificate representing the 2.50% Green Convertible Senior Notes due 2025 (included as Exhibit A to Exhibit 4.11 hereto) | 8-K | 001-38598 | 4.2 | 8/11/2020 |
| ^ | 2002 Equity Incentive Plan and form of agreements used thereunder | S-1 | 333-225571 | 10.2 | 6/12/2018 |
| ^ | 2012 Equity Incentive Plan and form of agreements used thereunder | S-1 | 333-225571 | 10.3 | 6/12/2018 |
| ^ | 2018 Equity Incentive Plan and form of agreements used thereunder | S-1/A | 333-225571 | 10.4 | 7/9/2018 |
| ^ | 2018 Employee Stock Purchase Plan and form of agreements used thereunder | S-1/A | 333-225571 | 10.5 | 7/9/2018 |
| | Lease, dated as of December 23, 2020, between Google LLC and Registrant | 10-K | 001-38598 | 10.5 | 2/26/2021 |
| | Ground Lease by and between 1743 Holdings, LLC and the Registrant dated as of March 2012 | S-1 | 333-225571 | 10.8 | 6/12/2018 |
| | Net Lease Agreement, dated as of April 4, 2018, by and between the Registrant and 237 North First Street Holdings, LLC | S-1 | 333-225571 | 10.29 | 6/12/2018 |
| ^ | Consulting Agreement between the Registrant and Colin L. Powell, dated as of January 29, 2009 | S-1 | 333-225571 | 10.31 | 6/12/2018 |
| ^ | Amendment to Consulting Agreement between the Registrant and Colin L. Powell, dated as of July 31, 2019 | 10-K | 001-38598 | 10.14 | 3/31/2020 |
| | Grant Agreement by and between the Delaware Economic Development Authority and the Registrant, dated March 1, 2012 | S-1 | 333-225571 | 99.1 | 6/12/2018 |
| ^ | Form of Indemnification Agreement | 10-Q | 001-38598 | 10.1 | 9/7/2018 |
| ^ | Form of Offer Letter | 10-K | 001-38598 | 10.27 | 3/22/2019 |
| † | Preferred Distributor Agreement by and between Registrant and SK Engineering & Construction Co., Ltd dated November 14, 2018 | 10-K | 001-38598 | 10.28 | 3/22/2019 |
| † | Third Amended and Restated Purchase, Use and Maintenance Agreement between Registrant and 2016 ESA Project Company, LLC, dated as of September 26, 2018 | 10-K | 001-38598 | 10.29 | 3/22/2019 |
| | Amendment No. 1 to Third Amended and Restated Purchase, Use and Maintenance Agreement by and between Registrant and 2016 ESA Project Company, LLC dated as of September 28, 2018 | 10-K | 001-38598 | 10.30 | 3/22/2019 |
| | Amendment No. 2 to Third Amended and Restated Purchase, Use and Maintenance Agreement by and between Registrant and 2016 ESA Project Company, LLC dated as of December 19, 2018 | 10-K | 001-38598 | 10.31 | 3/22/2019 |
| x | Equity Capital Contribution Agreement between the Company, SP Diamond State Class B Holdings, LLC, Diamond State Generation Partners, LLC, and Diamond State Generation Holdings, LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.1 | 8/14/2019 |
|
| | | | | | |
| | Warrant to Purchase Preferred Stock by and between Atel Ventures, Inc., in its capacity as Trustee for its assignee affiliated funds, and the Registrant, dated December 31, 2012 | S-1 | 333-225571 | 4.13 | 6/12/2018 |
| | Agreement and Warrant to Purchase Series G Preferred Stock by and between Keith Daubenspeck and the Registrant, dated June 27, 2014 | S-1 | 333-225571 | 4.15 | 6/12/2018 |
| | Agreement and Warrant to Purchase Series G Preferred Stock by and between Dwight Badger and the Registrant, dated June 27, 2014 | S-1 | 333-225571 | 4.16 | 6/12/2018 |
| | First Supplemental Indenture by and among Registrant, certain guarantor party thereto and U.S. Bank National Association, as trustee, dated as of September 20, 2016 | S-1 | 333-225571 | 4.19 | 6/12/2018 |
| | Indenture by and among the Registrant, certain guarantors party thereto and U.S. Bank National Association, as trustee, dated as of June 29, 2017 | S-1 | 333-225571 | 4.20 | 6/12/2018 |
| | Form of 10% Senior Secured Note due 2024 (included in Exhibit 4.15) | S-1 | 333-225571 | 4.20 | 6/12/2018 |
| | Security Agreement by and among the Registrant, U.S. Bank National Association, as trustee and U.S. Bank National Association, as collateral agent, dated as of June 29, 2017 | S-1 | 333-225571 | 4.22 | 6/12/2018 |
| | Second Supplemental Indenture, Omnibus Amendment to Notes and Limited Waiver by and among the Registrant, certain guarantors party thereto and U.S. Bank National Association, as trustee, dated as of June 29, 2017 | S-1 | 333-225571 | 4.24 | 6/12/2018 |
| | Third Supplemental Indenture and Omnibus Amendment to Notes by and among the Registrant, certain guarantors party thereto and U.S. Bank National Association, as trustee, dated as of January 18, 2018 | S-1 | 333-225571 | 4.25 | 6/12/2018 |
| | Form of Holder Voting Agreement, between KR Sridhar and certain parties thereto | S-1/A | 333-225571 | 4.26 | 7/9/2018 |
| | Amended and Restated Subordinated Secured Convertible Promissory Note by and between the Registrant and Constellation NewEnergy, Inc., dated as of January 18, 2018 | S-1 | 333-225571 | 4.28 | 6/12/2018 |
| | Description of Company's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended | | | | Filed herewith |
| ^ | 2002 Equity Incentive Plan and form of agreements used thereunder | S-1 | 333-225571 | 10.2 | 6/12/2018 |
| ^ | 2012 Equity Incentive Plan and form of agreements used thereunder | S-1 | 333-225571 | 10.3 | 6/12/2018 |
| ^ | 2018 Equity Incentive Plan and form of agreements used thereunder | S-1 | 333-225571 | 10.4 | 7/9/2018 |
| ^ | 2018 Employee Stock Purchase Plan and form of agreements used thereunder | S-1/A | 333-225571 | 10.5 | 7/9/2018 |
| | Standard Industrial Lease dated April 5, 2005 by and between the Registrant and The Realty Associates Fund III, L.P., as amended as of April 22, 2005, January 12, 2010, April 30, 2015 and December 7, 2015 | S-1 | 333-225571 | 10.7 | 6/12/2018 |
| | Ground Lease by and between 1743 Holdings, LLC and the Registrant dated as of March 2012 | S-1 | 333-225571 | 10.8 | 6/12/2018 |
| ^ | Offer Letter by and between the Registrant and Randy Furr, dated April 9, 2015 | S-1 | 333-225571 | 10.10 | 6/12/2018 |
| | | | | | | | | | | | | | | | | | | | |
| x | Third Amended and Restated Limited Liability Company Agreement of Diamond State Generation Holdings LLC dated June 14, 2019 | 10-Q | 001-38598 | 10.2 | 8/14/2019 |
| x | Fuel Cell System Supply and Installation Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.3 | 8/14/2019 |
| x | Amended and Restated Master Operations and Maintenance Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.4 | 8/14/2019 |
| x | Repurchase Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.5 | 8/14/2019 |
| x | Third Amended and Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC dated June 14, 2019 | 10-Q | 001-38598 | 10.6 | 8/14/2019 |
| x | Annex 1 (Definitions) to Equity Capital Contribution Agreement (Ex 10.1) and Limited Liability Agreements (Exs. 10.2 and 10.6) | 10-Q | 001-38598 | 10.7 | 8/14/2019 |
| x | Purchase, Use and Maintenance Agreement between the Company and 2018 ESA Project Company, LLC dated June 28, 2019 | 10-Q | 001-38598 | 10.8 | 8/14/2019 |
| x | Annexes to Purchase, Use and Maintenance Agreement between the Company and 2018 ESA Project Company, LLC dated June 28, 2019 | 10-Q | 001-38598 | 10.9 | 8/14/2019 |
| ^ | Bloom Energy Corporation 2021 Deferred Compensation Plan | 10-K | 001-38598 | 10.26 | 2/26/2021 |
| x | Fourth Amended and Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC dated as of December 23, 2019 | 10-K | 001-38598 | 10.32 | 3/31/2020 |
| x | Fuel Cell System Supply and Installation Agreement between Bloom Energy Corporation and Diamond State Generation Partners, LLC dated as of December 23, 2019 | 10-K | 001-38598 | 10.33 | 3/31/2020 |
| x | Second Amended and Restated Administrative Services Agreement by and between Bloom Energy Corporation and Diamond State Generation Partners, LLC dated as of December 23, 2019 | 10-K | 001-38598 | 10.34 | 3/31/2020 |
| x | Equity Capital Contribution Agreement with respect to Diamond State Generation Partners, LLC by and among Bloom Energy Corporation, Diamond State Generation Holdings, LLC, SP Diamond State Class B Holdings LLC, Assured Guaranty Municipal Corp. and Diamond State Generation Partners LLC, dated as of December 23, 2019 | 10-K | 001-38598 | 10.35 | 3/31/2020 |
| x | Second Amended and Restated Master Operations and Maintenance Agreement between Bloom Energy Corporation as Operator and Diamond State Generation Partners, LLC dated as of December 23, 2019 | 10-K | 001-38598 | 10.36 | 3/31/2020 |
| | First Amendment to Repurchase Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-K | 001-38598 | 10.37 | 3/31/2020 |
| ^ | Offer Letter between the Company and Chris White, dated April 16, 2019 | 10-K | 001-38598 | 10.38 | 3/31/2020 |
|
| | | | | | |
| † | Guaranty by the Registrant, dated as of March 16, 2012 (PPA II) | S-1 | 333-225571 | 10.13 | 6/12/2018 |
| | Equity Contribution Agreement by and among the Registrant, Diamond State Generation Partners, LLC, and Deutsche Bank Trust Company Americas, dated as of March 20, 2013 (PPA II) | S-1 | 333-225571 | 10.15 | 6/12/2018 |
| † | Master Energy Server Purchase Agreement between the Registrant and Diamond State Generation Partners, LLC, dated as of April 13, 2012 (PPA II) | S-1 | 333-225571 | 10.17 | 6/12/2018 |
| | Omnibus First Amendment to MESPA, MOMA and ASA by and among the Registrant, Diamond State Generation Partners, LLC and Diamond State Generation Holdings, LLC, dated as of March 20, 2013 (PPA II) | S-1 | 333-225571 | 10.18 | 6/12/2018 |
| | Net Lease Agreement, dated as of April 4, 2018, by and between the Registrant and 237 North First Street Holdings, LLC | S-1 | 333-225571 | 10.29 | 6/12/2018 |
| ^ | Consulting Agreement between the Registrant and Colin L. Powell, dated as of January 29, 2009 | S-1 | 333-225571 | 10.31 | 6/12/2018 |
| ^ | Amendment to Consulting Agreement between the Registrant and Colin L. Powell, dated as of July 31, 2019 | | | | Filed herewith |
| | Grant Agreement by and between the Delaware Economic Development Authority and the Registrant, dated March 1, 2012 | S-1 | 333-225571 | 99.1 | 6/12/2018 |
| ^ | Form of Indemnification Agreement | 10-Q | 001-38598 | 10.1 | 9/7/2018 |
| ^ | Form of Offer Letter | 10-K | 001-38598 | 10.27 | 3/22/2019 |
| † | Preferred Distributor Agreement by and between Registrant and SK Engineering & Construction Co., Ltd dated November 14, 2018 | 10-K | 001-38598 | 10.28 | 3/22/2019 |
| † | Third Amended and Restated Purchase, Use and Maintenance Agreement between Registrant and 2016 ESA Project Company, LLC, dated as of September 26, 2018 | 10-K | 001-38598 | 10.29 | 3/22/2019 |
| | Amendment No.1 to Third Amended and Restated Purchase, Use and Maintenance Agreement by and between Registrant and 2016 ESA Project Company, LLC dated as of September 28, 2018 | 10-K | 001-38598 | 10.30 | 3/22/2019 |
| | Amendment No.2 to Third Amended and Restated Purchase, Use and Maintenance Agreement by and between Registrant and 2016 ESA Project Company, LLC dated as of December 19, 2018 | 10-K | 001-38598 | 10.31 | 3/22/2019 |
| x | Equity Capital Contribution Agreement between the Company, SP Diamond State Class B Holdings, LLC, Diamond State Generation Partners, LLC, and Diamond State Generation Holdings, LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.1 | 8/14/2019 |
| x | Third Amended and Restated Limited Liability Company Agreement of Diamond State Generation Partners LLC dated June 14, 2019 | 10-Q | 001-38598 | 10.2 | 8/14/2019 |
| x | Fuel Cell System Supply and Installation Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.3 | 8/14/2019 |
| x | Amended and Restated Master Operations and Maintenance Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.4 | 8/14/2019 |
| x | Repurchase Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.5 | 8/14/2019 |
| | | | | | | | | | | | | | | | | | | | |
| ^ | Change of Control and Severance Agreement between the Company and Chris White dated April 16, 2019 | 10-K | 001-38598 | 10.39 | 3/31/2020 |
| ^ | Offer Letter between the Company and Gregory Cameron, dated March 20, 2020 | 8-K | 001-38598 | 10.1 | 4/2/2020 |
| | Note Purchase Agreement among the Registrant, the guarantor named therein, and the purchasers listed therein, dated as of March 30, 2020 | 10-Q | 001-38598 | 10.3 | 5/11/20 |
| | Amendment Support Agreement by and among the Registrant and the investors named therein, dated as of March 31, 2020 | 10-Q | 001-38598 | 10.4 | 5/11/20 |
| x | Amended and Restated Purchase, Use and Maintenance Agreement between the Company and 2018 ESA Project Company, LLC dated June 30, 2020 | 10-Q/A | 001-38598 | 10.2 | 8/5/2020 |
| x | Preferred Distributor Agreement by and between Registrant and SK D&D Co., Ltd dated January 30, 2019 | 10-K | 001-38598 | 10.44 | 2/26/2021 |
| | Lease Agreement between Pacific Commons Owner, LP, and Bloom Energy Corporation entered into as of March 13, 2021 | 10-Q | 001-38598 | 10.1 | 5/6/2021 |
| ^ | Offer Letter between the Registrant and Guillermo Brooks dated May 31, 2021 | 10-Q | 001-38598 | 10.1 | 8/6/2021 |
| | Third Amendment to Net Lease Agreement, dated as of June 6, 2021, by and between the Registrant and SPUS9 at First Street, LP | 10-Q | 001-38598 | 10.2 | 8/6/2021 |
| x | Purchase, Engineering, Procurement and Construction Contract between the Registration, RAD 2021 Bloom ESA Funds I - V, and RAD Bloom Project Holdco LLC, dated as of June 25, 2021 | 10-Q | 001-38598 | 10.3 | 8/6/2021 |
| x | Operations and Maintenance Agreement between the Registrant and RAD Bloom Project Holdco LLC, dated as of June 25, 2021 | 10-Q | 001-38598 | 10.4 | 8/6/2021 |
| ^ | Form of Employment, Change in Control and Severance Agreement | 10-Q | 001-38598 | 10.5 | 8/6/2021 |
| ^ | Form of Preferred Stock Unit Agreement under 2018 Equity Incentive Plan | | | | Filed herewith |
| | Securities Purchase Agreement, dated October 23, 2021, by and among the Company and SK ecoplant Co., Ltd. | 8-K | 001-38598 | 10.1 | 10/25/2021 |
| x | Amended and Restated Preferred Distributor Agreement, dated October 23, 2021, by and among the Registrant, Bloom SK Fuel Cell, LLC, and SK ecoplant Co., Ltd. | 10-Q | 001-38598 | 10.2 | 11/5/2021 |
| | Amendment to the Joint Venture Agreement, dated October 23, 2021, by and between the Registrant and SK ecoplant Co., Ltd. | 10-Q | 001-38598 | 10.3 | 11/5/2021 |
| | Investor Agreement, dated December 29, 2021, by and among the Registrant and SK ecoplant Co., Ltd. | 8-K | 001-38598 | 10.1 | 12/30/2021 |
| x | Master Supply Agreement, dated December 24, 2021, by and between Registrant and SK E&C BETEK Corporation | | | | Filed herewith |
| | Letter dated September 4, 2020 from PricewaterhouseCoopers LLP to the Securities and Exchange Commission | 8-K | 001-38598 | 16.1 | 9/4/2020 |
|
| | | | | | |
| x | Third Amended and Restated Limited Liability Company Agreement of Diamond State Generation Holdings, LLC dated June 14, 2019 | 10-Q | 001-38598 | 10.6 | 8/14/2019 |
| x | Annex 1 (Definitions) to Equity Capital Contribution Agreement (Ex 10.1) and Limited Liability Agreements (Exs. 10.2 and 10.6) | 10-Q | 001-38598 | 10.7 | 8/14/2019 |
| x | Purchase, Use and Maintenance Agreement between the Company and 2018 ESA Project Company, LLC dated June 28, 2019 | 10-Q | 001-38598 | 10.8 | 8/14/2019 |
| x | Annexes to Purchase, Use and Maintenance Agreement between the Company and 2018 ESA Project Company, LLC dated June 28, 2019 | 10-Q | 001-38598 | 10.9 | 8/14/2019 |
| ^ | Bloom Energy Corporation 2020 Non-Employee Director Deferred Compensation Plan | | | | Filed herewith |
| x | Fourth Amended and Restated Limited Liability Company Agreement of Diamond State Generation Partners, LLC dated as of December 23, 2019 | | | | Filed herewith |
| x | Fuel Cell System Supply and Installation Agreement between Bloom Energy Corporation and Diamond State Generation Partners, LLC dated as of December 23, 2019 | | | | Filed herewith |
| x | Second Amended and Restated Administrative Services Agreement by and between Bloom Energy Corporation and Diamond State Generation Partners, LLC dated as of December 23, 2019 | | | | Filed herewith |
| x | Equity Capital Contribution Agreement with respect to Diamond State Generation Partners, LLC by and among Bloom Energy Corporation, Diamond State Generation Holdings, LLC, SP Diamond State Class B Holdings LLC, Assured Guaranty Municipal Corp. and Diamond State Generation Partners LLC, dated as of December 23, 2019 | | | | Filed herewith |
| x | Second Amended and Restated Master Operations and Maintenance Agreement between Bloom Energy Corporation as Operator and Diamond State Generation Partners, LLC dated as of December 23, 2019 | | | | Filed herewith |
| | First Amendment to Repurchase Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | | | | Filed herewith |
| ^ | Offer Letter between the Company and Chris White, dated April 16, 2019 | | | | Filed herewith |
| ^ | Change of Control and Severance Agreement between the Company and Chris White dated April 16, 2019 | | | | Filed herewith |
| ^ | Offer Letter between the Company and Hari Pillai dated December 3, 2018. | | | | Filed herewith |
| ^ | Change of Control and Severance Agreement between the Company and Hari Pillai dated December 3, 2018. | | | | Filed herewith |
| | List of Subsidiaries | | | | Filed herewith |
| | Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP | | | | Filed herewith |
| | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | Filed herewith |
|
| | | | | | | | | | | | | | | | | | | |
| | List of Subsidiaries | | | | Filed herewith |
| | Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP | | | | Filed herewith |
| | Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP | | | | Filed herewith |
| | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | Filed herewith |
| | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | Filed herewith |
| ** | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | Filed herewith |
| 101.INS | | XBRL Instance DocumentDocument- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | Filed herewith |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | Filed herewith |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | Filed herewith |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | Filed herewith |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | Filed herewith |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | Filed herewith |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | |
|
| | | | |
| ^ | Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
|
| ** | The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. |
| † | Confidential treatment requested with respect to portions of this exhibit. |
| x | Portions of this exhibit are redacted as permitted under Regulation S-K, Rule 601. |
ITEM 16 - FORM 10-K SUMMARY
Not applicable.None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | | BLOOM ENERGY CORPORATION |
| | | | |
| | | | |
BLOOM ENERGY CORPORATION |
| Date: | February 25, 2022 | By: | | |
| | | | |
Date: | March 31, 2020 | By: | | /s/ KR Sridhar |
| | | | KR Sridhar |
| | | | Founder, President, Chief Executive Officer and Director |
| | | | (Principal Executive Officer) |
| | | | |
| Date: | March 31, 2020February 25, 2022 | By: | | /s/ Randy FurrGregory Cameron |
| | | | Randy FurrGregory Cameron |
| | | | Executive Vice President and |
| | | | Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer) |
| | | | |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints KR Sridhar and Randy Furr,Gregory Cameron, and each of them individually, as his or her attorney-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Date: | February 25, 2022 | | | /s/ KR Sridhar |
| | | | KR Sridhar |
| | | | Founder, President, Chief Executive Officer and Director |
| | | | (Principal Executive Officer) |
| | | | |
| Date: | March 31, 2020February 25, 2022 | | | /s/ KR SridharGregory Cameron |
| | | | KR SridharGregory Cameron |
| | | | Founder, President, Chief Executive Officer and Director |
| | | | (Principal Executive Officer) |
| | | | |
Date: | March 31, 2020 | | | /s/ Randy Furr |
| | | | Randy Furr |
| | | | Executive Vice President and |
| | | | Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer) |
| | | | |
| Date: | March 31, 2020February 25, 2022 | | | /s/ Michael Boskin |
| | | | Michael Boskin |
| | | | Director |
| | | | |
| Date: | March 31, 2020February 25, 2022 | | | /s/ Mary K. Bush |
| | | | Mary K. Bush |
| | | | Director |
| | | | |
| Date: | March 31, 2020February 25, 2022 | | | /s/ John T. Chambers |
| | | | John T. Chambers |
| | | | Director |
| | | | |
| Date: | March 31, 2020February 25, 2022 | | | /s/ L. John Doerr |
| | | | L. John Doerr |
| | | | Director |
| | | | |
Date: | March 31, 2020 | | | /s/ Jeffrey Immelt |
| | | | Jeffrey Immelt |
| | | | Director |
| | | | |
| Date: | March 31, 2020February 25, 2022 | | | /s/ Colin L. Powell |
| | | | Colin L. Powell |
| | | | Director |
| | | | |
Date: | March 31, 2020 | | | /s/ Scott Sandell |
| | | | Scott Sandell |
| | | | Director |
| | | | |
| Date: | March 31, 2020February 25, 2022 | | | /s/ Peter Teti |
| | | | Peter Teti |
| | | | Director |
| | | | |
Date: | March 31, 2020 | | | /s/ Eddy Zervigon |
| | | | Eddy Zervigon |
| | | | Director |
