UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| (Mark One) | |
☑þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20212023 |
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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 NumberNumber: 001-38598
BLOOM ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
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| Delaware | 77-0565408 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification 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 |
| (Registrant’s telephone number, including area code) |
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| Securities registered pursuant to Section 12(b) of the Act: |
Title of Each Class(1) | Trading SymbolSymbol(s) | 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.
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐¨ Emerging growth company ☐¨
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. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☑¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
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 approximately $3.8$2.4 billion based upon the closing price of $26.87$16.32 per share of our Class A common stock on the New York Stock Exchange on June 30, 20212023 (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 10% ofor more of the outstanding Class A common stock have been excluded in that such persons may be deemed to be affiliates. TheThis determination of affiliate status ifis not necessarily a conclusive determination for other purposes.
The numberAs of February 12, 2024, there were 224,973,118 shares of the registrant’s common stock outstanding as of February 15, 2022 was as follows:
Class A Common Stock,common stock, $0.0001 par value, 161,284,535 shares
Class B Common Stock, $0.0001 par value 15,832,833 sharesoutstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the 20222024 Annual Meeting of Stockholders (the “2022“2024 Proxy Statement”) are incorporated into Part III hereof.of this Annual Report on Form 10-K. The 20222024 Proxy Statement will be filed with the U.S. Securities and Exchange Commission ("SEC"(“SEC”) within 120 days after the registrant’s year ended December 31, 2021.2023.
Bloom Energy Corporation
Annual Report on Form 10-K for the YearsYear Ended December 31, 20212023
Table of Contents
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| Part I | |
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Item 1A -— Risk Factors | |
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| Part II | |
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Item 6 - [Reserved] | |
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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“we,”“us,”“our,”“Bloom Energy," "Bloom"”“Bloom” and the "Company"“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"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“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 biogas and hydrogen market; the impact of the COVID-19 pandemic;our expanded strategic partnership with SK ecoplant; statements about our supply chain; operating results; the sufficiency of our cash and our liquidity; projected costs and cost reductions; development of new products and improvements to our existing products; our manufacturing capacity and manufacturing costs; the adequacy of our agreements with our suppliers; legislative actions and regulatory and environmental compliance; impact of the Inflation Reduction Act (the “IRA”) on our business; competitive position; management’s plans and objectives for future operations; our ability to obtain financing; our ability to comply with debt covenants or cure defaults, if any; our ability to repay our debt obligations as they come due; trends in average selling prices; the success of our customer financing arrangements; capital expenditures; warranty matters; outcomes of litigation; our exposure to foreign exchange, interest and credit risk; general business and economic conditions in our markets; industry trends; the impact of changes in government incentives; risks related to cybersecurity breaches, privacy and data security; the likelihood of any impairment of project assets, long-lived assets and investments; trends in revenue, cost of revenue and gross profit (loss); trends in operating expenses including research and development expense, sales and marketing expense and general and administrative expense and expectations regarding these expenses as a percentage of revenue; future deployment of our Bloom Energy Servers and Bloom Electrolyzer;Electrolyzers; our ability to expand our business with our existing customers; our ability to increase efficiency of our products; our ability to market outour products successfully in connection with the global energy transition and shifting attitudes around climate change; our business strategy and plans and our objectives for future operations; 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.
Part I
ITEM 1 -— BUSINESS
Overview
Bloom Energy is uniquely situated to provide innovative technology solutions to customers at an important moment in the world’s transition to a net-zero carbon energy system. We manufacture one of the most advanced and versatile energy platforms, which delivers two products: the Bloom Energy Server® and the Bloom Electrolyzer™. With approximately 1.2 gigawatts of the Energy Servers accepted in more than 1,200 locations and 7 countries, our platform empowers businesses, essential services, critical infrastructure, energy companies, and communities with resilient, reliable, and sustainable energy solutions. Changing the future of energy is no small task, but our diverse group of thinkers, solvers and dreamers are up to the challenge. Our mission isemployees are driven by our mission: to make clean, reliable energy affordable for everyone in the world. We created
The market conditions for our platform are promising. The three most important indicators of a well-functioning, energy transition — cost, reliability, and emissions — are all facing stiff headwinds. Customers are demanding lower carbon and resilient energy today with the first large-scale, commercially viableflexibility to move to net-zero solutions. Our platform is designed and produced to meet these demands and solve these challenges. Global electricity systems are now facing a range of significant challenges, including threats from extreme weather events, aging transmission and distribution systems, a wave of retiring generation assets, and unprecedented load growth that is far outpacing the installation of new renewable resources. Our time to power solutions and resiliency with 24x7x365 power generation address these needs.
The value propositions for our fuel cell-based power platform are very compelling. Built on the same solid oxide fuel-cell based power generation platform, we develop the Energy Server and the Electrolyzer with predominantly the same supply chain, manufacturing, and engineering expertise. These solutions share reliability, cost-down and efficiency advantages. We have driven down our costs due to our relentless commitment to innovation and discipline. By delivering either molecules of fuel or electrons, we can serve two different markets with one platform and that empowers businesses, essential services, critical infrastructureprovides us with a diverse customer base. We have made significant progress toward our goal of utilizing our platform in a variety of new applications and we believe we are well-positioned as a core platform in the new energy transition to help organizations and communities achieve their net-zero objectives.
To date, nearly all of our revenue has been attributable to responsibly take chargesales 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 Bloomour power generating Energy Server. The Energy Servers can use biogas, hydrogen, natural gas, or a blend of fuels to create quickly deployed resilient, sustainable, and cost-predictable powerpower. The platform’s fuel flexibility combined with a skid mounted and modular package means that Bloom’s Energy Servers are well situated to serve as a rapidly deployable baseload electricity transition technology and solution today, without creating a stranded asset in the future. It can perform at significantly higher efficiencies than traditional, combustion-based resources. In addition, our same solid oxide platformIt can reduce carbon dioxide and air pollutants through a unique, non-combustion process that powers our fuel cells can be used to create hydrogen, which is increasingly recognized asuses gas for a critically important tool necessary forfundamentally different reason than any other technology — maximizing the full decarbonizationutilization of the energy economy. hydrogen.
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 isServers are inherently designed to help enable this future in order to deliver reliable low-carbon, electricity inelectricity. They can provide reliability as a world facing unacceptable levels ofmicrogrid solution to customers who can’t afford power disruptions.outages. Our resilient platform has kept electricity availablemicrogrids continue to generate power for our customers through hurricanes, earthquakes, typhoons, forest fires, extreme heateven when the grid isn’t available. Our system also operates at a 99%+ availability due to its modular and grid failures. Unlike traditional combustionfault-tolerant design, which includes multiple independent 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 believemodules that we are well-positioned as a core platform and fixture in the new energy paradigm to 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 our technology. We have 287 issued patents in the United States and 147 issued patents internationally as of December 31, 2021.
The United States is currently our biggest market and represents our largest installed base of Bloom Energy Servers. Some of our largest customers in the United States include AT&T, Caltech, Delmarva Power & Light Company, Equinix, The Home Depot, Kaiser Permanente and The Wonderful Company. We also work with a number of U.S. financing partners who purchase and deploy our systems at end-customers’ facilities in ordercan be concurrently replaced during maintenance to provide “electricity-as-auninterrupted service."
Outside Our Energy Servers also have the proven resiliency to withstand weather events, cybersecurity attacks, and other grid outages, providing reliable baseload power while the grid is still grappling with the proliferation of the United States, the Republicintermittent wind and solar generation. Our systems can be installed in a timeline far shorter than building new transmission lines, or any form of Korea is a world leader in the deployment of fuel cells for utility-scale electriclarge-scale power generation. This ‘Time to Power’ value proposition is particularly meaningful for manufacturers, data centers, hospitals, and retailers, especially when the local utility is unable to provide the additional power to support their load growth or energy goals. We entered this market with a first deployment of an 8.35-megawatt ("MW")can be onsite and operating in months, while other power providers are quoting deliveries in years. With our Bloom Energy Server, solutionwe are also partnering with developers for significant opportunities in waste-to-energy. In some instances, we are providing power solutions to enable lower carbon intensity renewable fuels, and in other cases, we are providing solutions to use biogas for resilient power across dairies, landfills, and wastewater treatment facilities.
The Bloom Electrolyzer, which produces hydrogen, opens new markets, partnerships, and geographies for the company. And the twenty plus years of expertise we have accumulated from building, installing and operating fuel cell systems is being leveraged to advance the electrolyzer systems we can deploy. The Bloom Electrolyzer is in the early stages of commercialization. But the results have shown its promise. In 2023, for example, we deployed the world’s largest solid oxide electrolyzer at our NASA Ames Research Center, located in Mountain View, California, and achieved a Korean utilitynew record efficiency level of 37.5 kWh of electricity per kilogram of hydrogen generated. At its high efficiency, the Bloom Electrolyzer uses less electricity to produce hydrogen than other electrolyzers, thereby potentially lowering the overall cost of producing hydrogen, a critical factor in accelerating the transition to hydrogen as a fuel. The Idaho National Laboratory (INL) has been studying to see how well it could produce hydrogen from electricity and steam from a nuclear facility, and their 2023 results showed that began commercial operationit was the most efficient electrolyzer that they ever tested. The Bloom Electrolyzer diversifies and expands our addressable market to industries with hard-to-abate emissions, such as heavy industries and those seeking zero-carbon transportation fuels. In December 2023, we announced the Electrolyzer sale in 2018. The Republic ofSouth Korea now represents to our second-largest market.partners SK ecoplant Co., Ltd. (“SK ecoplant,”ecoplant”, formerly known as SK Engineering & Construction Co., Ltd.), a subsidiary of the SK Group, with the technology to be deployed in a government-led project to deploy hydrogen as an energy source in a large-scale green hydrogen for use as transport fuel.
We are growing our research and manufacturing capabilities based in the United States and South Korea to meet the opportunities in the global markets. As of December 31, 2023, we have 325 active patents in the U.S. and 145 active patents internationally. In 2023, we scaled up production at our multi-gigawatt factory in Fremont, California, while streamlining and consolidating operations from our Sunnyvale, California, facility to our Fremont facility. The consolidation and ramp in production capacity during 2023 enabled us to produce our Energy Server platforms more efficiently. The plans provide for an additional ramp up in production with incremental investments. We invested in our Newark, Delaware, factory during 2023 to increase production capacity, including a high volume electrolyzer manufacturing line for commercial deployment in North America and Europe. Our Delaware team celebrated its 10th anniversary, growing from one employee in 2013 to nearly 800 in 2023, with installed production capacity at two gigawatts per year. Moreover, our joint venture with SK ecoplant is now capable of full assembly.
The U.S. is currently our largest market in terms of revenue and installed base of the Energy Servers. Our major customers include companies in industries such as utilities, data centers, agriculture, retail, hospitals, higher education, biotech, and manufacturing. Many of our customers look to solve “time to power” issues where they cannot get energy fast enough from the grid or current energy providers to meet their commercial objectives. Moreover, our resilient technology provides secure power to critical facilities, including data centers, hospitals and high-tech manufacturing, while also serving to reduce greenhouse gas (“GHG”) emissions. We also work with several global financing and distribution partners who purchase and deploy our systems at end-customers’ facilities to provide “electricity-as-a-service.”
Our second-largest market in terms of revenue and installed base of the Energy Servers is South Korea, a world leader in the deployment of fuel cells for utility-scale electric power generation. We began commercial operation in South Korea in 2018 and have grown our footprint to more than 492 megawatts of deployed Energy Servers across South Korea. SK ecoplant serves as the primary distributor of our systems in the Republic of Korea. In October 2021, we announced an expansion of our existing partnership with SK ecoplant, that includeswhich included purchase commitments of at least 500MW500 megawatts of power for our Energy Servers between 2022 and 20252024 on a take or paytake-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. In September 2023, upon automatic conversion of all 13,491,701 shares of the Series B redeemable convertible preferred stock into shares of our Class A common stock, SK ecoplant became a related party to us with beneficial ownership of 10.5% of our outstanding Class A common stock. On December 21, 2023, we expanded our partnership with SK ecoplant through an incremental purchase commitment of 250 megawatts through 2027 and extended the timing of delivery of the remaining take-or-pay commitment to a minimum purchase commitment under the original agreement. For additional information, please see Part II, Item 8, Note 11 — Related Party Transactions, and Note 17 — SK ecoplant Strategic Investment.
In fiscal 2023, we expanded our presence in the European market by signing contracts with customers in Italy, the U.K., Germany, and Belgium. We also strengthened our presence in Asia by signing additional contracts in Taiwan and Thailand. We are also operating smaller deployments in India and Japan with commercial customers, with additional projects in development in Europe,other Southeast Asia locations and Australia. We plan to continue our efforts to increase our operations internationally in 2024.
Power-Related Industry BackgroundSectors
•Distributed Electricity Generation:
There are numerous challenges facing the traditional system for producing and delivering electricity. We believe overcoming these challenges will be the foundation of a transformation intransform 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, where centralized mainframe computing and landline telephone systems ultimately gave way to the ubiquitous and highly personalizedmore distributed technologies seen today, as well asand the reimagining of business processes, culture, and customer experiences. As further described below, this could position us to provide a unique solution to meet customers’ challenges during this energy transition, especially with increasing power demands from the growth of artificial intelligence (AI) driven business services.
ResilienceProviding a resilient energy solution 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. 2021According to the National Centers for Environmental Information, 2023 was characterized by increasing,the year with the most frequent billion-dollar weather 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,(28) ever recorded, including severe storms, tropical cyclones, tsunamis, wildfires andflooding, winter storms, resulting inand wildfires.
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 prepare forcontinue providing energy during more frequent and intense natural disasters while maintaining a course toward achieving their climate targets. These climate threats are compounded by anAn increasing concern over the threat of cyber-attacks and physical sabotage to the centralized grid infrastructure.infrastructure compounds these climate threats. These acute issues further add to a chronic concern; the fragility of decades-old energy system elements that have suffered from deferred maintenance and replacement, which can only be partially remedied by the billions of dollars of new investment from the recently passed infrastructure bill.replacement. In an increasingly electrified world, from electric vehicles, to automated manufacturing, to the digitalization of everything, power supply and reliability are more important now than ever. This has elevated the discussion around the essential role thatcritical. We believe distributed generation and microgrids can play an important role in improving the resilience of both businesses and the grid. As outages increase, businesses are consideringconsider 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 neglect –— both from a strategic and costfinancial perspective.
RiseThere is a rise in centralized capacity constraints. The traditional centralized grid model is increasingly showing weaknesses. For example,According to the North American Electric Reliability Corporation’s (“NERC”) 2022 Long-Term Reliability Assessment, more than half of the U.S. has a high or elevated risk of insufficient electricity supply over the next five years. Simultaneously, consumer and business demand for electricity is increasing rapidly. Electrification of transportation, increasing data center build out, and industrial decarbonization are expected to lead to a rapid increase in power demand. The expected capacity constraints in combination with increasing demands for electricity in the summer of 2021, California issued an emergency proclamation order, documenting the drastic measures that must 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 generation. This is oneU.S. reflect two of the many reasons why microgrids, localized energy systems that can operate alongside a maincentral 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"(“24x7”), always-on energy solution, powering critical infrastructure, offsetting demand on the grid, and supplying power to the grid when it is most needed.
IncreasingThere is an increasing focus on reducing harmful local emissions. Air pollution is the fiftha leading risk factor for mortality worldwide. Indeed, calculationsworldwide, and the economic impacts of poor air quality are substantial. Recent estimates find that every dollar invested in air pollution control since the passage of the Clean Air Act in the U.S. has produced an economic benefit of $30: a return on investment of 30:1. These benefits reflect the increased economic productivity of healthier, longer-lived citizens and reduced health benefits associated with reducing localized air pollution suchcare costs.
•Clean Hydrogen Production:
Clean hydrogen is gaining considerable attention as nitrogen oxides, which are produced by combustinga flexible zero-carbon fuel and particulate matter emissions have been found to exceed the economicenergy storage medium. It can be stored 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 pollutionutilized in various industrial, transportation, 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 the emphasis on reducing such harmful local emissions as they consider the adoption of Renewable Portfolio Standards (“RPS”) or other mandated targets for low- or zero-carbon power generation.
Hydrogen is key to a zero-carbon future. generation applications. We believe clean hydrogen will be a critical foundation forfactor in the energy industry of the future, a truly clean alternative for both natural gas and transportation fuels. fuels and an alternative means to store energy. The International Energy Agency (IEA) forecasts hydrogen demand will increase by 1.5X current demand by 2030 to reach more than 150 (Mt), with some forecasts setting the demand to be as high as 600 Mt by 2050. (Deloitte’s 2023 Global Green Hydrogen Outlook).
Hydrogen is one of the keys to a zero-carbon future. Hydrogen’s unique advantages –— incredibly high energy density, zero carbon gas emissions, from consumption, and ease of storage and transportation –being the most abundant element on earth — 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 ofusing 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 boththe transportation and the electricity sectorsectors transition to a zero-carbon future, there will thus be increasing demand for both technologies that can both efficiently generate power using hydrogen and for large-scale electrolysis or carbon capture technology that can produce clean hydrogen at scale.
In December 2023, we announced a sale to SK ecoplant of Bloom’s electrolyzer technology to deploy hydrogen as an energy source in a large-scale green hydrogen demonstration involving 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, ourlocal government. The first-of-its-kind demonstration for South Korea, which will commence in late 2025, includes 1.8 megawatts of Bloom’s industry leading solid oxide electrolyzer cells (“SOEC”) technology to develop green hydrogen at scale for use as transport fuel. For this project, Bloom and our marine technology.SK ecoplant will combine the Bloom Electrolyzer with SK ecoplant’s engineered infrastructure to produce hydrogen ready to be used as transport fuel.
Distributed electricity production. Products & Services
Our stationarysolid oxide fuel cell solution,technology platform is the foundation for our Energy Servers and Electrolyzers. Solid oxide fuel cells are more efficient than other fuel cell structures because they run at higher temperatures than other fuel cell technologies.
Bloom Energy Server
Our power generation platform, the Bloom Energy Server, is designed to deliver reliable, resilient, clean and affordable energy for utilities and organizations alike. Ideally suited forSuitable to operate parallel with the grid, independent of the grid, or as part of a larger microgrid and primary power applications,ecosystem, the Bloom Energy Server is based on our proprietary solid oxide technology that converts fuel, such as natural gas, biogas, hydrogen, or a blend of these fuels, into electricity through an electrochemical process without combustion. The high-quality electrical output of our Energy Server canis designed to 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
The modular and composednature of independent 50-kilowatt power modules. A typical configuration includes multiple power modules in a single Energy Server and can produce up to 300 kilowatts of power in a footprint roughly equivalent to that of a standard parking space. Anyour solution enables any number of thesethe Energy Server systems canServers to be clustered together in various configurations, to formproviding solutions from hundreds of kilowatts to many tenshundreds of megawatts. The Bloom Energy Server canis designed to be easily integrated into community environments due to its aesthetically attractive design, compact space requirement, minimal noise profile and lack ofnear-zero criteria air pollutants.
The Energy Server platform can be utilized in the following applications:
Hydrogen generation•Carbon capture. Our Energy Servers, when combined with carbon capture technology, can provide zero-carbon electricity. Our natural gas or biogas-fueled Energy Server vents CO2 into the atmosphere as a byproduct. When used to facilitate carbon capture, the Energy Server is configured to vent CO2 for consolidation, compression, and processing for sequestration or other industrial applications. The compression and processing of the anode exhaust can be done by industrial gas companies. Bloom’s anode exhaust, once dried, has 95% purity of CO2. This makes it one of the purest streams of CO2 out of any power generation technology using natural gas, making it comparatively simple and inexpensive to capture.
•Combined heat & power (“CHP”). High-temperature cathode exhaust from the Energy Server can be channeled, allowing the resulting exhaust heat to be fed to one or more heat recovery devices, such as a water heater or an absorption chiller to support air conditioning, refrigeration, and/or process fluid cooling for use in commercial buildings or other industrial plant. We released a combined heat and power offering that increases the efficiency of our technology to 85% with a goal of reaching, through continuous improvement, the 90% threshold. Compared to combustion technologies and other fuel cell products, the Bloom Energy Server has one of the highest electrical efficiencies in the industry.
•Waste to Energy. Bloom Energy’s solid oxide fuel cells (“SOFCs”) provide an electrochemical pathway to convert biogas to electricity without combustion, producing carbon-neutral electricity with near zero air pollution and water usage. Bloom Energy Servers can utilize proven, off-the-shelf gas conditioning equipment to process raw biogas into a suitable fuel for power generation.
•Marine Fuel Cells. Bloom’s platform is well positioned to address impending emissions regulations and offer higher efficiency than traditional power sources. Marine fuel cell powered ships can obtain immediate emissions reductions for the cleanest and most efficient operation by utilizing liquefied natural gas (“LNG”) as the primary fuel source.
Energy Server Competition
We primarily compete against gas engines, combined heat and power systems, and utility grids; we compete with diesel generators for grid-independent operations. Our solutions are based on superior reliability, resiliency, cost savings, predictability, and sustainability, all of which can be customized to the needs of individual customers. Customers do not currently have alternative solutions that provide all of these important attributes in one platform. As we work to drive costs
down and make technological improvements, we expect our value proposition to become more competitive relative to grid power in additional markets.
Other sources of competition — and the attributes that differentiate us — include:
•Intermittent solar power paired with storage. Solar power is intermittent and best suited for addressing daytime peak power requirements, while our Energy Servers are designed to provide stable baseload generation. Storage technology is intended to address the intermittency of solar power. However, the low power density of the combined technologies and the challenges of extended poor weather events that sharply decrease solar power production and battery recharging make the solution impractical for most commercial and industrial customers looking for on-site solutions to offset a significant amount of power. As a point of comparison, to provide the same power output as our Energy Servers, a photovoltaic solar installation will require 125 times more space. This allows us to serve a bigger portion of a customer’s energy requirements based on their 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 do not help end customers avoid the vulnerabilities and costs of the transmission and distribution system.
•Traditional co-generation systems. These systems deliver a combination of electric power and heat from combustion sources. We believe we are uniquely positionedcompete favorably because of our non-combustion platform, superior electrical efficiencies, significantly less complex deployment (avoiding heating systems integration and 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 reliable power, particularly in grid-independent configurations where our Energy Servers can operate during grid outages, they can prevent the need for the hydrogen future of tomorrow. Using the sametraditional backup equipment, such as diesel generators. By providing combustion-free power 24x7 rather than just as a backup, we generally offer a better integrated, more reliable, cleaner, and more cost-effective solution than these grid-plus-backup systems.
•Other commercially available fuel cells. Our Energy Server uses advanced solid oxide platform asfuel cell technology, which produces electricity directly from oxidizing fuel. The advantages of 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 percenttechnology include higher efficiency, long-term stability, elimination of the cost ofneed for an external fuel reformer, ability to use biogas, natural gas, or 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 atlow emissions, and relatively low cost. There are 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 developmentvariety 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 bunkertechnologies, characterized by their electrolyte material, including:
◦Proton exchange membrane 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’scells (“PEM”). PEM fuel cells are typically used in onboard 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 high-cost fuel input energy sources or an external fuel reformer, which adds to the product’s cost, complexity, and electrical inefficiency. As a result, they are not typically an economically viable option for stationary baseload 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.generation.
Our ◦Molten carbonate fuel cells (“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 kilowatt systems and are 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”). PAFCs use 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 kilowatts to 400 kilowatts range. PAFCs are best suited to combined heat and power output applications that 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.
Value Proposition
Our energy platform has three key value propositions: resiliency, sustainability and predictability. We seek to provide a complete, integrated “behind-the-meter” solution including installation, equipment, service, maintenance and, in limited cases, bundled fuel. The three elements of our value proposition emphasize those areas where there is a strong customer need and where we believe we can deliver superior performance.
•Resiliency. Our Energy Servers avoid the vulnerabilities of conventional transmission and distribution lines by generating power on-site where the electricity is consumed.on-site. 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 to provide uninterrupted service. Unlike traditional combustion generation, Bloom Energy Servers can be serviced and maintained without powering down the system. Importantly, Bloom Energy Servers that utilize existing natural gas infrastructure rely on a redundant underground mesh network, intended to provide for extremely high fuel availability that is protected from the natural disasters that often disrupt the power grid.
•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 fromcaused by climate-related extreme weather events. Our productsEnergy Servers are designed to achieve this while emitting near-zero criteria pollutants, consuming no water during steady-state operation, with optimizedand minimizing land use as a result ofimpacts due to 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•.Predictability. In contrast to the rising and unpredictable cost outlook for grid electricity, we offer our customers the ability to lock in the cost forof electric power over the long-term.long term. Unlike the grid price of electricity, which reflects the cost to maintain and update the entire transmission and distribution system, our price to our customers is based solely on their individual project.projects. In the regions where the majoritymost of our Energy Servers are deployed, our solution typically provideswe provide electricity to our customers at a cost that is competitive with traditionalthe grid power prices. In addition, ourprice of electricity. 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 offers all of the fixed equipment and maintenance costs for the life of the contract.
Our Energy Servers are designed to deliver 24x7 power with very high availability, mission-critical reliability and grid-independent capabilities. The Bloom Energy Server can be configured
•Time to eliminate the need 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. Power. Our Energy Servers are designed to offer consistent power quality supply for mission critical operations that require a high level of electrical reliability and 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 generatinggenerate power in as little as days or weeks – as an important value proposition for customers that needneeding to ramp up power quickly. This capability is ideal for customers who need critical power but are facingface 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.
OurBloom Electrolyzer
We believe we are uniquely positioned for the hydrogen future of tomorrow. The Bloom Electrolyzer is designed to produce scalable and cost-effective hydrogen solutions based on the same solid oxide platform as our Energy Server can be enhanced with microgrid components to deliver higher levels of reliabilityServer. The Bloom Electrolyzer is ideal for applications across gas, utilities, nuclear, concentrated solar, ammonia and grid-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
heavy industries. Our solid oxide, technology platformhigher-temperature Electrolyzer is designed to produce hydrogen onsite more efficiently than lower-temperature PEM and alkaline electrolyzers. Because it operates at higher temperatures, the foundationBloom Electrolyzer is designed to require less electric energy to break up water molecules and produce hydrogen. As electricity accounts for both our Energy Serversnearly 80 percent of the cost of producing hydrogen from electrolysis, using less electricity improves the economics of hydrogen production and ourhelps bolster adoption. The Bloom Electrolyzer.Electrolyzer is designed to produce green hydrogen when using low- or zero-carbon electric power. The solid-oxidehydrogen produced onsite at a customer’s facility can be used as fuel cells in our Energy Servers convert fuel, such as natural gas, biogas, hydrogen, or stored for consumption at a blend of fuels into electricity throughlater point.
Value Proposition
•Higher Efficiency. Fuel (steam) supplied to the Bloom Electrolyzer undergoes an electrochemical reaction without burning the fuel. Each individual fuel cellat 700-900 degrees Celsius which is composed of three layers: an electrolyte sandwiched betweenhigher than other currently available technologies. This leads to 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 Energy Server. Regardless of the starting size of a solution, further scaling can be accomplished after the initial solution deployment, creating ongoing flexibility and scalability for the customer.fundamental efficiency advantage to produce hydrogen by consuming less electricity.
•Scale. Bloom has reached scale in the Energy Server by growing revenues at a 30% compound annual growth rate over the last decade. Our electrolyzer technology datescommercial field experience in fuel cells directly transfers to our hydrogen production products, as we build upon the 1980s, whensame core platform, supply chain, manufacturing process, partners, and advanced remote software monitoring across all our co-founders first developed electrolyzersproducts and applications. Our experience as a developer of fuel cell projects, in addition to supportour role as an original equipment manufacturer (“OEM”), enables us to engage with customers and deliver turnkey projects.
•Modular Design. As with the U.S. military and later NASA’s Mars exploration programs. In the early 2000s, 19 patents were awarded to Bloom Energy Server, Bloom’s modular design allows for itstargeted maintenance in individual electrolyzer technology. With reduced renewable energy costsmodules while the rest of the facility continues to operate. This helps to avoid lengthy and costly shutdowns.
Electrolyzer Competition
Given that the global movementgreen hydrogen industry is at an early stage, no single technology has gained a leadership position. In electrolysis, electrical efficiency is a function of temperature, with higher efficiency favored by higher temperature due to decarbonize, we believe it is the right moment to commercialize our hydrogen technology.better reaction kinetics at higher temperatures and lower polarization losses. The Bloom Electrolyzer, which uses SOEC, is based on our solid oxide technology, and is designed to generate hydrogendifferentiated from electricity at superior efficiencies compared toAlkaline, PEM, and alkaline solutions. Our electrolyzer advances decarbonization effortsAnion Exchange Membrane (“AEM”) electrolysis which are low temperature electrolysis methodologies using liquid water. With high temperature electrolysis, water needs to be heated, vaporized, and brought to operating temperature. The thermal energy requirements are reduced by providing a clean fuel for carbon-free generation, injection intousing steam at or near operating temperature as the natural gas pipeline, transportation, or for use in industrial processes. Because it operates at high temperatures,input to the Bloom Electrolyzer requires lessElectrolyzer. Integrating SOEC with another process with available waste heat to provide thermal energy to break up water molecules and produce hydrogen.provides additional efficiency gains.
Research and Development
Our research and development organization has addressed complex applied materials, processing and packaging challenges through the invention ofby inventing 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 4357 PhDs within these or related fields. This team has continued to develop innovative technologytechnological 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 and increased the life of our fuel cells by over two and half times.
We have invested and willplan to 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. Customers do not currently have alternative solutions that provide all of these important attributes in one platform. As we drive our costs down and make technological improvements, we expect our value proposition to continue to improve relative to grid power in additional markets.
Other sources of competition – and the attributes that differentiate us – include:
•Intermittent solar power paired with storage. Solar power is intermittent and best suited for addressing day-time peak power requirements, while our Energy Servers are designed to provide stable baseload generation. Storage technology is intended to address the intermittency of solar power, but the low power density of the combined technologies and the challenges of extended poor weather events that sharply decrease solar power production and battery recharging makes the solution impractical for most commercial and industrial customers looking to offset a significant amount of power. As a point of comparison, our Energy Servers provide the same power output in 1/125th 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 do not help end customers avoid the vulnerabilities and costs of the transmission and distribution system.
•Traditional co-generation systems. These systems deliver a combination of electric power and heat from combustion sources. We believe we compete favorably because of our non-combustion platform, superior electrical efficiencies, significantly less complex deployment (avoiding heating systems integration and 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 reliable 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. By providing combustion-free power 24x7 rather than just as backup, we generally offer a better integrated, more reliable, cleaner and cost-effective solution than these grid-plus-backup systems.
•Other commercially available fuel cells. Basic fuel cell technology is over 100 years old. Our Energy Server uses advanced solid oxide fuel cell technology, which produces electricity directly from oxidizing a fuel. The type of solid oxide fuel cell 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, 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 fuel cells typically are used in onboard 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 high cost fuel input sources 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 baseload power generation.
◦Molten carbonate fuel cells (“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 kilowatt systems, and they are 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”). 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 that 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 forto protect our intellectual property whenever possible. We rely uponthrough a combination of patents, copyrights, trade secrets, and trademark laws, along withtrademarks, employee and third-party non-disclosure agreements, and other contractual restrictions to establish and protect our proprietary rights.restrictions.
We have developed a significant patent portfolio to protect elements of our proprietary technology. As of December 31, 2021,2023, we had 287 issued325 active patents and 96141 patent applications pending in the United States,U.S., and we had an international patent portfolio comprising 147 issued145 active patents and 80414 patent applications pending. Our U.S. patents are expected to expire between 20232022 and 2040.2042. While patents are an importantessential 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 continuallyregularly 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 StatesU.S. and in some locations abroad.international locations. “Bloom Energy” and the “BE” logologos are our registered trademarks in certain countries for use with the Energy Servers and our other products. We also hold registered trademarks for, among others, “Bloom Box,” “BloomConnect,” “BloomEnergy,” and “Energy Server” in certain countries. In an effort to protect our brand, as of December 31, 2021,2023, we had eight7 registered trademarks and 1 pending application in the United States, 40U.S. and 46 registered trademarks inand 15 pending applications across Australia, Brazil, Canada, Chile, China, the European Union, India, Israel, Japan, Mexico, Oman, Singapore, South Africa, Republic of Korea, Saudi Arabia, Taiwan, the United KingdomArab Emirates, and two pending applications in China.the United Kingdom.
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 Part I, Item 1A, Risk Factors -— Risks Related to Our Intellectual Property.
Manufacturing Facilities
Our primary manufacturing facilities for fuel cellsEnergy Servers and Energy ServersElectrolyzers assembly are in Sunnyvale, California, Fremont, California, and Newark, Delaware. We own our 76,000178,000 square-foot manufacturing facility in Newark, which 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. Our Newark facility includes an additional 25 acres available for factory expansion and/or the co-location of supplier plants.
In September 2023, as part of the approved restructuring plan (the “Restructuring Plan”), we initiated a closure of our 50,000 square-foot manufacturing, warehousing, research and development (“R&D”) facility in Sunnyvale, California, which lease expired in December 2023. Under the Restructuring Plan, we are consolidating the Sunnyvale facility with our manufacturing facility in Fremont, California, and performing an optimization of our manufacturing workforce. The restructuring activities are expected to be completed in the first half of fiscal 2024, subject to local law and consultation requirements, as well as our business needs. For more information about the restructuring, please see Part II, Item 8, Note 12 — Restructuring.
We lease various manufacturing facilities in California. The current lease for our 50,000 square-foot principal Sunnyvale manufacturing facility expires in December 2023.California and Delaware. We leased a newan 89,000 square-foot R&D and manufacturing facility in Fremont, California, thatwhich became operational in April 2021. The lease terms of our Repair & Overhaul (“R&O”) manufacturing facilities in Newark, Delaware, with a total area of 56,000 square feet expire in December 2026 and April 2027. In September 2023, according to the Restructuring Plan, we approved the relocation of a portion of our R&O department of our Newark manufacturing and warehousing facility to Mexico. We expect the relocation to be completed in the fourth quarter of fiscal 2024.
Additionally, we leased a new 164,000 square-foot manufacturing facility in Fremont, California that became operationalexpires in January 2022.February 2036. In July 2022 we announced the grand opening of this multi-gigawatt manufacturing facility, which represented a $200 million investment. This followed the expansion of the Company’s global headquarters in San Jose in June 2021 as well as the opening, in June 2022, of a new research and technical center and a global hydrogen development facility in Fremont with a total space of 73,000 square feet.
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. Based on the expanded relationship between us and SK ecoplant, the joint venture was further extended in 2022-2023.
Please see Part I, Item 2, Properties for additional information regarding our facilities.
Supply Chain
Our supply chain has been developed, since our founding, with a group of high-quality suppliers that support automotive, semiconductorsemiconductors and other traditional manufacturing organizations. The production of fuel cell systemscells 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 whereWhere possible, we responsibly source components like interconnects and balance of system components from various manufacturers on both a contracted and a purchase order basis. We have multi-year supply agreements with some of our supply partners for supply continuity and pricing stability. We are working with our suppliers and 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 driveschain; demand for certain components that has outpaced the return of the global supply chain to full production. We continuedThough the supply constraints for a majority of our raw materials and components are expected to manage disruptions fromease in 2024, we have experienced an increase in lead times for mostwith respect to the delivery of some of our components due to a variety of factors, including supply shortages, shipping delays and labor shortages, and we expect this to continue into the first half of 2022. During 2021,shortages. Though 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 significant 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.— Overview — Certain Factors Affecting our Performance.
Services
We provide operations and maintenance agreements ("(“O&M Agreements"Agreements”) for all of our Energy Servers, which are typically renewable at the election of the customer on an annual basis. The customer agrees to pay an ongoing service fee, and in return, we monitor, maintain, and operate the Energy Servers systems on the customer'scustomer’s or owner’s behalf. We currently service and maintain every installed BloomEnergy Server worldwide.
As of December 31, 2021,2023, our in-house service organization had 78136 dedicated field service personnel distributed across multiple locations in both the United StatesU.S. and internationally. Our standard O&M Agreements include full remote monitoring and 24x7 operation ofoperational capability over the systems as well as scheduled and unscheduled maintenance, which in practice includes preventative maintenance, in terms ofsuch as 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 installation worldwide. By situating our RMCC centers in the United StatesU.S. 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 monitor over 500 system performance parameters in real time. This comprehensive monitoring capability enables the RMCC operators to have a detailed understanding of the internal operation of our power modules.Energy Servers. Using proprietary, internally developed software, the RMCC operators can detect changes and override the onboard automated control systems to remotely adjust parameters to ensure themaintain optimum system performance is maintained.performance. 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")&O facility, which is currently based in Delaware,Delaware. As discussed in close proximitysection Manufacturing Facilities, in September 2023 as part of the Restructuring Plan we approved the relocation of the R&O Department to Mexico. This will help to realign our product manufacturing facility. This R&Ooperational focus to support our multi-year growth, scale the business, and improve our cost structure and operating margins. The facility undertakes full refurbishment of returned fuel cell modulescells with the capability to restore itthem to full power, efficiency, and life with a less than three weeksthree-week 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 largest variety of customers, we make available several options to our customers.them. Both in the United StatesU.S. and abroad,internationally, we sell our Energy Servers directly to customers. In the United States,U.S., we also enable customers'customers’ use of the Energy Servers through a pay as you go offering,Power Purchase Agreement (as defined below) and a Managed Services Agreement (as defined below) (whereby we sell and lease back the Energy Servers in order to supply energy to our customers), each made possible through third-party ownership financing arrangements.
Often, our offerings are designed to take advantage of local incentives. In the United States,U.S., our financing arrangements are structured to optimize both federal and local incentives, including the Investment Tax Credit (“ITC”(the “ITC”) and accelerated depreciation. Internationally, our sales are made primarily to distributors who on-sellsell 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 StatesU.S. to generate transactions.
With respect to the third-party financing options in the United States,U.S., a customer may choose a contract for the use of the 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 portfolio basis. We have financed portfolios through tax equity partnerships, acquisition financings andbasis whereby we make direct sales of PPAs to investors (each, a “Portfolio Financing”).investors.
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 sell our Energy Server platformproducts through a combination of direct and indirect sales channels. At present, most of our U.S. sales are through our direct sales force, which is segmented by vertical 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.utilities and other commercial customers across the U.S.. 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, installation, customer financing or access to new geographic markets. service.
As we have cultivated sales as well as strategic and financing partners over the past several years, our sales have been concentrated among a few large customers and distributors each year. During the year ended December 31, 2023, revenue from two customers accounted for approximately 37% and 26% of our total revenue, respectively. Please see Part II, Item 8, Note 1 — Nature of Business, Liquidity and Basis of Presentation — Concentration of Risk — Customer Risk.
SK ecoplant in the Republic of Korea is aour strategic power generation and distribution partner. Together, we have transacted nearly 200 MW of projects 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, hatthat includes purchase commitments offor at least 500MW500 megawatts of power for our Energy Servers between 2022 and 20252024 on a take or paytake-or-pay basis, the creation of hydrogen innovation centers in the United StatesU.S. and the Republic of Korea to advance green hydrogen commercialization, and an equity investment in Bloom Energy. In September 2023, SK ecoplant became a related party to us with the beneficial ownership of 10.5% of our outstanding Class A common stock. On December 21, 2023, we further expanded our business partnership with SK ecoplant through the increase of SK ecoplant’s purchase commitments for Bloom Energy in December 2021. Pleaseproducts of 250 megawatts through 2027 and extended the timing of delivery of the remaining take-or-pay commitment under the original agreement. For additional information, please see Part II, Item 8, Note 18 -17 — SK ecoplant Strategic InvestmentInvestment.
Sustainability
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, combined heat and power, and microgrid projects critical to aligning with a 1.5 degree warming trajectory. Our natural gas-based Energy Servers are also an important source of near-term emission reductions, and we are committed to evolving the gas sector through our technology development and leading market-based activity.
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 based upon the same solid oxide technology platform in in Part II, Item 8, Financial Statementsa highly efficient and Supplementary Data.
Sustainabilitycost-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.
As a manufacturer, our commitment to sustainability is reflected not only through the impacts of our products in operation but also through our internal commitment to resource 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 seek to cover as many materials and components as possiblepracticable during end-of-life management, reusing these materials and components. As a function ofFrom 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 approximately less than approximately 2% of the total serverEnergy Server weight.
In 2023, we continued our responsibly sourced gas program by acquiring and retiring MiQ+ Equitable Origin certified-low-leak natural gas certificates, representing reduced release of harmful methane emissions stemming from upstream gas production. The program provides a validated leak rate that can be used to inform lifecycle carbon accounting and reinforces
our commitment to environmental stewardship and gas sector transformation. Use of certified natural gas helps us take an immediate and impactful step to help eliminate harmful methane emissions as we lay the foundation for a net-zero future.
U.S. & Global Climate Issues
Global warmingClimate change and resulting extreme weather are having significant economic, environmental and social impacts in the United StatesU.S. and around the world. These effects and anticipated future impacts have resulted in a wide array of market and regulatory responses, and we expect that these types of responses will continue to do so.continue. 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,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"(“TCFD”), as well as disclosure guidance from the Sustainability Accounting Standards Board (“SASB”). We issued our first TCFD and SASB alignedSASB-aligned Sustainability Report in 2021 covering 2020 followed by additional annual reports covering activities in 2021 and 2022. We plan to follow up with another alignedissue a sustainability report in 2022.
The direct impacts of climate change on energy systems, including the increased risk they pose to energy service disruption, may provide increasedan opportunity for our extremely reliable and resilient energy generation. New or more stringent international accords, national or state legislation, or regulation of greenhouse gas emissionGHG emissions 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 gasGHG 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 and Electrolyzer installation must be designed, constructed and operated in compliance with applicable federal, state, international and local regulations, codes, standards, guidelines, policies and laws. To operate our systems, we, our customers and our partners are each required to obtain applicable permits and approvals fromfor the installation of the Energy Servers and the Electrolyzers, which may include federal, state, and local authorities for the installation of Bloom Energy Servers and the Bloom Electrolyzer andauthority approvals; for the interconnection systems with the local electrical utilityutility; 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 StatesU.S. and abroadinternationally designed to support and accelerate the adoption of clean and/or reliable distributed power generation and hydrogen technologies, such as Bloomthe manufacturing and deployment of our Energy Servers and the Bloom Electrolyzer.our Electrolyzers. These policy initiatives often come in the form of tax incentives, cash grants, performance incentives, environmental attribute credits, permitting regimes, interconnection policies and/or applicable gas or electric tariffs.
The U.S. federal government provides businesses with anthe ITC under Section 48 of the Internal Revenue Code, available to the ownerowners of our Energy ServerServers for the tax year in which the systems purchased andare placed into service. On August 7, 2022, the IRA under the fiscal year 2022 budget reconciliation instructions. On August 16, 2022, the IRA was signed into law. The credit is equal to 26 percentIRA includes numerous investments in climate protection, and, among them, an extension and expansion of expenditures for capital equipment and installation,the ITC and the Production Tax Credit under Section 45 of the Internal Revenue Code, the addition of expanded tax credits for other technologies and for manufacturing of clean energy equipment, as well as terms allowing parties to more easily monetize the tax credits. The IRA contains a multi-tiered credit-amount structure for many applicable tax credits. Specifically, many of the credits have a lower base credit amount that can be increased up to five times if the taxpayer can satisfy applicable prevailing wage or apprenticeship requirements. The IRA also creates certain bonus tax credit amounts relevant to projects involving Bloom products that are placed in service, or of which construction begins, in 2023 and 2024 and that satisfy domestic content criteria and/or are located within an “energy community.” The IRA also creates tax credits for fuel cells is capped at $1,500 per 0.5 kilowattthe production of capacity. The credit will remain at 26 percent through 2022hydrogen and then step downcarbon capture, as well as incentives for clean energy manufacturing. By implementing the IRA, the U.S. federal government aims to 22 percent in 2023. Under current law the credit is setmake an impact on energy markets so that cleaner options are more affordable to expire in 2024.consumers.
Our Energy Servers are currently installed at customer sites in eleventwelve states in the United States,U.S., each of which has its own enabling policy framework. Some states have utility procurement programs and/or renewables portfolio standards for which our technology is eligible. Our Energy Servers currently qualify for a variety of benefits and incentives, such as tax exemptions, incentives or
interconnection benefits, relief from utility charges and other customer incentivesforms of economic and energy benefits, in many21 states including California,Connecticut, New Jersey, Connecticut,Maryland, Massachusetts, New York, Pennsylvania, Rhode Island, MarylandIllinois, Indiana, Michigan, Ohio, West Virginia, Tennessee, Virginia, North Carolina, Delaware, Kentucky, Washington, New Hampshire, Vermont, and New York.Maine. These policy provisions are subject to change.
Some municipal jurisdictions are considering or have recently enacted building codes or local ordinances that limit access to the natural gas pipeline distribution network, primarily in California and the Northeast. Specific policies vary widely as to whether or not they impact our ability to do business in a given jurisdiction and the vast majority apply only to new, rather than existing, buildings. While these jurisdictions comprise a small minority of our current and prospective business footprint, local consideration of such codes and ordinances continues to evolve.
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 productEnergy Servers 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”(the “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 participateinvestment vehicles who own Bloom Energy Servers are subject to regulation under the FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with the 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”(the “ANSI”). These standards are known as ANSI/CSA FC-1. Our products are designed to meet these standards. Further, we utilize the Underwriters'Underwriters’ Laboratory, or UL, to certify compliance with these standards. The 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 environmental agencies on whether or how certain environmentalEnvironmental laws and regulations may apply to our 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, maintaining compliance with applicable environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act in the United States,U.S., requires significant time and management resources.
Several states and regions in which we currently operate including California, require permits forwhere emissions of hazardous air pollutants based onwould exceed applicable thresholds. In most states and regions where this is the quantity of emissions, most of which requirecase, permits have only been required for quantities of emissions that are higher than those observed from ourlarger Energy Servers.Server installations. Other states and regions in which we operate, including New York, New Jersey and North Carolina, have specific air permitting exemptions for fuel cells.
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 Part I, Item 1A, Risk Factors -— Risks Related to Legal Matters and Regulations.
Backlog
The timing of delivery and installations of our products has a significant impact on the timing of the recognition of our product and installation revenue.revenues. Many factors can cause a lag between the time a customer signs a purchase ordercontract and our recognition of product revenue. These factors include the number of our 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.financing arrangements. Further, due to unexpected delays, deployments may require unanticipated expenses to expedite delivery of materials or labor to ensure the installation meets theour 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
We are committed to attracting and retaining exceptional talent. Investing in and inspiring our people to do their best work is critical for our success. As of December 31, 2021,2023, we had approximately 1,7192,377 full-time employees worldwide, of which 1,4041,948 were located in the United States, 274U.S., 383 were located in India, and 4146 were located in other countries. During 2021,2023, our workforce grewdecreased by 30%6% as compared to 2020.
fiscal 2022, predominantly because of the restructuring actions we initiated in September 2023 with one of the goals being an optimization of our workforce across multiple functions. For additional information, please see Part II, Item 8, Note 12 —
In order to attract and retain our employees, we strive to maintain an inclusive, diverse and safe workplace, with opportunities for our employees to grow and develop in their careers,careers. This is 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 onethat of innovation, results, respect, and doing the right thing. One of our greatest strengths is the talent of our employees.a very talented and diverse employee population. 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, trackingtrack our progress and holdinghold 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. In fiscal 2023, we continued with our Effective Interviewing course for hiring managers and interviewers, which covered unconscious bias, legal questions, and a positive candidate experience.
Our continued engagement with organizations that partner with diverse communities have been essential to our efforts to increase women, veteran, and minority representation in our workforce. We are proudactively engaged with local community leaders to broaden our reach to underserved communities. One example is establishing the Smart Manufacturing Technology Earn and Learn program with Ohlone College, Fremont CA. Through the program we hired 8 interns and converted 3 to full time employees. We also partner with several veteran search firms to identify talent leaving the military. In fiscal 2023, we filled with veterans 40% of Bloom’s field service and remote monitoring service roles. In Delaware State, we have worked with the Dover Air Force base and Delaware National Guard for hiring events. Bloom was awarded the Warrior Friendly Business award for 2023 by the Delaware National Guard.
Finally, our University/Early Careers Program has allowed the company to focus on hiring a diverse early careers workforce. We are also partnering with City College of New York/Colin Powell School to identify summer intern talent. These are students from underrepresented minorities, with the majority of them being the first to attend college in their family. We also have partnerships with a number of HBCUs, including Delaware State University and Howard University. The result of these outreach commitments was that 64% 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” Campaigncampaign 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 engageopportunities Bloom held numerous job fairs in the community including underserved areas around Fremont, Stockton, Salinas, Soledad, Seaside, Marina, Gilroy and Alameda in California State. To help preserve jobs in the community, Bloom partnered with local community leaderscompanies doing layoffs to gain access to untapped underserved communities to attract talenthire manufacturing talent. Cepheid being one such organization that is generally not easily accessible. We are building a diverse talent slate of future generation leaders through our progressive university program.we hired 171 employees from.
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 statsstatistics are strong, our culture of inclusivity is stronger (as of December 31, 2021)2023):
•60%66% of our employee population globallyin the U.S. is ethnically diverse
•Women make up 21%25% of our employee population globally
•Our senior leadership team consists of foureleven individuals included on December 31, 2023 seven ethnically diverse individuals and threetwo women
•Women make up 20%16% of our leadership population (Director(Director-level 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 roleEthnic minorities represent 43% of our leadership (Director-level 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 planningIn fiscal 2023, we also introduced Tuition Reimbursement and education for all levels of the organization.family forming benefits. 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.fluctuations with the majority of bookings completed in the second half of a fiscal year. The desirability of our solution can be impacted by the availability and value of various governmental, regulatory and tax-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. 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.investor.bloomenergy.com. Websites are provided throughout this document for convenience only. The information contained on the referenced websites does not constitute a part of and is not incorporated 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 Reports 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 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. A manifestation of any of the following risks could, in circumstances we may or may not be able to accurately predict, render us unable to conduct our business as currently planned and materially and adversely affect our reputation, business, prospects, growth, financial condition, cash flows, liquidity, and operating results. In addition, the occurrence of one or more of these risks may cause the market price of our Class A common stock to 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 presentpresenting 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.
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 and should not be relied upon as an exhaustive summary of all the material risks facing our business.
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 whichor demand may make evaluating our business and future prospects difficult.be lower than we expect.
•Our products involve a lengthy sales and installation cycle, and ifwhich may lengthen further as we fail to close sales on a regular and timely basis, our business could be harmed.seek larger transactions.
•Our Energy Serversproducts have significant upfront costs, and we will need to attract investors to help customers finance purchases.
•The economic benefits of our Energy Servers to our customers depend on both the price of gas available from the local gas utilities and the cost of electricity available from alternative sources, including local electric utility companies, and such cost structure is subject to change.companies.
•If we are not able to continue to reduce our cost structure in the future,costs or meet service performance expectations with respect to our ability to become profitableproducts, our profitability may be impaired.
•We relyDeployment of our Energy Servers relies on interconnection requirements, export tariff arrangements and net metering arrangementsutility tariff requirements that are subject to change.
•We currently faceDeployment of our Energy Servers relies on fuel supply and will continue tofuel specification requirements, which may change.
•We face significant competition.
•We derive a substantial portion of our revenue and backlog from a limited number of customers,customers.
•Our future growth will depend on expanding and the loss of or a significant reduction in orders from a large customer could have a material adverse effect ondiversifying our operating resultsproducts and other key metrics.market opportunities.
•Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify and successfully engage with partners to assist in such development or expansion, and ourexpansion.
•Our products may not be successful if we are unable to maintain alignment with evolving industry standards and requirements.
Risks Related to Our Products and Manufacturing
•Our business has been and continues to be adversely affected by the COVID-19 pandemic.
•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.for our products.
•If our Energy Serversproducts contain manufacturing defects, our business and financial results could be harmed.
•The performance of our Energy Serversproducts may be affected by factors outside of our control, which could result in harm to our business and financial results.control.
•If our estimates of the useful life for our Energy Serversproducts 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, fuel supply, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.contingencies.
•The failure of our suppliers to continue to deliver necessary raw materials or other components of our Energy Serversproducts 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.products.
•We have in some instances, entered into long-term supply agreements that could result in excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, and negatively affect 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.
•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 Serversproducts on time will suffer.
•Possible new trade tariffs could have a material adverse effect on our business.
•Any significantA failure to properly comply with foreign trade zone laws and regulations could increase the cost of duties and tariffs.
•Significant disruption into the operations at our headquarters or manufacturing facilities could delay the productionproduct production.
•Our limited history of manufacturing new products, such as our Energy Servers, which would harmElectrolyzers, makes it difficult to evaluate our businessfuture prospects and results of operations.challenges we may encounter.
Risks Related to Government Incentive ProgramsOur Products and Manufacturing
•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 causefuture success depends in part on our revenueability to decline and harmincrease production capacity for our financial results.products.
•We rely on tax equity financing arrangements to realize the benefits provided by ITCsIf our products contain manufacturing defects, our business and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed.
Risks Related to Legal Matters and Regulations•The performance of our products may be affected by factors outside of our control.
•WeIf our estimates of the useful life for our products are inaccurate or we do not meet our performance warranties and guaranties, our business and financial results could be harmed.
•Our business is subject to various national, staterisks associated with construction, utility interconnection, fuel supply, cost overruns and local lawsdelays, including those related to obtaining government permits and regulations that could impose substantial costs upon us and cause delays in the delivery and installation of our Energy Servers.other contingencies.
•The installation and operationfailure of our Energy Servers are subjectsuppliers to environmental lawscontinue to deliver necessary raw materials or other components of our products in a timely manner and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations tospecification could prevent us from delivering our Energy Servers, especially as these regulations evolve over time.products.
•With respect toWe have long-term supply agreements that could result in excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, and negatively affect our products that run, in part, on fossil fuel, we may be subject to a heightened riskresults 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.operations.
•Our patent applications may notWe face supply chain competition which could result in issued patents,insufficient inventory and affect our issued patents may not provide adequate protection, eitherresults of which mayoperations.
•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 products on time will suffer.
•Possible new trade tariffs could have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.business.
•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 conflictsA failure to properly comply with foreign trade zone laws and regulations could increase the cost of interest with our PPA Entities.duties and tariffs.
•ExpandingSignificant disruption to the operations internationallyat our headquarters or manufacturing facilities could expose us to additional risks.delay product production.
•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 OwnershipOur limited history 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 partnersElectrolyzers, makes it difficult to evaluate our future prospects 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 andchallenges 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.encounter.
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 growingfor 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.products.
•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 Serversproducts 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 Serversproducts may be affected by factors outside of our control, which could result in harm to our business and financial results.control.
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 Serversproducts 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, fuel supply, 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.contingencies.
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 Serversproducts 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.products.
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 excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, 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 Serversproducts 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•A failure to properly comply with foreign trade zone laws and regulations could increase the cost of duties and tariffs.
•Significant disruption to the operations at our headquarters or manufacturing facilities could delay product production.
•Our limited history of manufacturing new products, such as our Electrolyzers, makes it difficult to evaluate our future prospects and challenges we maintain against fires, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.encounter.
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 ofchanges to 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 ITCsU.S. federal tax benefits and accelerated tax depreciation and we also rely on incentives 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 banksKorean, European 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.international markets.
Risks Related to Legal Matters and Regulations
•We are subject to various national, state and local laws and regulations, that could impose substantial costs upon usincluding environmental laws and cause delays inregulations, regarding 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 generallyAs we expand into international markets, we may be 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/content requirements or local energy market rules, regulations and tariffs, 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. These laws and regulations can affect the marketspressures which could increase costs or reduce demand for our products and the costs and time required for their installation, and may give rise to liability for administrative oversight costs, compliance costs, clean-up costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with the various laws and regulations can be significant, and violations may result in substantial fines and penalties or third-party damages.products.
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, 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 and regulations including health and safety 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 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 clean-up of contaminated soil and ground water, impacts to human health and 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 non-compliance by us could harm our reputation and impact a current or potential customer’s buying decision.
Maintaining environmental compliance 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). Guidance from these agencies on how certain environmental laws and regulations may or may not be applied to our 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; these gas cleaning units are typically replaced at customers' sites once every 15 to 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. 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 confirmed the matter is formally resolved. Additionally, a nominal penalty was paid to a state agency under that state’s environmental laws relating to the same issue.
Some states in which we operate, including New York, New Jersey and North Carolina, have specific permitting or environmental exemptions for fuel cells. Other states in which we currently operate, including California, have emissions-based requirements, most of which require permits or other notifications for quantities of emissions that are higher than those observed from our Energy Servers. For example, the Bay Area Air Quality Management District in California has an air permit and risk assessment exemption for emissions of chromium in the hexavalent form (“CR+6”) that are less than 0.00051 lbs/year. Emissions above this level may trigger the need for a permit. Also, California's Proposition 65 requires notification of the presence of CR+6 unless public exposure is below 0.001 µg/day, the level determined to represent no significant health risk. Since the California standards are more stringent than those in any other state or foreign location in which we have installed Energy Servers to date, we are focused on California's standards. If stricter standards are adopted in other states or jurisdictions or our servers can’t meet applicable standards, it could impact our ability to obtain regulatory approval and/or could result in us 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 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 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.
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.
The current generation of our Energy Servers that run on natural gas produces nearly 23% fewer carbon emissions than the average U.S. marginal power generation sources that our projects displace. However, the operation of our current Energy
Servers does produce carbon dioxide ("CO2"), which contributes 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 sufficiently recognize both the risks of climate change and 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 more 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. Certain municipalities have 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 Serversproducts 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 practices 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 industrial customers for disconnecting from the electric 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 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 us 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. The opposition to the Delaware Project is 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 the 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 market 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 market rules. Governments, often acting through state utility or public service commissions, as well as market operators, change, adopt or approve different utility requirements 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.
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 our 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 us 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. Our product liability 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•Litigation or administrative proceedings could have a material adverse effect on our business, our financial condition and our results of operations.business.
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 Contingencies in Part II, Item 8, Financial Statements and Supplementary Data. In addition, since our Energy Server and Electrolyzer are new types 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 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.
Policing unauthorized use of proprietary technology can be difficult and 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. 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.be successfully challenged in litigation or post-grant proceedings.
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 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. These 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 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.
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2021, we had an accumulated deficit of $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, as well as internationally. We may 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;periods.
•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.
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;fluctuate.
•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;
•delays or cancellations of Energy Server installations;
•fluctuations in our service costs, particularly due to unexpected costs of servicing and maintaining Energy Servers;
•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;
•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-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 provisions 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 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 implement key operation controls around pricing, spending and other financial processes. For example, prior to our adoption of Section 404B of the Sarbanes-Oxley Act, we 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, which has been remediated. If we are unable to successfully maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial 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.
•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 NOLs will expire, if unused, beginning in 2022 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 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.
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;long term.
•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” 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, 2021, we and our subsidiaries had approximately $526.7 million of total consolidated indebtedness, of which an aggregate of $291.8 million represented indebtedness that is recourse to us, all of which is classified as non-current. Of this $291.8 million in debt, $69.0 million represented debt under our 10.25% Senior Secured Notes due March 2027, and $222.9 million represented debt under the $230.0 million aggregate principal amount of our 2.50% Green Convertible Senior Notes due August 2025 (the "Green Notes"). In addition, our PPA Entities’ (defined herein) outstanding indebtedness of $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;needs.
•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 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 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 to us, including a change in control, a significant asset sale or merger or similar transaction, our liquidation or dissolution or the cessation of our stock exchange listing, each of which may constitute a fundamental change under the outstanding notes, holders of certain of the notes have the right to cause us to repurchase for cash any or all of such outstanding notes. We cannot provide assurance that we would have sufficient liquidity to repurchase such notes. Furthermore, our financing and debt agreements 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. 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.
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.
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.growth plans.
Under some circumstances, we may be required to or elect to make additional payments to our PPA Entities or the 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.
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;risks.
•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 our 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 acts 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 large 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 could 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 O&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, a 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, 2021, conflicts of interest may arise in the future that 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, product performance, brand 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 Founder, President, Chief Executive Officer and Director, and other certain key employees. None of our key•Competition for manufacturing employees is bound by an employment agreement for any specific termintense, and we cannot assure you that we willmay not be able to successfully attract and retain senior leadership necessary to grow our business. In 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 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 financial condition and our operating results.skilled employees.
Risks Related to Ownership of Our Common Stock
•The stock price of our common stock has been and may continue to be volatile.
•We may issue additional shares of our common stock in connection with future conversions of the Green Notes, which may dilute our existing stockholders and potentially adversely affect the market price of our common stock.
•We do not intend to pay dividends for the foreseeable future.
•Provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit stockholders’ rights, and limit the market price of our common stock.
•Increased scrutiny regarding ESG could result in additional costs and adversely impact our business.
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 or demand may be lower than we expect, which maymake evaluating our business and future prospects difficult.
The distributed generation industry is still an emerging market in the heavily regulated energy utility industry. It is uncertain whether potential customers will embrace distributed generation in general, or our Energy Servers in particular. Enterprises may be unwilling to adopt our Energy Server solution over traditional or competing power sources such as distributed solar or electricity from the grid. This could be due to the perception that our technology or our company is unproven, lack of confidence in our business model, unavailability of third-party service providers to operate and maintain the Energy Servers, lack of awareness of our product, or their perception of regulatory or political challenges, including challenges pertaining to technologies that use natural gas fuels or have carbon emissions.
The viability and demand for our Energy Servers in the distributed generation market may be impacted by many factors outside of our control, including:
•market acceptance of our products (including, for example, anti-natural gas sentiment or misalignment with renewable and zero carbon procurement goals);
•cost competitiveness, reliability, and performance of our products compared to traditional or competing power sources;
•availability and amount of government subsidies and incentives;
•the emergence, continuance, or success of, or increased government support for, other alternative energy generation technologies and products;
•prices of traditional or competing power sources;
•geopolitical and macroeconomic instability, including wars, terrorism, political unrest, actual or threatened public health emergencies and outbreak of disease, inflation, the recessionary environment, boycotts, adoption or expansion of government trade restrictions, and other business restrictions which may negatively impact the demand for our products, or which may cause our customers to push out, cancel, or refrain from placing orders; and
•an increase in interest rates or tightening of the supply of capital in the global financial markets (including a reduction in total tax equity availability) which could make it difficult to finance our products.
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. To make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our products and technology. The period between initial discussions with a potential customer and the eventual sale usually depends on a number of factors, including the potential customer’s budget, selection of financing type, and term of the contract. In addition, we have started to focus on larger projects, which tend to have longer sales cycles. Prospective customers often undertake a significant evaluation process that may further extend the sales cycle, and which evaluation may be negatively impacted by general market and economic conditions such as inflation, rising interest rates, availability of capital, a recessionary environment, geopolitical instability, energy availability and costs, and the availability and effects of government initiatives. Once a customer decides to purchase our product, it takes a significant amount of time for us to fulfill the sales order. Generally, it takes between nine to twelve months or more from the entry into a sales contract until the installation of our products. The lengthy sales and installation cycles are subject to a number of significant risks, some of which are outside of our control. Due to the long sales and installation cycles, we may expend significant resources without being certain of generating a sale.
The transfer of control of our product to our customer based on its delivery and installation has a significant impact on the timing of the recognition of our product and installation revenue. Many factors can cause a lag between the time that a customer signs a contract and our recognition of product revenue. These factors include the number of the Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, customer facility construction 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, such as, for sales contracts, delays in their financing arrangements. 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.
Our products have significant upfront costs, and we need to attract investors to help customers finance purchases.
Our products have significant upfront costs, which may be a barrier for some customers who may not have the financial capability to purchase our products directly. To address this, we have developed various financing options that allow customers to use our products on a pay-as-you-go basis or through third-party financing arrangements. These options enable our customers to access our products without making a direct purchase. For more information on the different financing arrangements available, 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 or our customers are not able to secure funding, our financial condition and results of operations would be harmed. To attract new customers, we continually innovate our customer contracts which 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 expand our product offerings. Additionally, our ability to deploy our backlog is directly tied to our ability to secure financing, which is often an unpredictable process. Attracting third-party financing is a complex process that is influenced by factors beyond our control, including the fluctuations of interest and currency exchange rates, the availability of tax credits and government incentives for investors, our perceived creditworthiness and the prevailing condition of credit markets. We finance our customers’ purchases of our products based on certain conditions, such as their credit quality and the expected minimum internal rate of return on the customer engagement. If these conditions are not met, we may not be able to finance their purchases of our products, which would have a negative impact on our revenue in a particular period. If we are unable to help customers arrange financing for our products, our business could 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 products’ performance or our performance of our obligations under the customer agreement. If we are unable to arrange future financing for any of our current projects, it could negatively impact our business.
In the U.S., our capacity to offer our Energy Servers through financed arrangements depends in large part on the ability of financing parties to optimize the tax benefits associated with the Energy Servers, such as the ITC or accelerated depreciation. Interest rate fluctuations, and internationally, currency exchange rate fluctuations, may also impact the attractiveness of any financing offerings for our customers. Our ability to finance a PPA or a lease is also related to, and may be limited by, the creditworthiness of the customer.
In our sales process for transactions that require financing, we make certain assumptions regarding the cost of financing capital. Actual financing costs may differ from our estimates and financing may be more difficult or costly to secure, or may not be available, due to factors beyond our control, such as changes in customer creditworthiness, macroeconomic factors, like inflation, interest rates, a recessionary environment, geopolitical instability, and capital market volatility. The returns offered by other investment opportunities available to our financing partners and other factors may further affect financing availability. If the cost of financing ultimately exceeds our estimates, or we or our customers are unable to secure financing, we may not be able 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 both the price of gas available from the local gas utilities and 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 interconnection, “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, in those areas where the current cost of grid electricity is low, including in some states in the U.S. and some foreign countries, our Energy Servers may not be economically attractive.
Furthermore, actual or perceived potential increases in the price of natural gas or other fuels or curtailment of availability (e.g., as a consequence of physical limitations or adverse regulatory conditions for the delivery or production of natural gas or other fuels) or the inability to obtain natural gas or other fuel service could make our Energy Servers less economically attractive to potential customers and reduce demand. While our Energy Servers can operate using hydrogen or biofuels, the availability and current high cost of those natural gas alternatives in a particular location may make them less attractive to potential customers, reducing the demand for our products.
If we are not able to reduce our costs or meet service performance expectations with respect to our products, our profitability may be impaired.
We need to reduce the manufacturing costs for our products to expand our markets. Additionally, certain of our existing service contracts rely on projections regarding service cost reductions that may not be realized. Increases in component and raw material costs could offset our cost-cutting efforts, slowing our growth and causing our financial results and operational metrics to suffer. 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.
Our expenses have increased and may increase in the future due to factors such as increases in wages or other labor costs, marketing and sales. We need to reduce costs to expand into new markets (in which the price of electricity from the grid is lower) while maintaining our current margins. Any failure to achieve cost reductions could adversely affect our results of operations and financial condition and harm our business and prospects. Our inability to reduce product costs may impact our profitability, which could have a material adverse effect on our business and prospects.
Deployment of our Energy Servers relies on interconnection requirements, export tariff arrangements and utility tariff requirements that are each 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 is generally exported to the local electric utility. Export of customer-generated power from our Energy Servers is generally provided for in the markets in which we offer our fuel cells pursuant to applicable laws, regulations and tariffs, but not under all circumstances, and may be restricted or made costlier due to interconnection, relevant tariff or other issues. 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 could adversely affect the demand for our Energy Servers. For example, in California, the fuel cell net metering tariff expressly addressing fuel cells and providing certain incentives and export capability (referred to as the “Fuel Cell Net Energy Metering” (“FC NEM”)) expired at the end of 2023 and is no longer available to new customers. Existing customers can remain on the tariff if they comply with adopted greenhouse gas emission standards, which in some cases may result in increased cost. There are also some more generally applicable tariffs available for customers deploying new fuel cells, however, they have limitations and the loss of FC NEM may impact our ability to sell our Energy Servers for use in California. We cannot predict the outcome of the many regulatory proceedings addressing tariffs that would include customers utilizing fuel cells. If an economical tariff for customers utilizing fuel cells is not available in a given jurisdiction, it may limit or end our ability to sell and install our Energy Servers in that jurisdiction. Further, permits 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.
Deployment of our Energy Servers relies on fuel supply and fuel specification requirements, which are subject to change.
Our Energy Servers are designed to operate at a constant output 24x7. Therefore, they need a constant source of fuel such as natural gas, biogas, or hydrogen to keep them running. Fuel for our Energy Servers is typically provided by local gas utilities. Our customers rely on such utilities to provide a constant supply of fuel that meets our specifications. However, if new regulations require a switch to a different fuel for which there may be limited availability, such as biogas, it can create challenges for our products and their sales. Adverse fuel supply constraints or fuel outside of our fuel specifications may delay or prevent the deployment of our Energy Servers.
We face significant competition.
We compete for customers, financing partners and incentive dollars from other electric power providers. Our Bloom Energy Servers compete with a broad range of companies and technologies, including traditional energy suppliers, such as public utilities, and other energy providers utilizing traditional co-generation systems, nuclear, hydro, coal or geothermal power, companies utilizing intermittent solar or wind power paired with storage, and other commercially available fuel cell companies. We also compete with traditional backup energy equipment such as diesel generators. Our Electrolyzers compete with low temperature electrolyzer companies using Alkaline, Proton, PEM or AEM electrolysis. See our discussion of competition in Item 1— Business — Energy Server Competition.
Many of our competitors, 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 with better technologies, products, or resources. 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, 2023, two customers accounted for approximately 37% and 26% of our total revenue. The loss of any large customer order or any delays in installations of new products with any large customer would materially and adversely affect our business results.
Our future growth will depend on expanding and diversifying our products and market opportunities, and if we are not successful, our operating results and future growth prospects could be adversely affected.
We plan to enhance our future growth opportunities by expanding the features of and uses for our Energy Servers, including providing options for carbon capture and heat output, by expanding our production and sales of our Electrolyzer, and by expanding the markets in which we sell our products. As a result, these opportunities will require our attention, which includes personnel, financial resources and management attention. If we do not appropriately allocate our resources to, or execute on, these opportunities, our business and results of operations could be adversely affected.
Our investments may not result in the growth we expect, or the timing of when we expect it, for a variety of reasons, including changes in growth trends, evolving and changing markets and increasing competition, market opportunities, technology and product innovation, and changes in policy support, taxation and subsidies, and regulation. We may introduce new technologies or products that do not work, are not delivered on a timely basis, are not developed according to product or cost specifications, are not well received by customers, or do not receive the policy, taxation and subsidies, or other regulatory support that was anticipated. Moreover, there may be fewer opportunities than we expect due to a decline in business or economic conditions or a decreased demand in these markets or for our new products from our expectations, our inability to successfully execute our sales and marketing plans, or for other reasons. In addition to our current growth opportunities, our growth may be reliant on our ability to identify and develop new opportunities. This process is inherently risky and may result in investments in time and resources for which we do not achieve any return or value. These risks are enhanced by attempting to introduce multiple breakthrough technologies and products simultaneously.
Our growth opportunities are subject to constant and rapidly changing and evolving technologies and evolving industry standards and may be replaced by new technology concepts or platforms. If we do not develop innovative and reliable product offerings and enhancements in a cost-effective and timely manner that are attractive to customers in these markets, if we are otherwise unsuccessful entering and competing in these new product categories, if the new product categories in which we invest our limited resources do not emerge as opportunities or do not produce the growth or profitability we expect, or when we expect it, or if we do not correctly anticipate changes and evolutions in technology and platforms, our business and results of operations could be adversely affected.
Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify and successfully engage with partners to assist in such development or expansion.
As we continue to develop new features and products and expand into new markets, including international markets, we may need to identify business partners and suppliers to facilitate such development and expansion. 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 or such partner’s inability to execute as negotiated. 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 or entry into new markets, limiting our ability to expand our business and harming our financial condition and results of operations.
Our products may not be successful if we are unable to maintain alignment with evolving industry standards and requirements.
As we invest in research and development to sustain or enhance our existing products, it is possible that the introduction of new technologies and the emergence of new industry standards or requirements could make our products less desirable or obsolete. Further, in developing our products, we make assumptions with respect to which standards, requirements, or policies will be demanded by our customers, standards-setting organizations and applicable law. If market acceptance of our products is reduced or delayed or the standards-setting organizations or legislative or regulatory authorities fail to develop timely, commercially-viable standards that support our products, our business would be harmed.
Risks Related to Our Products and Manufacturing
Our future success depends in part on our ability to increase production capacity for our products, and we may not be able to do so in a timely or cost-effective manner.
To the extent we are successful in growing our business, we may need to increase the production capacity of our products. Our ability to plan, construct and equip additional manufacturing facilities is subject to significant risks and uncertainties, including delays, cost overruns, geopolitical instability, and labor shortages. Expanding manufacturing capacity internationally may also expose us to new laws and regulations and carries risks. There is also a possibility that we may not be able to achieve our production targets for a variety of reasons, including reliance on third parties who do not fulfill their obligations to us.
If we are unable to expand our manufacturing facilities or develop our existing facilities in a timely manner, 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 products or our production output 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 results of operations.
If our products contain manufacturing defects, our business and financial results could be harmed.
Our products are complex, and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects that were discovered once the Energy Server was 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 in our products. As we grow our manufacturing volume, the chance of manufacturing defects could increase. In addition, new feature launches, product introductions or design changes could introduce new design defects that may impact product performance and life. Any design or manufacturing defects or other failures of our products, including catastrophic product failures, could cause us to incur significant costs, a large field recall, divert the attention of our engineering personnel from product development efforts, and significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
If any of our products are defective or fail because of their design, or if changes in applicable laws or regulations, or in the enforcement thereof, require us to redesign or recall our products, we also may incur additional costs and expenses. The process of identifying and recalling a product may be lengthy and require significant resources, and we may incur significant replacement costs, contract damage claims from our customers, product liability, property damage, personal injury or other claims and liabilities, and brand and reputational harm. Significant costs or payments made in connection with warranty and product liability claims and product recalls could harm our financial condition and results of operations.
Furthermore, we may be unable to correct manufacturing defects or other failures of our products in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance, and our business reputation.
The performance of our products 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 fuel supply and environmental factors can impact the performance of our products in unpredictable ways. As we move into new geographies and deploy new features, products and service configurations, we encounter new field conditions from time to time (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 products are inaccurate or we do not meet our performance warranties and guaranties, our business and financial results could be harmed.
We offer customers the opportunity to renew their O&M Agreements on an annual basis, for up to 20 years, at predetermined prices. We also provide performance warranties and guaranties covering the efficiency and output performance of our products. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the useful life of our products and those components that are replaced as a part of standard maintenance, including assumptions regarding improvements in power module life that may fail to materialize. We do not have a long history at a large scale, and our estimates may prove to be incorrect. Failure to meet these warranty and performance requirements may require us to replace the products or to make cash payments to customers. Actual warranty expenses may exceed estimates. If our estimates are inaccurate or we fail to accrue adequate reserves to make cash payments as required, our business and financial results could be harmed.
Our business is subject to risks associated with construction, utility interconnection, fuel supply, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
Our financial results depend on the timely installation of our products, which may be on a fixed price basis, subjecting us to the risk of cost overruns or other unforeseen expenses in the installation process. Our products are subject to regulation and oversight in compliance with laws and ordinances relating to building codes, safety, environmental protection, and related matters in the jurisdictions where we operate, and typically require various local and other governmental approvals and permits, including environmental approvals and permits. Delays in obtaining these approvals and permits could stall the installation process of our products and adversely affect our revenue. For more information regarding these restrictions, please see the risk factors in the section titled “Risks Related to Legal Matters and Regulations.”
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 the installation of natural gas service to new construction. For more information regarding these restrictions, please see the risk factor titled “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.” 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 could have a material adverse effect on our results and could cause operating results to vary materially from period to period.
As our business grows and we increase the number of distributors to sell our products, delays in project development, interconnection and permitting may affect our distributors’ ability to sell their inventories of our products and they may decide
to decrease future orders of our products or we may choose to support deployment of their inventory with our end customers, either of which could adversely affect revenue and cash flows.
Furthermore, we rely on the ability of our third-party contractors to install products at our customers’ sites and to meet our installation requirements. We currently work with a limited number of contractors, which has impacted and may continue to impact our ability to make installations as planned. Our work with contractors may have the effect of our being required to comply with additional rules unique to our customers, site remediation, and other 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 contractors in the past have not always met our expectations or standards and may not meet our expectations and standards in the future.
Lengthy sales and installation cycles can increase the risk of customer disputes or delayed or incomplete installations. For example, see Part II, Item 7, Certain Factors Affecting Our Performance, Energy Market Conditions. Sometimes, a customer may cancel an order prior to installation, meaning we may be unable to recover some, or all of our costs incurred in connection with design, permitting, installation and site preparations. Cancellation rates can be as high as 5% to 10% in any given period due to factors outside of our control, such as permitting or regulatory issues, delays or unexpected costs in securing interconnection approvals, utility infrastructure, cost changes, 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 customer disputes, delays or cancellations, our reputation, business, financial condition, results of operations or cash flows could be materially and adversely affected. Additionally, under our revenue recognition policy, we do not recognize revenue on product sales until delivery or complete installation. Therefore, a small fluctuation in the timing of the sales transaction’s completion could cause our operating results to vary materially from period to period.
The failure of our suppliers to continue to deliver necessary raw materials or other components of our products 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 brand and 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 used to manufacture our products, including certain rare earth materials and other materials that are in limited supply. If our suppliers provide insufficient inventory to meet customer demand, or such inventory is not at the level of quality required to meet our standards, 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 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 products, or our products may be available only at a higher cost or after a long delay.
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 macroeconomic environment and geopolitical instability have also contributed to and exacerbated this strain. There can be no assurance that the impact of these issues on the supply chain will not continue, or worsen, in the future. Significant delays and shortages could prevent us from delivering our products to customers within required time frames and cause order cancellations, and could increase our costs, which would adversely impact our cash flows and the 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 to expand and bolster 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, which are 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 to meet our requirements, 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 requirements could impair our ability to manufacture our products, increase the costs of our products, or increase the costs of servicing our existing portfolio of products. If we cannot obtain substitute materials or components on a timely basis or
on acceptable terms, we could be prevented from delivering our products to our customers or service our existing fleet of products, which could result in sales and installation delays, cancellations, penalty payments, warranty breaches, or damage to our brand and 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 brand and reputation.
We have, in some instances, entered into long-term supply agreements that could result in excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, and negatively affect our results of operations.
We have 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 do not need or that is 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 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 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 products 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 products. 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 could have a material adverse effect on our business, results of operations and financial condition.
A failure to properly comply with foreign trade zone laws and regulations could increase the cost of our duties and tariffs.
We have established foreign trade zones in California and Delaware, through qualification with U.S. Customs and Border Protection, which allow for “zone to zone” transfers between our facilities located in those states. 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 to the operations at our headquarters or manufacturing facilities could delay the production of our products, which would harm our business and results of operations.
We manufacture our products in a limited number of facilities, any of which could become unavailable either temporarily or permanently for any number of reasons, including equipment failure, material supply, public health emergencies, cyber-attacks or catastrophic weather, including extreme weather events or flooding resulting from the effects of climate change, or geologic events. Our headquarters and our Fremont manufacturing facility 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, financial condition and results of operations. Our disaster recovery plans, and insurance may not be sufficient to restore our operations and to cover our losses, respectively.
Our limited history of manufacturing new products, such as our Electrolyzers, makes it difficult to evaluate our future prospects and the challenges we may encounter.
While we have a history of manufacturing and selling our Energy Servers, we have a limited history with regard to our Electrolyzers, which are based in part on the same technology. As a result, there is little historical basis to make judgments on the capabilities associated with our enterprise, management, and ability to produce Electrolyzers. Our ability to generate the profits we expect to achieve from the sale of Electrolyzers will depend, in part, on our ability to effectively manufacture Electrolyzers, respond to market demand, and add new manufacturing capacity in an efficient, cost-effective manner.
Risks Related to Government Incentive Programs
Our business currently benefits from the availability of rebates, tax credits and other financial programs and incentives, and changes to such benefits could cause our revenue to decline and harm our financial results.
We utilize governmental rebates, tax credits, and other financial incentives to lower the effective price of our products to customers in the U.S. and Japan, India, the Republic of Korea and Taiwan (collectively, our “Asia Pacific region”).
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. Our Energy Servers have qualified for tax exemptions, incentives, or other customer incentives in many states. Some states have utility procurement programs, Renewables Portfolio Standards (“RPSs”) or Clean Energy Standards (“CESs”) for which our technologies are eligible; our Energy Servers may not be eligible for other RPSs and CESs, particularly when fueled in whole or in part with natural gas. Financiers and Equity Investors (as defined below) may also take advantage of these financial incentives, lowering the cost of capital and energy to our customers.
For example, many of our installations in California interconnect with investor-owned utilities on Fuel Cell Net Energy Metering (“FC NEM”) tariffs. FC NEM tariffs were available for new California installations until December 31, 2023. To remain eligible for those FC NEM tariffs, installations currently on those tariffs are required to meet greenhouse gas emissions standards. Bloom has filed an Application for Rehearing and a Stay in the FC NEM proceeding that challenges the legality of implementing said greenhouse gas emissions standards, which require our systems to be significantly cleaner than the grid resources they are displacing. If that challenge is unsuccessful, however, compliance with the greenhouse gas emissions standards may be required for any customer that remains on the FC NEM tariffs in 2024 and could require acquiring in-state biogas that is scarce and where available comes at a significant cost. Other generally applicable tariffs are available for customers deploying fuel cells, and do not impose the greenhouse gas standards currently limited to FC NEM. We are working through the appropriate channels to determine whether to migrate certain customers to these generally applicable tariffs. We are also working through appropriate regulatory channels to establish alternative tariffs for our customers. If the cost to remain on theFC NEM tariffs is significantor suitable alternatives are not available, it may negatively impact our existing customer base and futuredemand 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.
The U.S. federal government offers certain federal tax benefits, including the Production Tax Credit under Section 45 of the Internal Revenue Code (the “PTC”) and the Investment Tax Credit under Section 48 of the Internal Revenue Code (the “ITC”), both of which are currently set to be succeeded by “technology-neutral” versions set forth in Sections 45Y and 48E, respectively, for projects that commence construction beginning in 2025. The IRA offers a number of federal tax benefits, many of which we may utilize in connection with the sale of our Energy Servers and Electrolyzers. Our customers, financiers, and Equity Investors may expect us to be able to facilitate their optimization of the tax benefits available pursuant to the IRA. Each of these federal tax benefits have certain legal and operational requirements. For example, any taxpayer taking the benefit of the ITC must meet certain requirements regarding ownership and use for a period of five years. If the energy property is disposed of or otherwise ceases to be qualified investment credit property before expiration of such a five-year period, it could result in a partial reduction in incentives. There may be uncertainty as to how the new regulations promulgated under the IRA are interpreted. If IRS guidance regarding implementation of the IRA is delayed or viewed by investors as unclear, tax credit financing may be delayed or downsized, harming our ability to finance sales. Our failure to either (i) interpret the new requirements under the IRA regarding among other things, prevailing wage, apprenticeship, domestic content, siting in an “energy community,” accurately or (ii) adequately update our supply-chain, manufacturing, installation, and record-keeping processes to meet such requirements, may result a partial or full reduction in the related federal tax benefit and our customers, financiers and Equity Investors may require us to indemnify them for certain of such reductions. Changes in federal tax benefits over time also may affect our future performance. For example, currently commercial purchasers of fuel cells are eligible to claim the federal bonus depreciation benefit. However, under current rules it will be phased down, which began in 2023 and will continue until expiring at the end of 2026 in the absence of legislation. Similarly, commercial fuel cell purchasers can claim the ITC. Under current law, fuel cell projects must begin construction on or before December 31, 2024, in order to claim up to 50% ITC, after which part of this benefit will expire unless extended.
Some countries outside the U.S. also provide incentives to current and future end users and purchasers of our Energy Servers and Electrolyzers. For example, in the Republic of Korea, RPSs and CESs are in place to promote the adoption of renewable, low- or zero-carbon power generation. The Korean RPSs were replaced in 2023 with the Clean Hydrogen Portfolio Standard (“CHPS”). This may impact the demand for our Energy Servers in the Republic of Korea. Initially, we do not expect the CHPS to require 100% hydrogen as a feedstock for fuel cell projects.
Changes in the availability of rebates, tax credits, and other financial programs and incentives could reduce demand for our products, impair sales financing, and adversely impact our business results. Additionally, 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. The continuation of these programs and incentives depends upon continued political support.
In the U.S., we rely on tax equity financing arrangements to realize the benefits provided by federal tax benefits and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed. We also rely on incentives in the Korean, European and other international markets.
U.S. Equity Investors typically derive a significant portion of their economic returns through tax benefits when they finance an Energy Server. 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. We expect that future Equity Investors will also be interested in taking the benefit of the PTC in connection with financing our Electrolyzers. 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 at a large scale, 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 depends on the continued confidence of banks and other financing sources in our business model, the market for our Energy Servers and Electrolyzers, and the continued availability of tax benefits applicable to our Energy Servers and Electrolyzers, regardless of whether we arrange the financing, or our customers finance the products themselves. In addition, conditions in the general economy and financial and credit markets may result in the contraction of available tax equity financing. Similarly, in international markets such as Korea and Europe, economic benefits applicable to fuel cells may include subsidies for deployment as well as exemptions or reductions from taxes and fees. If as a result of changes to these benefits we, or in some cases our customers, are unable to enter into tax equity or other financing agreements with attractive pricing terms, or at all, neither we nor our customers, may be able to obtain the capital needed to finance the purchase of our products. Such circumstances could also require us to reduce the price at which we are able to sell our products in the applicable markets and therefore harm our business, financial condition, and results of operations.
Risks Related to Legal Matters and Regulations
We are subject to laws and regulations that could impose substantial costs upon us and cause delays in the delivery and installation of our products.
The construction, installation, and operation of our products are generally subject to oversight and regulation in accordance with laws and ordinances relating to building codes, safety, environmental and climate protection, domestic content requirements and related matters, as well as energy market rules, regulations and tariffs, and typically require governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits change or require periodic renewal. These laws and regulations can affect the markets for our products and the costs and time required for their installation and may give rise to liability for administrative oversight costs, compliance costs, clean-up costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with these 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 products 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 or excessive costs, such as costs for upgrading utility interconnection equipment, would impair our ability to develop the project. In addition, we cannot predict whether the approval or permitting process will be lengthened due to complexities and appeals. A delay in the review and approval of permits 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 products 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 many cases we contractually commit to performing all necessary installation work on a fixed-price basis, and unanticipated costs associated with approval, permitting or compliance expenses may cause the cost of performing such work to exceed our revenue. In addition, emerging federal and state emissions disclosure requirements may pose a burden to existing or potential customers. 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 operating results.
In addition, the rules and regulations regarding the production, transportation, storage, and use of hydrogen, including with respect to safety, environmental and market regulations and policies, are in flux and may limit the market for our Electrolyzers and Energy Servers that operate using hydrogen.
The installation and operation of our products are subject to environmental laws and regulations in various jurisdictions, and there has been in the past and could continue to be uncertainty with respect to both how these laws and regulations may change over time and the interpretation of these environmental laws and regulations to our products.
We are committed to compliance with applicable environmental laws and regulations including health and safety standards, and we continuously review the operation of our products for health, safety, and environmental compliance. Our products produce small amounts of hazardous wastes and air pollutants, and we seek to address these in accordance with applicable regulatory standards. In addition, environmental laws and regulations in the U.S., such as the Comprehensive Environmental Response and Compensation and Liability Act, impose liability on several grounds including for the investigation and clean-up of contaminated soil and ground water, impacts to human health and damages to natural resources. If contamination is discovered at properties currently or formerly 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 products have high sustainability standards, and any environmental non-compliance by us could harm our brand and reputation and impact customers’ buying decisions.
Maintaining environmental compliance can be challenging given the changing patchwork of environmental laws and regulations that prevail at the U.S. federal, state, regional, and local level and internationally. 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). Guidance from these agencies on how certain environmental laws and regulations may or may not be applied to our technology can be inconsistent.
In most jurisdictions where air permits and various land use permits are required for installation of larger Energy Server installations, the length of time to obtain these permits has increased. Moreover, the level of certainty around the issuance of such permits has decreased and where issued, the cost of compliance has been and can be prohibitive. We have experienced a
reluctance in certain areas to issue permits for natural gas Energy Servers and, even when that reluctance is overcome, we have seen conditions imposed, including a requirement to blend costly renewable fuels or other similar measures that might advance climate goals. The timing associated with these processes and the cost associated with related conditions have impacted our selling activities.
Our technology is moving faster than the regulatory process in many instances and 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 our 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 equipment, any of which could adversely affect our business, financial performance, and brand and 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.
As we expand into international markets, we may be subject to local content requirements or pressures which could increase costs or reduce demand for our products.
Foreign jurisdictions where we conduct or wish to conduct our business may impose domestic content requirements (requiring goods, materials, components, services or labor to be supplied from or made in country). Domestic or local content requirements favor domestic industry over foreign competitors and there has been a significant increase in the use of these programs in recent years. For example, in the Republic of Korea, customers and prospective customers may be pressured to select domestic competitors over Bloom.
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.
The current generation of our Energy Servers that run on natural gas generally produce fewer carbon emissions than the average U.S. marginal power generation sources that our projects displace. However, the operation of our current Energy Servers does produce some carbon dioxide (“CO2”), which contributes 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, as well as potential scrutiny around voluntary or regulatory carbon emissions reporting by our existing or potential customers. Changes in any of the laws, regulations, ordinances, or rules that apply to our installations and new technology could make it more difficult or costly to install and operate our Energy Servers, thereby negatively affecting our ability to deliver cost savings to our customers. Certain municipalities in which we operate have 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 may create technical, regulatory, and economic barriers, which could significantly reduce demand for our products or affect the financial performance of current sites.
The markets for our products are heavily influenced by laws, regulations and policies, including customers’ voluntary procurement standards, as well as by tariffs, internal policies and practices of electric utility providers. These regulations, tariffs, standards, and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. These regulations, tariffs, standards, and policies are often modified and could continue to change, which could result in a significant reduction in demand for our products. For example, utility companies commonly charge fees to industrial customers for disconnecting from the electric grid. These fees could change, thereby increasing the cost to our customers of using our products and making them less economically attractive.
At the federal level in the U.S., 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 the tax equity partnerships we are involved with 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, statutes, regulations, tariffs and market 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 U.S., governments and market operators frequently modify these statutes, regulations, tariffs and market rules. Governments, often acting through state utility or public service commissions, as well as market operators, change, adopt or approve different utility requirements 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 products and could negatively affect our ability to deliver cost savings to 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 become subject to product liability claims. Our Energy Servers are considered high energy systems because they consume or produce flammable fuels and may operate up to 480 volts. High-voltage electricity poses potential shock hazards, while natural gas and hydrogen, associated with both our Energy Servers and our Electrolyzers, are flammable gases and therefore a potentially dangerous fuel capable of causing fires and other harm. There can be no assurance that our products will continue to be certified to meet certain design and safety standards, and if our equipment is not properly handled or if there are undiscovered issues with our equipment, there could be a system failure and resulting damage, injury or 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 us and could materially impede widespread market acceptance and demand for our products, which could harm our brand, business prospects, and operating results. Our product liability insurance may not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of or outside of our coverage may have a material adverse effect on our business and financial condition.
Litigation or administrative proceedings could have a material adverse effect on our business, financial condition and 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. For information regarding pending legal proceedings, please see Part I, Item 3, Legal Proceedings and Part II, Item 8, Financial Statements and Supplementary Data, Note 13 — Commitments and Contingencies. In addition, since our Energy Server and Electrolyzers are new types of products in nascent markets, we have in the past needed and may in the future need to seek administrative guidance, the amendment of existing regulations, or the development of new regulations, to operate our business in some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could lead 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, financial condition, and results of operations. In addition, settlement of claims could adversely affect our financial condition and results of operations.
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.
Policing unauthorized use of proprietary technology can be difficult and expensive, and the measures we have taken to protect our intellectual property rights, including 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 leaving employment with us and working for a competitor. Also, litigation may be necessary to enforce our intellectual property rights, including 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, business, prospects, brand, and reputation.
We rely primarily on patents, trade secrets, and trademarks, 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 intellectual property 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 discovered by or disclosed in an unauthorized manner to third parties. Additionally, our owned or licensed intellectual property rights could be challenged, invalidated, or declared unenforceable in judicial or administrative proceedings, or circumvented, designed around by our competitors, infringed, or misappropriated. Competitors could copy or reverse engineer our products or develop and market products that are substantially equivalent to or superior to our own. Any of these issues, including the unauthorized use of our intellectual property by others, could reduce our competitive advantage and have a material adverse effect on our business, financial condition, or operating results. In addition, the laws of some countries do not protect intellectual property rights as fully as do the laws of the U.S. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. We may not be able to effectively protect our intellectual property rights in these markets or elsewhere. If an impermissible use of our intellectual property or trade secrets were to occur, our ability to sell our products at competitive prices may be adversely affected and our business, financial condition, operating results, and cash flows could be adversely affected.
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 be successfully challenged in litigation or post-grant proceedings, 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 subject to disagreement. 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 U.S., 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 the U.S.
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, prospects, and 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 believe are infringed by our products or services. These companies holding patents or other intellectual property rights could make claims or bring suits alleging infringement, misappropriation, or other violations of such rights, or otherwise assert their rights by seeking royalties or injunctions. Several of the proprietary components used in our products have been subjected to infringement challenges in the past. We generally indemnify our customers against claims that the products we supply do not 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;
•redesign our products or means of production, which may not be possible or cost-effective; or
•in some instances, re-purchase products from our customers.
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 brand and 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 right to indemnification or our suppliers’ resources may be unavailable or insufficient to cover our costs and losses.
Risks Related to Our Financial Condition and Operating Results
We have incurred significant losses in the past and we may not be profitable in future periods.
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2023, we had an accumulated deficit of $3.9 billion. We expect to continue to expand our operations domestically and internationally, including by investing in manufacturing, sales and marketing, research and development, staffing, and infrastructure to support our growth. We may continue to incur net losses in future periods. Our ability to achieve profitability will depend on a number of factors, including our ability to:
•grow our sales volume;
•expand into new geographical markets and industry market sectors;
•attract and retain financing partners;
•continue to improve the useful life of our technology and reduce our warranty servicing costs;
•reduce the cost of producing our products;
•improve the efficiency and predictability of our installation process;
•introduce new products, including products for the hydrogen market;
•improve the effectiveness of our sales and marketing activities; and
•attract and retain key talent in a competitive labor 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, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our 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 products in that period and the type of financing used by the customer.
In addition to the other risks described herein, the following factors subject us to quarterly fluctuations in our financial condition and results of operations:
•the timing of installations, which may depend on many factors such as availability of inventory, product quality or performance issues, local permitting requirements, utility requirements, environmental, health, and safety requirements, weather, availability of labor, health emergencies, and customer facility construction schedules;
•size of particular installations and number of sites involved in any particular quarter;
•the mix in purchase or financing options used by customers, the geographical mix of customer sales, and the rates of return required by financing parties;
•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;
•delays or cancellations of product installations;
•fluctuations in our service costs, particularly due to unexpected costs and rising labor costs;
•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;
•the length of the sales and installation cycle for a particular customer;
•the timing and level of additional purchases by new and existing customers, which may be impacted by macroeconomic factors including inflation, interest rates, the recessionary environment, and availability of capital;
•the timing of the development of the market for our new features and products, including our Electrolyzer;
•unanticipated expenses or installation delays associated with changes in governmental regulations, permitting requirements, 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 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 common stock.
If we fail to manage our growth effectively, our business and operating results may suffer.
In order to grow effectively, we must efficiently operate our business, manage our capital expenditures and control our costs. If we experience a significant growth in orders without improvements in automation and efficiency, we may not be able to meet product demand in a timely manner. We may need additional manufacturing capacity and we and some of our suppliers may need additional capital-intensive equipment. Any growth in manufacturing must include scaling 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 products 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, prospects, operating results, and financial condition. Our future operating results depend to a large extent on our ability to manage this 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. The provisions 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 calculating revenue, deferred revenue and inventory costs. While we continue to automate our 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 successfully maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial 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 common stock.
Our ability to use deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.
Our ability to use net operating loss carryforwards (“NOLs”) to offset future taxable income may be limited due to expiration, lack of taxable income in the future, changes in our stock ownership, and other factors that may be outside of our control. Our deferred tax assets may also expire or be underutilized, which could prevent us from offsetting future taxable income.
Risks Related to Our Liquidity
We must maintain the confidence of our customers in our liquidity, including our ability to timely service our debt obligations and grow our business over the long term.
Currently, we are the only provider able to fully support and maintain our products. 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 or support our products, 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;
•profitability concerns;
•unfamiliarity with or uncertainty about our products and the overall perception of the distributed generation market;
•prices for electricity or natural gas;
•competition from alternate sources of energy;
•warranty or unanticipated service issues we may experience;
•the 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” section.
Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects would likely harm our business.
Our indebtedness, and restrictions imposed by the agreements governing our outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
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 or maintain our operations, develop our products, and 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 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;
•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.
Upon the occurrence of certain events to us, including a change in control, a significant asset sale or merger or similar transaction, our liquidation or dissolution or the cessation of our stock exchange listing, each of which may constitute a fundamental change under the outstanding notes, holders of certain of the notes have the right to cause us to repurchase for cash any or all of such outstanding notes. We cannot provide assurance that we would have sufficient liquidity to repurchase such notes. Furthermore, our financing and debt agreements 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. 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.
We may not be able to generate sufficient cash to meet our debt service obligations or our growth plans.
Our ability to generate sufficient cash to meet our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive, and business factors. If we do not generate sufficient cash to satisfy our debt obligations, 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 of these alternatives would be available or permitted under the terms of our 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. 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, results of operations and financial condition.
Risks Related to Our Operations
Expanding operations internationally could expose us to additional risks.
Although we currently operate primarily in the U.S., we continue to expand our business internationally. We currently have operations in the Asia Pacific region and Europe. Any expansion internationally could subject our business to risks associated with international operations, including:
•increased complexity and costs of managing international operations;
•conformity with applicable business customs, including translation into foreign languages and associated expenses;
•lack of availability of government incentives and subsidies;
•financing challenges for our customers;
•potential changes to our established business model, including installation and/or service challenges that we may have not encountered before;
•cost of alternative power sources, which could be meaningfully lower outside the U.S.;
•availability and cost of natural gas;
•variability in gas specifications from jurisdiction to jurisdiction;
•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 regulations, and customers, and the increased travel, infrastructure, and legal and compliance costs associated with international operations;
•our ability to develop and maintain relationships with suppliers and other local businesses;
•compliance with product safety requirements and standards;
•our ability to obtain business licenses that may be needed in international locations to support expanded operations;
•compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations;
•challenges in managing taxation in cross-border transactions;
•greater difficulties in securing or enforcing our intellectual property rights in certain jurisdictions;
•difficulties in enforcing contracts in certain jurisdictions;
•risk of nationalization or other expropriation of private enterprises;
•trade barriers such as export requirements, tariffs, taxes, local content requirements, anti-dumping regulations and requirements, and other restrictions and expenses, which could increase the effective price of our products and make us less competitive in some countries or increase the costs to perform under our existing contracts;
•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, regional conflicts, and public health emergencies; and
•adverse social, political and economic conditions, including inflation, a recessionary environment, and disruptions in capital markets.
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 war in Ukraine resulted in increased sanctions that affected the price of raw materials used in our products, which had and could continue to have an adverse impact on our operating results.
Our cross-border transactions and 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 our 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 acts 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 large 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 could adversely affect our operations and financial results.
Data security breaches and cyberattacks could compromise our intellectual property or other confidential information and cause significant damage to our business, product performance, brand, 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. Additionally, our information technology provides us with the ability to remotely control some variables of our products; they are connected to, controlled and monitored by our centralized remote monitoring service. 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 the 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, as well as the operation of our products.
There is no assurance that any measures we may take to combat known and unknown cybersecurity risks will be sufficient to prevent future security breaches and cyberattacks. The security of our infrastructure, including the network that connects our products 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 products 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 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 products and could result in disruption to our business and legal liability.
In addition, security breaches and cyberattacks could negatively impact our brand and 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 Founder, President, Chief Executive Officer and Director, and other certain key employees. None of our key employees are bound by employment agreements for any specific term and we cannot assure you that we will be able to successfully attract and retain the senior leadership necessary to grow our business. There is intense competition for talented individuals in our industry, particularly 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, finance and sales personnel, could adversely impact our business, our financial condition and our operating results.
Competition for manufacturing employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe part of our success depends on the efforts and talent of our manufacturing employees and our ability to attract, develop, motivate and retain such employees. Competition for manufacturing employees is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
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.
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,variables, 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 a recessionary environment, 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;pressures;
•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors;
•the issuance of negative reports from short sellers;
•recruitment or departure of key personnel;
•recruitment or departure of key personnel;
•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;
•the failure or distress of competitors 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.
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.
We may issue additional shares of our Class A common stock in connection with any future conversionconversions of the Green Notes, 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.
In the event that some or all of the Green Notes are converted, and we elect to deliver shares of common stock, the 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. If we were not able to pay cash upon conversion of the Green Notes, the issuance of shares of Class A common stock upon 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 A common stock. For additional details on this transaction, see Note 18 - SK ecoplant Strategic Investment. The exercise of this option to purchase additional shares 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.
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, 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 approximately 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 have the ability to significantly 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.
In addition, the 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 has 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.
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 us 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,’ rights, 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;
•authorize 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;consent;
•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 AmericaU.S. 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.
Increased scrutiny regarding ESG practices and disclosures could result in additional costs and adversely impact our business, brand and reputation.
Like many companies, we face increased scrutiny relating to our Environmental, Social and Governance (“ESG”) practices and disclosures. Investors are increasingly using ESG screening criteria in making investment decisions. Our disclosures on these matters or a failure to satisfy evolving stakeholder expectations for ESG practices and reporting may harm our brand and reputation and impact employee retention and our access to capital. In addition, our failure, or perceived failure, to pursue or fulfill our goals, targets, and objectives or to satisfy various reporting standards, could expose us to government enforcement actions and private litigation.
Our ability to achieve any ESG goal, target, or objective, is subject to numerous risks, many of which are outside of our control. Examples of such risks include the availability and cost of technologies and products, evolving regulatory requirements affecting ESG standards or disclosures, our ability to recruit, develop, and retain diverse talent in our labor markets, and our ability to develop and maintain reporting processes and controls that comply with evolving standards for identifying, measuring and reporting ESG metrics. As ESG stakeholder expectations, reporting standards, and disclosure requirements continue to develop, we may incur increasing costs related to ESG monitoring and reporting.
ITEM 1B -— UNRESOLVED STAFF COMMENTS
None.
ITEM 1C — CYBERSECURITY
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program designed to assess, identify, and manage risks from potential unauthorized occurrences on or through our information technology systems that may result in adverse effects on the confidentiality, integrity, or availability of our information technology systems or any information residing therein. Our cybersecurity risk management program includes a cybersecurity incident response plan.
We design and assess our program based on the Center for Internet Security (“CIS”) 18 Framework. This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the CIS 18 Framework as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
•Periodic risk assessments are designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment.
•A security team principally responsible for managing our cybersecurity risk assessment processes, security controls, and response to cybersecurity incidents.
•The use of external service providers, where appropriate, to assess, test, or otherwise assist with aspects of our security controls.
•Our Internal Audit department which monitors certain IT systems controls that are integrated into our larger Sarbanes-Oxley control environment.
•Periodic cybersecurity awareness training for our employees and contractors with access to our information technology systems.
•A cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents, including incidents that could be indicators of attack against availability, integrity and confidentiality of information systems.
•A third-party risk management process for service providers, suppliers, and vendors that includes examining their security postures and assessing their data and system protection controls.
Our business has not been materially affected by cybersecurity incidents to date. For a discussion of how cybersecurity risks could materially affect us in the future, please see the risk factors set forth under the caption Part I, Item 1A, Risk Factors — Risks Related to our Operations.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit and Risk Committee (the “Audit Committee”) oversight of cybersecurity and other information technology risks. The Audit Committee oversees management’s implementation of our cybersecurity risk management program. The Board receives periodic reports from the Audit Committee on these and other activities. The Audit Committee receives periodic reports from management on our cybersecurity risks, including presentations from our Chief Information Officer, internal security staff, and external experts. This includes updates to the Audit Committee, as appropriate, regarding any significant cybersecurity incidents, or multiple incidents that could be significant in the aggregate. These updates may occur in between regularly scheduled Audit Committee meetings.
At the management level, the Enterprise and Risk Management Committee (the “ERM Committee”) discusses cybersecurity topics, including any potentially material cybersecurity incidents, as part of its oversight of the company’s significant risks. Our management team, including the Chief Information Officer, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, including:
•periodic briefings from internal security personnel;
•periodic reviews of risk management measures implemented to prevent, detect, mitigate, and remediate cybersecurity risks and incidents, including our incident response plan;
•threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and
•alerts and periodic reports produced by security tools deployed in our IT environment.
Our Chief Information Officer has more than 20 years of cybersecurity and information technology experience and she has served as the Chief Information Officer for multiple technology companies. Similarly, the members of the ERM Committee possess significant risk management experience obtained by their collective years of experience at Bloom and other companies of similar or greater complexity.
ITEM 2 -— PROPERTIES
The table below presents details for our principal properties:
| | Facility | Facility | Location | Approximate Square Footage | Held | Lease Term | Facility | Location | Approximate Square Footage | Held | Lease Term |
| Corporate headquarters1 | Corporate headquarters1 | San Jose, CA | 183,000 | | Leased | 2031 |
Corporate headquarters1 | |
Corporate headquarters1 | | San Jose, CA | 183,000 | Leased | 2031 |
Manufacturing, warehousing, research and development2 | | Manufacturing, warehousing, research and development2 | Sunnyvale, CA | 110,000 | Leased | 2024 |
| Research and development | | Research and development | Mountain View, CA | 44,000 | Leased | 2024 |
| Manufacturing, research and development | Manufacturing, research and development | Sunnyvale, CA | 193,000 | | Leased | * | Manufacturing, research and development | Fremont, CA | 326,000 | 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 |
| Manufacturing and warehousing | | Manufacturing and warehousing | Newark, DE | 377,000 | Leased | ** |
Manufacturing and warehousing3 | | Manufacturing and warehousing3 | Newark, DE | 178,000 | Owned | n/a |
|
* Lease terms expire over the periodin December 2021 through December 2023.2027, February 2036 and November 2037.
** Lease terms expire in December 2027 and February 2036.
*** Lease terms expire in February 2026, December 2026, April 2027, June 2028 and April 2027.October 2028.
1 Our corporate headquarters is used for administration, research and development, and sales and marketing.
2 As of December 31, 2023, we were in the process of vacating the 50,000 sq. ft. manufacturing, warehousing and R&D facility which was closed per the Restructuring Plan (for additional information, please see Part II, Item 8, Note 12 — Restructuring).
3 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.
We lease additional office space as field offices in the United StatesU.S. and office and manufacturing space around the world including in China, India, the Republic of Korea, Taiwan, Japan, and the United Arab Emirates. To support our growth expectations, we have invested in additional manufacturing capacity at a new facility in Fremont, California. In July 2022 we announced the grand opening of this multi-gigawatt manufacturing facility, representing a $200 million investment. It followed the expansion of the company’s global headquarters in San Jose in June 2021 as well as the opening of a new research and technical center and a global hydrogen development facility in Fremont. This facility will help us address current capacity constraints and provide forprovides additional capacity necessary for future growth.
ITEM 3 -— LEGAL PROCEEDINGS
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, Note 13 — Financial StatementsCommitments and Supplementary DataContingencies.. 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'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock is listed on The New York Stock Exchange ("NYSE"(“NYSE”) under the symbol “BE." There is no public trading market for our Class B common stock.” On February 15, 2022,12, 2024, there were 451567 registered holders of record of our Class A common stock, 210 registered holders of record of our Class B common stock and one registered holder of record of Series A Preferred Stock.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.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return since our initial public offering provided stockholders onof our common stock relative to the cumulative total returns of the NYSE 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 our common stock and in each of the indexes on July 25,December 31, 2018 (the date our Class A common stock began trading on the NYSE) and its relative performance is tracked through December 31, 2021.2023.
This graph isshall not be 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 $) | (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 | (in cumulative $) | 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 |
| Bloom Energy Corporation | 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 | Bloom Energy Corporation | $100.00 | $129.45 | $122.94 | $32.56 | $74.84 | $52.40 | $109.00 | $180.02 | $287.10 | $270.96 | $269.15 |
| NYSE Composite Index | 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 | NYSE Composite Index | $100.00 | $112.36 | $116.29 | $116.63 | $125.50 | $93.57 | $108.73 | $116.79 | $134.28 | $145.09 | $154.67 |
| NASDAQ Clean Edge Green Energy Total Return Index | 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 | NASDAQ Clean Edge Green Energy Total Return Index | $100.00 | $114.10 | $120.51 | $122.34 | $142.66 | $115.55 | $170.89 | $255.64 | $406.35 | $397.37 | $401.71 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in cumulative $) | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | September 30, 2022 | December 31, 2022 | March 31, 2023 | June 30, 2023 | September 30, 2023 | December 31, 2023 |
| Bloom Energy Corporation | $187.51 | $219.65 | $241.88 | $165.26 | $200.20 | $191.48 | $199.59 | $163.73 | $132.78 | $148.20 |
| NYSE Composite Index | $151.70 | $162.04 | $158.30 | $138.45 | $129.58 | $146.89 | $149.67 | $155.57 | $151.79 | $167.12 |
| NASDAQ Clean Edge Green Energy Total Return Index | $363.73 | $395.61 | $376.27 | $304.70 | $332.41 | $276.34 | $305.95 | $301.25 | $251.14 | $248.97 |
Unregistered Sales of Equity Securities
None.
Issuer’s Purchases of Equity Securities
None.
ITEM 6 -— [RESERVED]
ITEM 7 - MANAGEMENT'S— MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Description of Bloom Energy
Our mission is to make clean, reliable energy affordable for everyone in the world. We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform that empowers businesses, essential services, critical infrastructure and communities to responsibly take charge of their energy.
Our technology, invented in the United States,U.S., 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 typically 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 whichwith our Bloom Electrolyzer. Hydrogen 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 StatesU.S. and the Republic of Korea.Korea, with a growing presence in various international markets.
At Bloom Energy, we look forward to a net-zero future. Our technology is designed to help enable this future in order to deliverby delivering reliable, low-carbon electricity in a 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 makingtowards 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 the new energy paradigm to help organizations and communities achieve their net-zero objectives.
We market and sell our Energy Servers primarily through our direct sales organization in the United States,U.S., and we also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a materialsignificant 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, and who may prefer to finance the acquisition using third-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 also expanded our product and financing options to the below-investment-grade customers and have also expanded internationally, to target customers withincluding deployments on a wholesale grid. Given that our customers are typically large institutions with multi-level decision makingdecision-making processes, we generally experience a lengthy sales process. Once the sale is completed, we have a large multi-disciplined team to facilitate the deployment of our projects in a wide variety of locations under a myriad of regulatory environments.
Strategic InvestmentPurchase and Financing Options
On October 23, 2021, we entered into the SPA with SK ecoplant in connection with a strategic partnership. PursuantIn order to appeal to the SPA, on December 29, 2021,largest variety of customers, we soldmake available several options to SK ecoplant 10 million shares of zero coupon, non-voting redeemable convertible Series A preferred stockthem. Both in us, par value $0.0001 per share ("RCPS")the U.S. and internationally, we sell our Energy Servers directly to customers. In the U.S., at a purchase price of $25.50 per share for an aggregate purchase price of $255 million (the "Initial Investment").
Simultaneous with the executionwe also enable customers’ use of the SPA,Energy Servers through a Power Purchase Agreement (as defined below) and a Managed Services Agreement (as defined below) (whereby we sell and SK ecoplant executed an amendmentlease back the Energy Servers in order to supply energy to our customers), each made possible through third-party financing arrangements.
Often, our offerings are designed to take advantage of local incentives. In the U.S., our financing arrangements are structured to optimize both federal and local incentives, including the Investment Tax Credit (the “ITC”) and accelerated depreciation. Internationally, our sales are made primarily to distributors who 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 U.S. to generate transactions.
With respect to the Joint Venture Agreement ("JVA")third-party financing options in the U.S., 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 expansioncustomer may choose a contract for the Bloomuse of the Energy Server and BloomServers in exchange for a capacity-based flat payment (a “Managed Services Agreement”) or one for the purchase of electricity generated by the Energy Electrolyzer. For additional details about the transaction with SK ecoplant, please see Note 18 - SK ecoplant Strategic Investment, andServers in exchange 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 Dataa scheduled dollars per kilowatt hour rate (a “Power Purchase Agreement” or “PPA”.)
COVID-19 Pandemic
General
We continuePPAs are typically financed on a portfolio basis whereby we make direct sales of PPAs 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 ourinvestors.
R&D activities,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 sell our products through a combination of direct and indirect sales channels. At present, most of our U.S. sales are through our direct sales force, which is segmented by vertical and type of account. We are expanding our relationship with utilities and other commercial customers across the U.S.. We have developed a network of strategic 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 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, installation, customer financing or service.
As we have cultivated sales as well as strategic and financing partners over the past several years, our sales have been concentrated among a few large customers and distributors each year. During the year ended December 31, 2023, revenue from two customers accounted for approximately 37% and 26% of our total revenue, respectively. Please see Part II, Item 8, Note 1 — Nature of Business, Liquidity and Basis of Presentation — Concentration of Risk — Customer Risk.
SK ecoplant in other statesthe Republic of Korea is our strategic power generation and countries wheredistribution partner. In October 2021, we announced an expansion of our existing partnership with SK ecoplant, that includes purchase commitments for at least 500 megawatts of our Energy Servers between 2022 and 2024 on a take-or-pay basis, the creation of hydrogen innovation centers in the U.S. and the Republic of Korea to advance green hydrogen commercialization, and an equity investment in Bloom Energy. In September 2023, SK ecoplant became a related party to us with the beneficial ownership of 10.5% of our outstanding Class A common stock. On December 21, 2023, we further expanded our business partnership with SK ecoplant through the increase of SK ecoplant’s purchase commitments for Bloom Energy products of 250 megawatts through 2027 and extended the timing of delivery of the remaining take-or-pay commitment under the original agreement. For additional information, please see Part II, Item 8, Note 17 — SK ecoplant Strategic Investment.
Sustainability
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, combined heat and power, and microgrid projects critical to aligning with a 1.5 degree warming trajectory. Our natural gas-based Energy Servers are also an important source of near-term emission reductions, and we are installing or maintainingcommitted to evolving the gas sector through our technology development and leading market-based activity.
Bloom Energy Servers. ManyServers 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 based upon 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.
As a manufacturer, our commitment to sustainability is reflected not only through the impacts of our employeesproducts in operation but also through our internal commitment to resource 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 work from homedeliver products that add long-term societal value.
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 refurbished as needed instead of requiring new equipment. Finally, we seek to cover as many materials and components as practicable during end-of-life management, reusing these materials and components. From an approximately 30,000-pound Bloom Energy Server, the weight of components that go to the landfill without a resultrecycling or refurbishment stream comprises approximately 510 pounds, or approximately less than 2% of the spreadtotal Energy Server weight.
In 2023, we continued our responsibly sourced gas program by acquiring and retiring MiQ+ Equitable Origin certified-low-leak natural gas certificates, representing reduced release of harmful methane emissions stemming from upstream gas production. The program provides a validated leak rate that can be used to inform lifecycle carbon accounting and reinforces
our commitment to environmental stewardship and gas sector transformation. Use of certified natural gas helps us take an immediate and impactful step to help eliminate harmful methane emissions as we lay the Omicron variant unless theyfoundation for a net-zero future.
U.S. & Global Climate Issues
Climate change and resulting extreme weather are directly supporting essential manufacturing production operations, installation work,having significant economic, environmental and servicesocial impacts in the U.S. and maintenance activitiesaround the world. These effects and anticipated future impacts have resulted in a wide array of market and regulatory responses, and we expect that these types of responses will continue. 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, as well as some R&Dthe regulatory, policy and general administrative functions.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 maintain protocolsare responsive to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning and masking if required byrecommendations from the local authorities,Task Force on Climate-related Financial Disclosures (“TCFD”), as well as providing testingdisclosure guidance from the Sustainability Accounting Standards Board (“SASB”). We issued our first TCFD and SASB-aligned Sustainability Report in 2021 covering 2020 followed by additional annual reports covering activities in 2021 and 2022. We plan to issue a sustainability report annually.
The direct impacts of climate change on energy systems, including the increased risk they pose to energy service disruption, may provide an opportunity for all employees. We will continueour extremely reliable and resilient energy generation. New or more stringent international accords, national or state legislation, or regulation of GHG emissions may increase demand for our bioenergy and hydrogen-based products, but they may also make it more expensive or impractical to follow CDCdeploy 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 GHG standard for participation in favorable fuel cell tariffs 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 guidelines when notified of possible exposures.jurisdictions. For more information regarding theon climate and environmental related risks, posed to our company by the COVID-19 pandemic, refer tosee Part I, Item 1A, Risk Factors – — Risks Related to Legal Matters and Regulations.
Permits and Approvals
Each Energy Server and Electrolyzer installation must be designed, constructed and operated in compliance with applicable federal, state, international and local regulations, codes, standards, guidelines, policies and laws. To operate our systems, we, our customers and our partners are each required to obtain applicable permits and approvals for the installation of the Energy Servers and the Electrolyzers, which may include federal, state, and local authority approvals; for the interconnection systems with the local electrical 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 U.S. and internationally designed to support and accelerate the adoption of clean and/or reliable distributed power generation and hydrogen technologies, such as the manufacturing and deployment of our Energy Servers and our Electrolyzers. These policy initiatives often come in the form of tax incentives, cash grants, performance incentives, environmental attribute credits, permitting regimes, interconnection policies and/or applicable gas or electric tariffs.
The U.S. federal government provides businesses with the ITC under Section 48 of the Internal Revenue Code, available to the owners of our Energy Servers for the tax year in which the systems are placed into service. On August 7, 2022, the IRA under the fiscal year 2022 budget reconciliation instructions. On August 16, 2022, the IRA was signed into law. The IRA includes numerous investments in climate protection, and, among them, an extension and expansion of the ITC and the Production Tax Credit under Section 45 of the Internal Revenue Code, the addition of expanded tax credits for other technologies and for manufacturing of clean energy equipment, as well as terms allowing parties to more easily monetize the tax credits. The IRA contains a multi-tiered credit-amount structure for many applicable tax credits. Specifically, many of the credits have a lower base credit amount that can be increased up to five times if the taxpayer can satisfy applicable prevailing wage or apprenticeship requirements. The IRA also creates certain bonus tax credit amounts relevant to projects involving Bloom products that are placed in service, or of which construction begins, in 2023 and 2024 and that satisfy domestic content criteria and/or are located within an “energy community.” The IRA also creates tax credits for the production of hydrogen and carbon capture, as well as incentives for clean energy manufacturing. By implementing the IRA, the U.S. federal government aims to make an impact on energy markets so that cleaner options are more affordable to consumers.
Our Energy Servers are currently installed at customer sites in twelve states in the U.S., each of which has its own enabling policy framework. Some states have utility procurement programs and/or renewables portfolio standards for which our technology is eligible. Our Energy Servers currently qualify for a variety of benefits and incentives, such as tax exemptions,
interconnection benefits, relief from utility charges and other forms of economic and energy benefits, in 21 states including Connecticut, New Jersey, Maryland, Massachusetts, New York, Pennsylvania, Rhode Island, Illinois, Indiana, Michigan, Ohio, West Virginia, Tennessee, Virginia, North Carolina, Delaware, Kentucky, Washington, New Hampshire, Vermont, and Maine. These policy provisions are subject to change.
Some municipal jurisdictions are considering or have recently enacted building codes or local ordinances that limit access to the natural gas pipeline distribution network, primarily in California and the Northeast. Specific policies vary widely as to whether or not they impact our ability to do business in a given jurisdiction and the vast majority apply only to new, rather than existing, buildings. While these jurisdictions comprise a small minority of our current and prospective business footprint, local consideration of such codes and ordinances continues to evolve.
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 Energy Servers 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 (the “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 investment vehicles who own Bloom Energy Servers are subject to regulation under the FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with the 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 (the “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. The 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.
Environmental laws and regulations 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, maintaining compliance with applicable environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act in the U.S., requires significant time and management resources.
Several states and regions in which we currently operate require permits where emissions of air pollutants would exceed applicable thresholds. In most states and regions where this is the case, permits have only been required for larger Energy Server installations. Other states and regions in which we operate, including New York, New Jersey and North Carolina, have specific air permitting exemptions for fuel cells.
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 Part I, Item 1A, Risk Factors — Risks Related to Legal Matters and Regulations.
Backlog
The timing of delivery and installations of our products has a significant impact on the timing of the recognition of our product and installation revenues. Many factors can cause a lag between the time a customer signs a contract and our recognition of product revenue. These factors include the number of our 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 financing arrangements. Further, due to unexpected delays, deployments may require unanticipated expenses to expedite delivery of materials or labor to ensure the installation meets our 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.
Human Capital
We are committed to attracting and retaining exceptional talent. Investing in and inspiring our people to do their best work is critical for our success. As of December 31, 2023, we had 2,377 full-time employees worldwide, of which 1,948 were located in the U.S., 383 were located in India, and 46 were located in other countries. During 2023, our workforce decreased by 6% as compared to fiscal 2022, predominantly because of the restructuring actions we initiated in September 2023 with one of the goals being an optimization of our workforce across multiple functions. For additional information, please see Part II, Item 8, Note 12 — Restructuring.
In order to attract and retain our employees, we strive to maintain an inclusive, diverse and safe workplace, with opportunities for our employees to grow and develop in their careers. This is supported by strong compensation, benefits, and health and wellness programs. We are mission driven and hire and develop talent with a passion toward achieving our mission.
Inclusion and Diversity
Our cultural foundation is that of innovation, results, respect, and doing the right thing. One of our greatest strengths is a very talented and diverse employee population. We believe diverse talent leads to better decision making and 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, track our progress and hold 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. In fiscal 2023, we continued with our Effective Interviewing course for hiring managers and interviewers, which covered unconscious bias, legal questions, and a positive candidate experience.
Our continued engagement with organizations that partner with diverse communities have been essential to our efforts to increase women, veteran, and minority representation in our workforce. We are actively engaged with local community leaders to broaden our reach to underserved communities. One example is establishing the Smart Manufacturing Technology Earn and Learn program with Ohlone College, Fremont CA. Through the program we hired 8 interns and converted 3 to full time employees. We also partner with several veteran search firms to identify talent leaving the military. In fiscal 2023, we filled with veterans 40% of Bloom’s field service and remote monitoring service roles. In Delaware State, we have worked with the Dover Air Force base and Delaware National Guard for hiring events. Bloom was awarded the Warrior Friendly Business award for 2023 by the Delaware National Guard.
Finally, our University/Early Careers Program has allowed the company to focus on hiring a diverse early careers workforce. We are also partnering with City College of New York/Colin Powell School to identify summer intern talent. These are students from underrepresented minorities, with the majority of them being the first to attend college in their family. We also have partnerships with a number of HBCUs, including Delaware State University and Howard University. The result of these outreach commitments was that 64% of our interns were ethnically diverse and 40% were women. The City College of New York collaboration will be continuing in 2024 with more interns.
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 Bloom held numerous job fairs in the community including underserved areas around Fremont, Stockton, Salinas, Soledad, Seaside, Marina, Gilroy and Alameda in California State. To help preserve jobs in the community, Bloom partnered with local companies doing layoffs to hire manufacturing talent. Cepheid being one such organization that we hired 171 employees from.
Employee Demographics
We believe that our statistics are strong, our culture of inclusivity is stronger (as of December 31, 2023):
•66% of our employee population in the U.S. is ethnically diverse
•Women make up 25% of our employee population globally
•Our senior leadership team of eleven individuals included on December 31, 2023 seven ethnically diverse individuals and two women
•Women make up 16% of our leadership population (Director-level and above)
•Ethnic minorities represent 43% of our leadership (Director-level and above)
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. In fiscal 2023, we also introduced Tuition Reimbursement and family forming benefits. 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.
Seasonal Trends and Economic Incentives
Our business and results of financial operations are subject to industry-specific seasonal fluctuations with the majority of bookings completed in the second half of a fiscal year. The desirability of our solution can be impacted by the availability and value of various governmental, regulatory and tax-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. 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. Websites are provided throughout this document for convenience only. The information contained on the referenced websites does not constitute a part of and is not incorporated 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 Reports 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 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. A manifestation of any of the following risks could, in circumstances we may or may not be able to accurately predict, render us unable to conduct our business as currently planned and materially and adversely affect our reputation, business, prospects, growth, financial condition, cash flows, liquidity, and operating results. In addition, the occurrence of one or more of these risks may cause the market price of our common stock to 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 presenting 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.
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 and should not be relied upon as an exhaustive summary of all the material risks facing our business.
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 or demand may be lower than we expect.
•Our products involve a lengthy sales and installation cycle, which may lengthen further as we seek larger transactions.
•Our products have significant upfront costs, and we need to attract investors to help customers finance purchases.
•The economic benefits of our Energy Servers to our customers depend on both the price of gas available from the local gas utilities and the cost of electricity available from alternative sources, including local electric utility companies.
•If we are not able to reduce our costs or meet service performance expectations with respect to our products, our profitability may be impaired.
•Deployment of our Energy Servers relies on interconnection requirements, export tariff arrangements and utility tariff requirements that are subject to change.
•Deployment of our Energy Servers relies on fuel supply and fuel specification requirements, which may change.
•We face significant competition.
•We derive a substantial portion of our revenue and backlog from a limited number of customers.
•Our future growth will depend on expanding and diversifying our products and market opportunities.
•Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify and successfully engage with partners to assist in such development or expansion.
•Our products may not be successful if we are unable to maintain alignment with industry standards and requirements.
Risks Related to Our Products and Manufacturing –
•Our future success depends in part on our ability to increase production capacity for our products.
•If our products contain manufacturing defects, our business and financial results could be harmed.
•The performance of our products may be affected by factors outside of our control.
•If our estimates of the useful life for our products are inaccurate or we do not meet our performance warranties and guaranties, our business and financial results could be harmed.
•Our business is subject to risks associated with construction, utility interconnection, fuel supply, cost overruns and delays, including those related to obtaining government permits and other contingencies.
•The failure of our suppliers to continue to deliver necessary raw materials or other components of our products in a timely manner and to specification could prevent us from delivering our products.
•We have long-term supply agreements that could result in excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, and negatively affect our results of operations.
•We face supply chain competition which could result in insufficient inventory and affect 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 products on time will suffer.
•Possible new trade tariffs could have a material adverse effect on our business.
•A failure to properly comply with foreign trade zone laws and regulations could increase the cost of duties and tariffs.
•Significant disruption to the operations at our headquarters or manufacturing facilities could delay product production.
•Our limited history of manufacturing new products, such as our Electrolyzers, makes it difficult to evaluate our future prospects and challenges we may encounter.
Risks Related to Government Incentive Programs
•Our business currently benefits from the availability of rebates, tax credits and other financial programs and incentives, and changes to such benefits could cause our revenue to decline and harm our financial results.
•We rely on tax equity financing arrangements to realize the benefits provided by U.S. federal tax benefits and accelerated tax depreciation and we also rely on incentives in the Korean, European and other international markets.
Risks Related to Legal Matters and Regulations
•We are subject to laws and regulations, including environmental laws and regulations, regarding the delivery and installation of our products.
•As we expand into international markets, we may be subject to local content requirements or pressures which could increase costs or reduce demand for our products.
•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.
•Existing regulations and changes to such regulations may create technical, regulatory, and economic barriers, which could significantly reduce demand for our products or affect the financial performance of current sites.
•We may become subject to product liability claims.
•Litigation or administrative proceedings could have a material adverse effect on our business.
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 be successfully challenged in litigation or post-grant proceedings.
•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 in future periods.
•Our financial condition and results of operations and other key metrics are likely to fluctuate.
•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 deferred tax assets to offset future taxable income may be subject to limitations.
Risks Related to Our Liquidity
•We must maintain the confidence of our customers in our liquidity, including our ability to timely service our debt obligations and grow our business over the long term.
•Our indebtedness, and restrictions imposed by the agreements governing our 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 or growth plans.
Risks Related to Our Operations
•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, product performance, brand 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.
•Competition for manufacturing employees is intense, and we may not be able to attract and retain skilled employees.
Risks Related to Ownership of Our Common Stock
•The stock price of our common stock has been and continuesmay continue to be volatile.
•We may issue additional shares of our common stock in connection with future conversions of the Green Notes, which may dilute our existing stockholders and potentially adversely affectedaffect the market price of our common stock.
•We do not intend to pay dividends for the foreseeable future.
•Provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit stockholders’ rights, and limit the market price of our common stock.
•Increased scrutiny regarding ESG could result in additional costs and adversely impact our business.
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 or demand may be lower than we expect, which maymake evaluating our business and future prospects difficult.
The distributed generation industry is still an emerging market in the heavily regulated energy utility industry. It is uncertain whether potential customers will embrace distributed generation in general, or our Energy Servers in particular. Enterprises may be unwilling to adopt our Energy Server solution over traditional or competing power sources such as distributed solar or electricity from the grid. This could be due to the perception that our technology or our company is unproven, lack of confidence in our business model, unavailability of third-party service providers to operate and maintain the Energy Servers, lack of awareness of our product, or their perception of regulatory or political challenges, including challenges pertaining to technologies that use natural gas fuels or have carbon emissions.
The viability and demand for our Energy Servers in the distributed generation market may be impacted by many factors outside of our control, including:
•market acceptance of our products (including, for example, anti-natural gas sentiment or misalignment with renewable and zero carbon procurement goals);
•cost competitiveness, reliability, and performance of our products compared to traditional or competing power sources;
•availability and amount of government subsidies and incentives;
•the emergence, continuance, or success of, or increased government support for, other alternative energy generation technologies and products;
•prices of traditional or competing power sources;
•geopolitical and macroeconomic instability, including wars, terrorism, political unrest, actual or threatened public health emergencies and outbreak of disease, inflation, the recessionary environment, boycotts, adoption or expansion of government trade restrictions, and other business restrictions which may negatively impact the demand for our products, or which may cause our customers to push out, cancel, or refrain from placing orders; and
•an increase in interest rates or tightening of the supply of capital in the global financial markets (including a reduction in total tax equity availability) which could make it difficult to finance our products.
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. To make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our products and technology. The period between initial discussions with a potential customer and the eventual sale usually depends on a number of factors, including the potential customer’s budget, selection of financing type, and term of the contract. In addition, we have started to focus on larger projects, which tend to have longer sales cycles. Prospective customers often undertake a significant evaluation process that may further extend the sales cycle, and which evaluation may be negatively impacted by general market and economic conditions such as inflation, rising interest rates, availability of capital, a recessionary environment, geopolitical instability, energy availability and costs, and the availability and effects of government initiatives. Once a customer decides to purchase our product, it takes a significant amount of time for us to fulfill the sales order. Generally, it takes between nine to twelve months or more from the entry into a sales contract until the installation of our products. The lengthy sales and installation cycles are subject to a number of significant risks, some of which are outside of our control. Due to the long sales and installation cycles, we may expend significant resources without being certain of generating a sale.
The transfer of control of our product to our customer based on its delivery and installation has a significant impact on the timing of the recognition of our product and installation revenue. Many factors can cause a lag between the time that a customer signs a contract and our recognition of product revenue. These factors include the number of the Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, customer facility construction 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, such as, for sales contracts, delays in their financing arrangements. 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.
Our products have significant upfront costs, and we need to attract investors to help customers finance purchases.
Our products have significant upfront costs, which may be a barrier for some customers who may not have the financial capability to purchase our products directly. To address this, we have developed various financing options that allow customers to use our products on a pay-as-you-go basis or through third-party financing arrangements. These options enable our customers to access our products without making a direct purchase. For more information on the different financing arrangements available, 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 or our customers are not able to secure funding, our financial condition and results of operations would be harmed. To attract new customers, we continually innovate our customer contracts which 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 expand our product offerings. Additionally, our ability to deploy our backlog is directly tied to our ability to secure financing, which is often an unpredictable process. Attracting third-party financing is a complex process that is influenced by factors beyond our control, including the fluctuations of interest and currency exchange rates, the availability of tax credits and government incentives for investors, our perceived creditworthiness and the prevailing condition of credit markets. We finance our customers’ purchases of our products based on certain conditions, such as their credit quality and the expected minimum internal rate of return on the customer engagement. If these conditions are not met, we may not be able to finance their purchases of our products, which would have a negative impact on our revenue in a particular period. If we are unable to help customers arrange financing for our products, our business could be harmed. Additionally, the Managed Services Financing option, as with all leases, is also limited by the COVID-19 pandemic.customer’s willingness to commit to making fixed payments, regardless of the products
Liquidity and Capital Resources
COVID-19 created disruptions throughout various aspects’ performance or our performance of our businessobligations under the customer agreement. If we are unable to arrange future financing for any of our current projects, it could negatively impact our business.
In the U.S., our capacity to offer our Energy Servers through financed arrangements depends in large part on the ability of financing parties to optimize the tax benefits associated with the Energy Servers, such as noted herein,the ITC or accelerated depreciation. Interest rate fluctuations, and internationally, currency exchange rate fluctuations, may also impact the attractiveness of any financing offerings for our customers. Our ability to finance a PPA or a lease is also related to, and may be limited by, the creditworthiness of the customer.
In our sales process for transactions that require financing, we make certain assumptions regarding the cost of financing capital. Actual financing costs may differ from our estimates and financing may be more difficult or costly to secure, or may not be available, due to factors beyond our control, such as changes in customer creditworthiness, macroeconomic factors, like inflation, interest rates, a recessionary environment, geopolitical instability, and capital market volatility. The returns offered by other investment opportunities available to our financing partners and other factors may further affect financing availability. If the cost of financing ultimately exceeds our estimates, or we or our customers are unable to secure financing, we may not be able 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 both the price of gas available from the local gas utilities and 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 interconnection, “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, in those areas where the current cost of grid electricity is low, including in some states in the U.S. and some foreign countries, our Energy Servers may not be economically attractive.
Furthermore, actual or perceived potential increases in the price of natural gas or other fuels or curtailment of availability (e.g., as a consequence of physical limitations or adverse regulatory conditions for the delivery or production of natural gas or other fuels) or the inability to obtain natural gas or other fuel service could make our Energy Servers less economically attractive to potential customers and reduce demand. While our Energy Servers can operate using hydrogen or biofuels, the availability and current high cost of those natural gas alternatives in a particular location may make them less attractive to potential customers, reducing the demand for our products.
If we are not able to reduce our costs or meet service performance expectations with respect to our products, our profitability may be impaired.
We need to reduce the manufacturing costs for our products to expand our markets. Additionally, certain of our existing service contracts rely on projections regarding service cost reductions that may not be realized. Increases in component and raw material costs could offset our cost-cutting efforts, slowing our growth and causing our financial results and operational metrics to suffer. 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.
Our expenses have increased and may increase in the future due to factors such as increases in wages or other labor costs, marketing and sales. We need to reduce costs to expand into new markets (in which the price of electricity from the grid is lower) while maintaining our current margins. Any failure to achieve cost reductions could adversely affect our results of operations and financial condition and harm our business and prospects. Our inability to reduce product costs may impact our profitability, which could have a material adverse effect on our business and prospects.
Deployment of our Energy Servers relies on interconnection requirements, export tariff arrangements and utility tariff requirements that are each 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 is generally exported to the local electric utility. Export of customer-generated power from our Energy Servers is generally provided for in the markets in which we offer our fuel cells pursuant to applicable laws, regulations and tariffs, but not under all circumstances, and may be restricted or made costlier due to interconnection, relevant tariff or other issues. 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 could adversely affect the demand for our Energy Servers. For example, in California, the fuel cell net metering tariff expressly addressing fuel cells and providing certain incentives and export capability (referred to as the “Fuel Cell Net Energy Metering” (“FC NEM”)) expired at the end of 2023 and is no longer available to new customers. Existing customers can remain on the tariff if they comply with adopted greenhouse gas emission standards, which in some cases may result in increased cost. There are also some more generally applicable tariffs available for customers deploying new fuel cells, however, they have limitations and the loss of FC NEM may impact our ability to sell our Energy Servers for use in California. We cannot predict the outcome of the many regulatory proceedings addressing tariffs that would include customers utilizing fuel cells. If an economical tariff for customers utilizing fuel cells is not available in a given jurisdiction, it may limit or end our ability to sell and install our Energy Servers in that jurisdiction. Further, permits 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.
Deployment of our Energy Servers relies on fuel supply and fuel specification requirements, which are subject to change.
Our Energy Servers are designed to operate at a constant output 24x7. Therefore, they need a constant source of fuel such as natural gas, biogas, or hydrogen to keep them running. Fuel for our Energy Servers is typically provided by local gas utilities. Our customers rely on such utilities to provide a constant supply of fuel that meets our specifications. However, if new regulations require a switch to a different fuel for which there may be limited availability, such as biogas, it can create challenges for our products and their sales. Adverse fuel supply constraints or fuel outside of our fuel specifications may delay or prevent the deployment of our Energy Servers.
We face significant competition.
We compete for customers, financing partners and incentive dollars from other electric power providers. Our Bloom Energy Servers compete with a broad range of companies and technologies, including traditional energy suppliers, such as public utilities, and other energy providers utilizing traditional co-generation systems, nuclear, hydro, coal or geothermal power, companies utilizing intermittent solar or wind power paired with storage, and other commercially available fuel cell companies. We also compete with traditional backup energy equipment such as diesel generators. Our Electrolyzers compete with low temperature electrolyzer companies using Alkaline, Proton, PEM or AEM electrolysis. See our discussion of competition in Item 1— Business — Energy Server Competition.
Many of our competitors, 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 with better technologies, products, or resources. 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. While2023, two customers accounted for approximately 37% and 26% of our total revenue. The loss of any large customer order or any delays in installations of new products with any large customer would materially and adversely affect our business results.
Our future growth will depend on expanding and diversifying our products and market opportunities, and if we improvedare not successful, our liquidityoperating results and future growth prospects could be adversely affected.
We plan to enhance our future growth opportunities by expanding the features of and uses for our Energy Servers, including providing options for carbon capture and heat output, by expanding our production and sales of our Electrolyzer, and by expanding the markets in 2020,which we increasedsell our working capital spendproducts. As a result, these opportunities will require our attention, which includes personnel, financial resources and management attention. If we do not appropriately allocate our resources to, or execute on, these opportunities, our business and results of operations could be adversely affected.
Our investments may not result in the first halfgrowth we expect, or the timing of 2021.when we expect it, for a variety of reasons, including changes in growth trends, evolving and changing markets and increasing competition, market opportunities, technology and product innovation, and changes in policy support, taxation and subsidies, and regulation. We may introduce new technologies or products that do not work, are not delivered on a timely basis, are not developed according to product or cost specifications, are not well received by customers, or do not receive the policy, taxation and subsidies, or other regulatory support that was anticipated. Moreover, there may be fewer opportunities than we expect due to a decline in business or economic conditions or a decreased demand in these markets or for our new products from our expectations, our inability to successfully execute our sales and marketing plans, or for other reasons. In addition to our current growth opportunities, our growth may be reliant on our ability to identify and develop new opportunities. This process is inherently risky and may result in investments in time and resources for which we do not achieve any return or value. These risks are enhanced by attempting to introduce multiple breakthrough technologies and products simultaneously.
Our growth opportunities are subject to constant and rapidly changing and evolving technologies and evolving industry standards and may be replaced by new technology concepts or platforms. If we do not develop innovative and reliable product offerings and enhancements in a cost-effective and timely manner that are attractive to customers in these markets, if we are otherwise unsuccessful entering and competing in these new product categories, if the new product categories in which we invest our limited resources do not emerge as opportunities or do not produce the growth or profitability we expect, or when we expect it, or if we do not correctly anticipate changes and evolutions in technology and platforms, our business and results of operations could be adversely affected.
Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify and successfully engage with partners to assist in such development or expansion.
As we continue to develop new features and products and expand into new markets, including international markets, we may need to identify business partners and suppliers to facilitate such development and expansion. 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 or such partner’s inability to execute as negotiated. 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 or entry into new markets, limiting our ability to expand our business and harming our financial condition and results of operations.
Our products may not be successful if we are unable to maintain alignment with evolving industry standards and requirements.
As we invest in research and development to sustain or enhance our existing products, it is possible that the introduction of new technologies and the emergence of new industry standards or requirements could make our products less desirable or obsolete. Further, in developing our products, we make assumptions with respect to which standards, requirements, or policies will be demanded by our customers, standards-setting organizations and applicable law. If market acceptance of our products is reduced or delayed or the standards-setting organizations or legislative or regulatory authorities fail to develop timely, commercially-viable standards that support our products, our business would be harmed.
Risks Related to Our Products and Manufacturing
Our future success depends in part on our ability to increase production capacity for our products, and we may not be able to do so in a timely or cost-effective manner.
To the extent we are successful in growing our business, we may need to increase the production capacity of our products. Our ability to plan, construct and equip additional manufacturing facilities is subject to significant risks and uncertainties, including delays, cost overruns, geopolitical instability, and labor shortages. Expanding manufacturing capacity internationally may also expose us to new laws and regulations and carries risks. There is also a possibility that we may not be able to achieve our production targets for a variety of reasons, including reliance on third parties who do not fulfill their obligations to us.
If we are unable to expand our manufacturing facilities or develop our existing facilities in a timely manner, 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 products or our production output 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 results of operations.
If our products contain manufacturing defects, our business and financial results could be harmed.
Our products are complex, and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects that were discovered once the Energy Server was 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 in our products. As we grow our manufacturing volume, the chance of manufacturing defects could increase. In addition, new feature launches, product introductions or design changes could introduce new design defects that may impact product performance and life. Any design or manufacturing defects or other failures of our products, including catastrophic product failures, could cause us to incur significant costs, a large field recall, divert the attention of our engineering personnel from product development efforts, and significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
If any of our products are defective or fail because of their design, or if changes in applicable laws or regulations, or in the enforcement thereof, require us to redesign or recall our products, we also may incur additional costs and expenses. The process of identifying and recalling a product may be lengthy and require significant resources, and we may incur significant replacement costs, contract damage claims from our customers, product liability, property damage, personal injury or other claims and liabilities, and brand and reputational harm. Significant costs or payments made in connection with warranty and product liability claims and product recalls could harm our financial condition and results of operations.
Furthermore, we may be unable to correct manufacturing defects or other failures of our products in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance, and our business reputation.
The performance of our products 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 fuel supply and environmental factors can impact the performance of our products in unpredictable ways. As we move into new geographies and deploy new features, products and service configurations, we encounter new field conditions from time to time (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 products are inaccurate or we do not meet our performance warranties and guaranties, our business and financial results could be harmed.
We offer customers the opportunity to renew their O&M Agreements on an annual basis, for up to 20 years, at predetermined prices. We also provide performance warranties and guaranties covering the efficiency and output performance of our products. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the useful life of our products and those components that are replaced as a part of standard maintenance, including assumptions regarding improvements in power module life that may fail to materialize. We do not have a long history at a large scale, and our estimates may prove to be incorrect. Failure to meet these warranty and performance requirements may require us to replace the products or to make cash payments to customers. Actual warranty expenses may exceed estimates. If our estimates are inaccurate or we fail to accrue adequate reserves to make cash payments as required, our business and financial results could be harmed.
Our business is subject to risks associated with construction, utility interconnection, fuel supply, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
Our financial results depend on the timely installation of our products, which may be on a fixed price basis, subjecting us to the risk of cost overruns or other unforeseen expenses in the installation process. Our products are subject to regulation and oversight in compliance with laws and ordinances relating to building codes, safety, environmental protection, and related matters in the jurisdictions where we operate, and typically require various local and other governmental approvals and permits, including environmental approvals and permits. Delays in obtaining these approvals and permits could stall the installation process of our products and adversely affect our revenue. For more information regarding these restrictions, please see the risk factors in the section titled “Risks Related to Legal Matters and Regulations.”
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 the installation of natural gas service to new construction. For more information regarding these restrictions, please see the risk factor titled “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.” 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 could have a material adverse effect on our results and could cause operating results to vary materially from period to period.
As our business grows and we increase the number of distributors to sell our products, delays in project development, interconnection and permitting may affect our distributors’ ability to sell their inventories of our products and they may decide
to decrease future orders of our products or we may choose to support deployment of their inventory with our end customers, either of which could adversely affect revenue and cash flows.
Furthermore, we rely on the ability of our third-party contractors to install products at our customers’ sites and to meet our installation requirements. We currently work with a limited number of contractors, which has impacted and may continue to impact our ability to make installations as planned. Our work with contractors may have the effect of our being required to comply with additional rules unique to our customers, site remediation, and other 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 contractors in the past have not always met our expectations or standards and may not meet our expectations and standards in the future.
Lengthy sales and installation cycles can increase the risk of customer disputes or delayed or incomplete installations. For example, see Part II, Item 7, Certain Factors Affecting Our Performance, Energy Market Conditions. Sometimes, a customer may cancel an order prior to installation, meaning we may be unable to recover some, or all of our costs incurred in connection with design, permitting, installation and site preparations. Cancellation rates can be as high as 5% to 10% in any given period due to factors outside of our control, such as permitting or regulatory issues, delays or unexpected costs in securing interconnection approvals, utility infrastructure, cost changes, 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 customer disputes, delays or cancellations, our reputation, business, financial condition, results of operations or cash flows could be materially and adversely affected. Additionally, under our revenue recognition policy, we do not recognize revenue on product sales until delivery or complete installation. Therefore, a small fluctuation in the timing of the sales transaction’s completion could cause our operating results to vary materially from period to period.
The failure of our suppliers to continue to deliver necessary raw materials or other components of our products 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 brand and 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 used to manufacture our products, including certain rare earth materials and other materials that are in limited supply. If our suppliers provide insufficient inventory to meet customer demand, or such inventory is not at the level of quality required to meet our standards, 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 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 products, or our products may be available only at a higher cost or after a long delay.
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 macroeconomic environment and geopolitical instability have also contributed to and exacerbated this strain. There can be no assurance that the impact of these issues on the supply chain will not continue, or worsen, in the future. Significant delays and shortages could prevent us from delivering our products to customers within required time frames and cause order cancellations, and could increase our costs, which would adversely impact our cash flows and the 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 to expand and bolster 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 leasessupply chain partner. Some of our suppliers are smaller, private companies, which are heavily dependent on us as a customer. If our suppliers face difficulties obtaining the credit or capital necessary to maintain sufficient manufacturing facilitiesexpand their operations when needed, they could be unable to supply necessary raw materials and components to meet anticipated demandour requirements, which would negatively impact our sales volumes and cash flows.
The failure by us to obtain raw materials or components in 2022, including new product line expansion.a timely manner or to obtain raw materials or components that meet our requirements could impair our ability to manufacture our products, increase the costs of our products, or increase the costs of servicing our existing portfolio of products. If we cannot obtain substitute materials or components on a timely basis or
on acceptable terms, we could be prevented from delivering our products to our customers or service our existing fleet of products, which could result in sales and installation delays, cancellations, penalty payments, warranty breaches, or damage to our brand and reputation, any of which could have a material adverse effect on our business and results of operations. In addition, we also increasedrely on our workingsuppliers 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 brand and reputation.
We have, in some instances, entered into long-term supply agreements that could result in excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, and negatively affect our results of operations.
We have 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 do not need or that is 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 spendresources. In the event any such supplier experiences financial difficulties, it may be difficult or impossible, or may require substantial time and resourcesexpense, for us to enhancerecover any or all of our marketing effortsprepayments. 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 expand into new geographies both domesticallyrisks 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 internationally.results of operations.
We believeface 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 have themay be unable to procure a sufficient capital to run our business over the next 12 months, including the completionsupply of the builditems 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 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 products 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 facilities. 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 workingbusiness is dependent on the availability of raw materials and components for our products. 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 could have a material adverse effect on our business, results of operations and financial condition.
A failure to properly comply with foreign trade zone laws and regulations could increase the cost of our duties and tariffs.
We have established foreign trade zones in California and Delaware, through qualification with U.S. Customs and Border Protection, which allow for “zone to zone” transfers between our facilities located in those states. 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 to the operations at our headquarters or manufacturing facilities could delay the production of our products, which would harm our business and results of operations.
We manufacture our products in a limited number of facilities, any of which could become unavailable either temporarily or permanently for any number of reasons, including equipment failure, material supply, public health emergencies, cyber-attacks or catastrophic weather, including extreme weather events or flooding resulting from the effects of climate change, or geologic events. Our headquarters and our Fremont manufacturing facility 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, financial condition and results of operations. Our disaster recovery plans, and insurance may not be sufficient to restore our operations and to cover our losses, respectively.
Our limited history of manufacturing new products, such as our Electrolyzers, makes it difficult to evaluate our future prospects and the challenges we may encounter.
While we have a history of manufacturing and selling our Energy Servers, we have a limited history with regard to our Electrolyzers, which are based in part on the same technology. As a result, there is little historical basis to make judgments on the capabilities associated with our enterprise, management, and ability to produce Electrolyzers. Our ability to generate the profits we expect to achieve from the sale of Electrolyzers will depend, in part, on our ability to effectively manufacture Electrolyzers, respond to market demand, and add new manufacturing capacity in an efficient, cost-effective manner.
Risks Related to Government Incentive Programs
Our business currently benefits from the availability of rebates, tax credits and other financial programs and incentives, and changes to such benefits could cause our revenue to decline and harm our financial results.
We utilize governmental rebates, tax credits, and other financial incentives to lower the effective price of our products to customers in the U.S. and Japan, India, the Republic of Korea and Taiwan (collectively, our “Asia Pacific region”).
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. Our Energy Servers have qualified for tax exemptions, incentives, or other customer incentives in many states. Some states have utility procurement programs, Renewables Portfolio Standards (“RPSs”) or Clean Energy Standards (“CESs”) for which our technologies are eligible; our Energy Servers may not be eligible for other RPSs and CESs, particularly when fueled in whole or in part with natural gas. Financiers and Equity Investors (as defined below) may also take advantage of these financial incentives, lowering the cost of capital was strengthenedand energy to our customers.
For example, many of our installations in California interconnect with investor-owned utilities on Fuel Cell Net Energy Metering (“FC NEM”) tariffs. FC NEM tariffs were available for new California installations until December 31, 2023. To remain eligible for those FC NEM tariffs, installations currently on those tariffs are required to meet greenhouse gas emissions standards. Bloom has filed an Application for Rehearing and a Stay in the FC NEM proceeding that challenges the legality of implementing said greenhouse gas emissions standards, which require our systems to be significantly cleaner than the grid resources they are displacing. If that challenge is unsuccessful, however, compliance with the Initialgreenhouse gas emissions standards may be required for any customer that remains on the FC NEM tariffs in 2024 and could require acquiring in-state biogas that is scarce and where available comes at a significant cost. Other generally applicable tariffs are available for customers deploying fuel cells, and do not impose the greenhouse gas standards currently limited to FC NEM. We are working through the appropriate channels to determine whether to migrate certain customers to these generally applicable tariffs. We are also working through appropriate regulatory channels to establish alternative tariffs for our customers. If the cost to remain on theFC NEM tariffs is significantor suitable alternatives are not available, it may negatively impact our existing customer base and futuredemand 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.
The U.S. federal government offers certain federal tax benefits, including the Production Tax Credit under Section 45 of the Internal Revenue Code (the “PTC”) and the Investment Tax Credit under Section 48 of the Internal Revenue Code (the “ITC”), both of which are currently set to be succeeded by SK ecoplant“technology-neutral” versions set forth in Sections 45Y and 48E, respectively, for projects that commence construction beginning in 2025. The IRA offers a number of federal tax benefits, many of which we may utilize in connection with the sale of our Energy Servers and Electrolyzers. Our customers, financiers, and Equity Investors may expect us to be able to facilitate their optimization of the tax benefits available pursuant to the IRA. Each of these federal tax benefits have certain legal and operational requirements. For example, any taxpayer taking the benefit of the ITC must meet certain requirements regarding ownership and use for a period of five years. If the energy property is disposed of or otherwise ceases to be qualified investment credit property before expiration of such a five-year period, it could result in a partial reduction in incentives. There may be uncertainty as described above.to how the new regulations promulgated under the IRA are interpreted. If IRS guidance regarding implementation of the IRA is delayed or viewed by investors as unclear, tax credit financing may be delayed or downsized, harming our ability to finance sales. Our failure to either (i) interpret the new requirements under the IRA regarding among other things, prevailing wage, apprenticeship, domestic content, siting in an “energy community,” accurately or (ii) adequately update our supply-chain, manufacturing, installation, and record-keeping processes to meet such requirements, may result a partial or full reduction in the related federal tax benefit and our customers, financiers and Equity Investors may require us to indemnify them for certain of such reductions. Changes in federal tax benefits over time also may affect our future performance. For example, currently commercial purchasers of fuel cells are eligible to claim the federal bonus depreciation benefit. However, under current rules it will be phased down, which began in 2023 and will continue until expiring at the end of 2026 in the absence of legislation. Similarly, commercial fuel cell purchasers can claim the ITC. Under current law, fuel cell projects must begin construction on or before December 31, 2024, in order to claim up to 50% ITC, after which part of this benefit will expire unless extended.
Some countries outside the U.S. also provide incentives to current and future end users and purchasers of our Energy Servers and Electrolyzers. For example, in the Republic of Korea, RPSs and CESs are in place to promote the adoption of renewable, low- or zero-carbon power generation. The Korean RPSs were replaced in 2023 with the Clean Hydrogen Portfolio Standard (“CHPS”). This may impact the demand for our Energy Servers in the Republic of Korea. Initially, we do not expect the CHPS to require 100% hydrogen as a feedstock for fuel cell projects.
Changes in the availability of rebates, tax credits, and other financial programs and incentives could reduce demand for our products, impair sales financing, and adversely impact our business results. Additionally, 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. The continuation of these programs and incentives depends upon continued political support.
In the U.S., we rely on tax equity financing arrangements to realize the benefits provided by federal tax benefits and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed. We also rely on incentives in the Korean, European and other international markets.
U.S. Equity Investors typically derive a significant portion of their economic returns through tax benefits when they finance an Energy Server. 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. We expect that future Equity Investors will also be interested in taking the benefit of the PTC in connection with financing our Electrolyzers. 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 at a large scale, 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 depends on the continued confidence of banks and other financing sources in our business model, the market for our Energy Servers and Electrolyzers, and the continued availability of tax benefits applicable to our Energy Servers and Electrolyzers, regardless of whether we arrange the financing, or our customers finance the products themselves. In addition, conditions in the general economy and financial and credit markets may result in the contraction of available tax equity financing. Similarly, in international markets such as Korea and Europe, economic benefits applicable to fuel cells may include subsidies for deployment as well as exemptions or reductions from taxes and fees. If as a result of changes to these benefits we, or in some cases our customers, are unable to enter into tax equity or other financing agreements with attractive pricing terms, or at all, neither we nor our customers, may be able to obtain the capital needed to finance the purchase of our products. Such circumstances could also require us to reduce the price at which we are able to sell our products in the applicable markets and therefore harm our business, financial condition, and results of operations.
Risks Related to Legal Matters and Regulations
We are subject to laws and regulations that could impose substantial costs upon us and cause delays in the delivery and installation of our products.
The construction, installation, and operation of our products are generally subject to oversight and regulation in accordance with laws and ordinances relating to building codes, safety, environmental and climate protection, domestic content requirements and related matters, as well as energy market rules, regulations and tariffs, and typically require governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits change or require periodic renewal. These laws and regulations can affect the markets for our products and the costs and time required for their installation and may give rise to liability for administrative oversight costs, compliance costs, clean-up costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with these 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 products 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 or excessive costs, such as costs for upgrading utility interconnection equipment, would impair our ability to develop the project. In addition, we cannot predict whether the approval or permitting process will be lengthened due to complexities and appeals. A delay in the review and approval of permits for a project can impair or delay our and our customers’ abilities to develop that project or may still enterincrease the equitycost so substantially that the project is no longer attractive to us or debt market as need to supportour customers. Furthermore, unforeseen delays in the expansionreview and permitting process could delay the timing of the installation of our business. Please referproducts and could therefore adversely affect the timing of the recognition of revenue related to Note 7 - the installation, which could harm our operating results in a particular period. In many cases we contractually commit to performing all necessary installation work on a fixed-price basis, and unanticipated costs associated with approval, permitting or compliance expenses may cause the cost of performing such work to exceed our revenue. In addition, emerging federal and state emissions disclosure requirements may pose a burden to existing or potential customers. 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 operating results.
In addition, the rules and regulations regarding the production, transportation, storage, and use of hydrogen, including with respect to safety, environmental and market regulations and policies, are in flux and may limit the market for our Electrolyzers and Energy Servers that operate using hydrogen.
The installation and operation of our products are subject to environmental laws and regulations in various jurisdictions, and there has been in the past and could continue to be uncertainty with respect to both how these laws and regulations may change over time and the interpretation of these environmental laws and regulations to our products.
We are committed to compliance with applicable environmental laws and regulations including health and safety standards, and we continuously review the operation of our products for health, safety, and environmental compliance. Our products produce small amounts of hazardous wastes and air pollutants, and we seek to address these in accordance with applicable regulatory standards. In addition, environmental laws and regulations in the U.S., such as the Comprehensive Environmental Response and Compensation and Liability Act, impose liability on several grounds including for the investigation and clean-up of contaminated soil and ground water, impacts to human health and damages to natural resources. If contamination is discovered at properties currently or formerly 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 products have high sustainability standards, and any environmental non-compliance by us could harm our brand and reputation and impact customersOutstanding Loans and Security Agreements’ buying decisions.
Maintaining environmental compliance can be challenging given the changing patchwork of environmental laws and regulations that prevail at the U.S. federal, state, regional, and local level and internationally. 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). Guidance from these agencies on how certain environmental laws and regulations may or may not be applied to our technology can be inconsistent.
In most jurisdictions where air permits and various land use permits are required for installation of larger Energy Server installations, the length of time to obtain these permits has increased. Moreover, the level of certainty around the issuance of such permits has decreased and where issued, the cost of compliance has been and can be prohibitive. We have experienced a
reluctance in certain areas to issue permits for natural gas Energy Servers and, even when that reluctance is overcome, we have seen conditions imposed, including a requirement to blend costly renewable fuels or other similar measures that might advance climate goals. The timing associated with these processes and the cost associated with related conditions have impacted our selling activities.
Our technology is moving faster than the regulatory process in many instances and 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 our 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 equipment, any of which could adversely affect our business, financial performance, and brand and 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.
As we expand into international markets, we may be subject to local content requirements or pressures which could increase costs or reduce demand for our products.
Foreign jurisdictions where we conduct or wish to conduct our business may impose domestic content requirements (requiring goods, materials, components, services or labor to be supplied from or made in country). Domestic or local content requirements favor domestic industry over foreign competitors and there has been a significant increase in the use of these programs in recent years. For example, in the Republic of Korea, customers and prospective customers may be pressured to select domestic competitors over Bloom.
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.
The current generation of our Energy Servers that run on natural gas generally produce fewer carbon emissions than the average U.S. marginal power generation sources that our projects displace. However, the operation of our current Energy Servers does produce some carbon dioxide (“CO2”), which contributes 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, as well as potential scrutiny around voluntary or regulatory carbon emissions reporting by our existing or potential customers. Changes in any of the laws, regulations, ordinances, or rules that apply to our installations and new technology could make it more difficult or costly to install and operate our Energy Servers, thereby negatively affecting our ability to deliver cost savings to our customers. Certain municipalities in which we operate have 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 may create technical, regulatory, and economic barriers, which could significantly reduce demand for our products or affect the financial performance of current sites.
The markets for our products are heavily influenced by laws, regulations and policies, including customers’ voluntary procurement standards, as well as by tariffs, internal policies and practices of electric utility providers. These regulations, tariffs, standards, and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. These regulations, tariffs, standards, and policies are often modified and could continue to change, which could result in a significant reduction in demand for our products. For example, utility companies commonly charge fees to industrial customers for disconnecting from the electric grid. These fees could change, thereby increasing the cost to our customers of using our products and making them less economically attractive.
At the federal level in the U.S., 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 the tax equity partnerships we are involved with 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, statutes, regulations, tariffs and market 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 U.S., governments and market operators frequently modify these statutes, regulations, tariffs and market rules. Governments, often acting through state utility or public service commissions, as well as market operators, change, adopt or approve different utility requirements 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 products and could negatively affect our ability to deliver cost savings to 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 become subject to product liability claims. Our Energy Servers are considered high energy systems because they consume or produce flammable fuels and may operate up to 480 volts. High-voltage electricity poses potential shock hazards, while natural gas and hydrogen, associated with both our Energy Servers and our Electrolyzers, are flammable gases and therefore a potentially dangerous fuel capable of causing fires and other harm. There can be no assurance that our products will continue to be certified to meet certain design and safety standards, and if our equipment is not properly handled or if there are undiscovered issues with our equipment, there could be a system failure and resulting damage, injury or 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 us and could materially impede widespread market acceptance and demand for our products, which could harm our brand, business prospects, and operating results. Our product liability insurance may not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of or outside of our coverage may have a material adverse effect on our business and financial condition.
Litigation or administrative proceedings could have a material adverse effect on our business, financial condition and 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. For information regarding pending legal proceedings, please see Part I, Item 3, Legal Proceedings and Part II, Item 8, Financial Statements and Supplementary Data,;Note 13 — Commitments and Part I, Item 1A, ContingenciesRisk Factors – . In addition, since our Energy Server and Electrolyzers are new types of products in nascent markets, we have in the past needed and may in the future need to seek administrative guidance, the amendment of existing regulations, or the development of new regulations, to operate our business in some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could lead 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, financial condition, and results of operations. In addition, settlement of claims could adversely affect our financial condition and results of operations.
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.
Policing unauthorized use of proprietary technology can be difficult and expensive, and the measures we have taken to protect our intellectual property rights, including 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 leaving employment with us and working for a competitor. Also, litigation may be necessary to enforce our intellectual property rights, including 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, business, prospects, brand, and reputation.
We rely primarily on patents, trade secrets, and trademarks, 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 intellectual property 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 discovered by or disclosed in an unauthorized manner to third parties. Additionally, our owned or licensed intellectual property rights could be challenged, invalidated, or declared unenforceable in judicial or administrative proceedings, or circumvented, designed around by our competitors, infringed, or misappropriated. Competitors could copy or reverse engineer our products or develop and market products that are substantially equivalent to or superior to our own. Any of these issues, including the unauthorized use of our intellectual property by others, could reduce our competitive advantage and have a material adverse effect on our business, financial condition, or operating results. In addition, the laws of some countries do not protect intellectual property rights as fully as do the laws of the U.S. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. We may not be able to effectively protect our intellectual property rights in these markets or elsewhere. If an impermissible use of our intellectual property or trade secrets were to occur, our ability to sell our products at competitive prices may be adversely affected and our business, financial condition, operating results, and cash flows could be adversely affected.
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 be successfully challenged in litigation or post-grant proceedings, 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 subject to disagreement. 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 U.S., 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 the U.S.
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, prospects, and 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 believe are infringed by our products or services. These companies holding patents or other intellectual property rights could make claims or bring suits alleging infringement, misappropriation, or other violations of such rights, or otherwise assert their rights by seeking royalties or injunctions. Several of the proprietary components used in our products have been subjected to infringement challenges in the past. We generally indemnify our customers against claims that the products we supply do not 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;
•redesign our products or means of production, which may not be possible or cost-effective; or
•in some instances, re-purchase products from our customers.
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 brand and 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 right to indemnification or our suppliers’ resources may be unavailable or insufficient to cover our costs and losses.
Risks Related to Our Financial Condition and Operating Results
We have incurred significant losses in the past and we may not be profitable in future periods.
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2023, we had an accumulated deficit of $3.9 billion. We expect to continue to expand our operations domestically and internationally, including by investing in manufacturing, sales and marketing, research and development, staffing, and infrastructure to support our growth. We may continue to incur net losses in future periods. Our ability to achieve profitability will depend on a number of factors, including our ability to:
•grow our sales volume;
•expand into new geographical markets and industry market sectors;
•attract and retain financing partners;
•continue to improve the useful life of our technology and reduce our warranty servicing costs;
•reduce the cost of producing our products;
•improve the efficiency and predictability of our installation process;
•introduce new products, including products for the hydrogen market;
•improve the effectiveness of our sales and marketing activities; and
•attract and retain key talent in a competitive labor 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, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our 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 products in that period and the type of financing used by the customer.
In addition to the other risks described herein, the following factors subject us to quarterly fluctuations in our financial condition and results of operations:
•the timing of installations, which may depend on many factors such as availability of inventory, product quality or performance issues, local permitting requirements, utility requirements, environmental, health, and safety requirements, weather, availability of labor, health emergencies, and customer facility construction schedules;
•size of particular installations and number of sites involved in any particular quarter;
•the mix in purchase or financing options used by customers, the geographical mix of customer sales, and the rates of return required by financing parties;
•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;
•delays or cancellations of product installations;
•fluctuations in our service costs, particularly due to unexpected costs and rising labor costs;
•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;
•the length of the sales and installation cycle for a particular customer;
•the timing and level of additional purchases by new and existing customers, which may be impacted by macroeconomic factors including inflation, interest rates, the recessionary environment, and availability of capital;
•the timing of the development of the market for our new features and products, including our Electrolyzer;
•unanticipated expenses or installation delays associated with changes in governmental regulations, permitting requirements, 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 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 common stock.
If we fail to manage our growth effectively, our business and operating results may suffer.
In order to grow effectively, we must efficiently operate our business, manage our capital expenditures and control our costs. If we experience a significant growth in orders without improvements in automation and efficiency, we may not be able to meet product demand in a timely manner. We may need additional manufacturing capacity and we and some of our suppliers may need additional capital-intensive equipment. Any growth in manufacturing must include scaling 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 products 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, prospects, operating results, and financial condition. Our future operating results depend to a large extent on our ability to manage this 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. The provisions 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 calculating revenue, deferred revenue and inventory costs. While we continue to automate our 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 successfully maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial 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 common stock.
Our ability to use deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.
Our ability to use net operating loss carryforwards (“NOLs”) to offset future taxable income may be limited due to expiration, lack of taxable income in the future, changes in our stock ownership, and other factors that may be outside of our control. Our deferred tax assets may also expire or be underutilized, which could prevent us from offsetting future taxable income.
Risks Related to Our Liquidity –
We must maintain the confidence of our customers in our liquidity, including our ability to timely service our debt obligations and grow our business over the long term.
Currently, we are the only provider able to fully support and maintain our products. 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 or support our products, 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;
•profitability concerns;
•unfamiliarity with or uncertainty about our products and the overall perception of the distributed generation market;
•prices for electricity or natural gas;
•competition from alternate sources of energy;
•warranty or unanticipated service issues we may experience;
•the 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” section.
Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects 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 and W.e
Given our substantial level of indebtedness, it may not be able to generate sufficient cash to meet our debt service obligations,difficult 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 unableus to secure suchadditional debt 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 pandemicat an attractive cost, which may 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 inturn impact our ability to access customer facilities due to shutdownsexpand or other restrictions. Despite the impact on installations during the year ended December 31, 2021maintain our operations, develop our products, and given our mitigation strategies, we only had one instance of a significant delayremain competitive in the installationmarket. 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 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 Energy Servers assubsidiaries;
•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 resultsubstantial portion 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, duecash flow from operations to the naturepayment of our Energy Servers, if we are unableprincipal 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 replace worn parts in accordancesatisfy and comply with our standard maintenance schedule, we may be obligations with respect to our indebtedness;
•subject us to increased costs in the future. During the year ended December 31, 2021, we experienced no delays in servicing our Energy Servers duesensitivity to COVID-19.interest rate increases;
•make us more vulnerable to economic downturns, adverse industry conditions, or catastrophic external events;
Supply Chain•limit our ability to withstand competitive pressures;
During 2021,•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 experienced COVID-19 related delays fromhave.
Upon the occurrence of certain vendorsevents to us, including a change in control, a significant asset sale or merger or similar transaction, our liquidation or dissolution or the cessation of our stock exchange listing, each of which may constitute a fundamental change under the outstanding notes, holders of certain of the notes have the right to cause us to repurchase for cash any or all of such outstanding notes. We cannot provide assurance that we would have sufficient liquidity to repurchase such notes. Furthermore, our financing and suppliers, althoughdebt agreements 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. 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.
We may not be able to mitigategenerate sufficient cash to meet our debt service obligations or our growth plans.
Our ability to generate sufficient cash to meet our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive, and business factors. If we do not generate sufficient cash to satisfy our debt obligations, 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 of these alternatives would be available or permitted under the impact soterms of our 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. 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, results of operations and financial condition.
Risks Related to Our Operations
Expanding operations internationally could expose us to additional risks.
Although we currently operate primarily in the U.S., we continue to expand our business internationally. We currently have operations in the Asia Pacific region and Europe. Any expansion internationally could subject our business to risks associated with international operations, including:
•increased complexity and costs of managing international operations;
•conformity with applicable business customs, including translation into foreign languages and associated expenses;
•lack of availability of government incentives and subsidies;
•financing challenges for our customers;
•potential changes to our established business model, including installation and/or service challenges that we didmay have not experience delaysencountered before;
•cost of alternative power sources, which could be meaningfully lower outside the U.S.;
•availability and cost of natural gas;
•variability in gas specifications from jurisdiction to jurisdiction;
•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 regulations, and customers, and the manufactureincreased travel, infrastructure, and legal and compliance costs associated with international operations;
•our ability to develop and maintain relationships with suppliers and other local businesses;
•compliance with product safety requirements and standards;
•our ability to obtain business licenses that may be needed in international locations to support expanded operations;
•compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations;
•challenges in managing taxation in cross-border transactions;
•greater difficulties in securing or enforcing our intellectual property rights in certain jurisdictions;
•difficulties in enforcing contracts in certain jurisdictions;
•risk of nationalization or other expropriation of private enterprises;
•trade barriers such as export requirements, tariffs, taxes, local content requirements, anti-dumping regulations and requirements, and other restrictions and expenses, which could increase the effective price of our Energy Serversproducts and experienced only one significant delaymake us less competitive in some countries or increase the installation ofcosts to perform under 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.existing contracts;
During the year ended December 31, 2021, we continued to experience supply chain•restrictions on repatriation of earnings;
•natural disasters (including as a result of climate change), acts of war or terrorism, regional conflicts, and public health emergencies; and
•adverse social, political and economic conditions, including inflation, a recessionary environment, and disruptions due toin capital markets.
We utilize a sourcing strategy that emphasizes global procurement of materials that has direct andor indirect COVID-19 impacts. There have beendependencies upon a number of disruptions throughoutvendors with operations in the global supply chain asAsia 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 global economy opens up and drives demand for certain components that has outpaced the returnmagnitude 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, limitingany short-term or long-term adverse impact on 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/business 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,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 Deltawar in Ukraine resulted in increased sanctions that affected the price of raw materials used in our products, which had and could continue to have an adverse impact on our operating results.
Our cross-border transactions and international operations are subject to complex foreign and U.S. laws and regulations, including anti-bribery and corruption laws, antitrust or Omicron variant,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 experience a delayresult in componentsfines and incur further freight price increases, which could in turn impact productionpenalties, criminal sanctions against us or our employees, prohibitions on the conduct of our business 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 byon our ability to increaseoffer our shiftsproducts and obtain a contingent work forceservices in certain geographies, and significant harm to our 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 acts 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 large 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 could adversely affect our operations and financial results.
Data security breaches and cyberattacks could compromise our intellectual property or other confidential information and cause significant damage to our business, product performance, brand, 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. Additionally, our information technology provides us with the ability to remotely control some variables of our products; they are connected to, controlled and monitored by our centralized remote monitoring service. We rely on our internal software applications for somemany of the manufacturing activities.functions we use to operate our business generally. Cyberattacks are increasing in frequency and evolving in nature. We have incurred additional labor expense due to enhanced safety protocols designed to minimize exposure and our third-party providers are at risk of COVID-19 transmissionattack through the 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, as well as the operation of our products.
There is no assurance that any measures we may take to combat known and unknown cybersecurity risks will be sufficient to prevent future security breaches and cyberattacks. The security of our infrastructure, including the network that connects our products 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 products 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 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 products and could result in disruption to our business and legal liability.
In addition, security breaches and cyberattacks could negatively impact our brand and reputation and our competitive position and could result in litigation with third parties, regulatory action and 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 impactedremediation 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 Founder, President, Chief Executive Officer and Director, and other certain key employees. None of our key employees are bound by employment agreements for any specific term and we cannot assure you that we will be able to successfully attract and retain the senior leadership necessary to grow our business. There is intense competition for talented individuals in our industry, particularly 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, finance and sales personnel, could adversely impact our business, our financial condition and our operating results.
Competition for manufacturing employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe part of our success depends on the efforts and talent of our manufacturing employees and our ability to attract, develop, motivate and retain such employees. Competition for manufacturing employees is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
Risks Related to Ownership of Our Common Stock
The stock price of our common stock has been and may continue to be volatile.
The market price of our 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 common stock may fluctuate significantly in response to numerous variables, 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 a recessionary environment, rising interest rates and inflationary pressures;
•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors;
•the issuance of negative reports from short sellers;
•recruitment or departure of key personnel;
•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;
•the failure or distress of competitors 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.
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.
We may issue additional shares of our common stock in connection with future conversions of the Green Notes, which may dilute our existing stockholders and potentially adversely affect the market price of our common stock.
In the event that some or all of the Green Notes are converted, and we elect to deliver shares of common stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash flowdividends on our capital stock and do not intend to pay 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 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 us more difficult, limit stockholders’ rights, and limit the market price of our 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;
•authorize only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors to call a special meeting of stockholders;
•prohibit stockholder action by written consent;
•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 U.S. 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 operation, including revenue.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.
Increased scrutiny regarding ESG practices and disclosures could result in additional costs and adversely impact our business, brand and reputation.
Like many companies, we face increased scrutiny relating to our Environmental, Social and Governance (“ESG”) practices and disclosures. Investors are increasingly using ESG screening criteria in making investment decisions. Our disclosures on these matters or a failure to satisfy evolving stakeholder expectations for ESG practices and reporting may harm our brand and reputation and impact employee retention and our access to capital. In addition, our failure, or perceived failure, to pursue or fulfill our goals, targets, and objectives or to satisfy various reporting standards, could expose us to government enforcement actions and private litigation.
Our ability to achieve any ESG goal, target, or objective, is subject to numerous risks, many of which are outside of our control. Examples of such risks include the availability and cost of technologies and products, evolving regulatory requirements affecting ESG standards or disclosures, our ability to recruit, develop, and retain diverse talent in our labor markets, and our ability to develop and maintain reporting processes and controls that comply with evolving standards for identifying, measuring and reporting ESG metrics. As ESG stakeholder expectations, reporting standards, and disclosure requirements continue to develop, we may incur increasing costs related to ESG monitoring and reporting.
ITEM 1B — UNRESOLVED STAFF COMMENTS
None.
ITEM 1C — CYBERSECURITY
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program designed to assess, identify, and manage risks from potential unauthorized occurrences on or through our information technology systems that may result in adverse effects on the confidentiality, integrity, or availability of our information technology systems or any information residing therein. Our cybersecurity risk management program includes a cybersecurity incident response plan.
We design and assess our program based on the Center for Internet Security (“CIS”) 18 Framework. This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the CIS 18 Framework as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
•Periodic risk assessments are designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment.
•A security team principally responsible for managing our cybersecurity risk assessment processes, security controls, and response to cybersecurity incidents.
•The use of external service providers, where appropriate, to assess, test, or otherwise assist with aspects of our security controls.
•Our Internal Audit department which monitors certain IT systems controls that are integrated into our larger Sarbanes-Oxley control environment.
•Periodic cybersecurity awareness training for our employees and contractors with access to our information technology systems.
•A cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents, including incidents that could be indicators of attack against availability, integrity and confidentiality of information systems.
•A third-party risk management process for service providers, suppliers, and vendors that includes examining their security postures and assessing their data and system protection controls.
Our business has not been materially affected by cybersecurity incidents to date. For a discussion of how cybersecurity risks could materially affect us in the future, please see the risk factors set forth under the caption Part I, Item 1A, Risk Factors — Risks Related to our Operations.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit and Risk Committee (the “Audit Committee”) oversight of cybersecurity and other information technology risks. The Audit Committee oversees management’s implementation of our cybersecurity risk management program. The Board receives periodic reports from the Audit Committee on these and other activities. The Audit Committee receives periodic reports from management on our cybersecurity risks, including presentations from our Chief Information Officer, internal security staff, and external experts. This includes updates to the Audit Committee, as appropriate, regarding any significant cybersecurity incidents, or multiple incidents that could be significant in the aggregate. These updates may occur in between regularly scheduled Audit Committee meetings.
At the management level, the Enterprise and Risk Management Committee (the “ERM Committee”) discusses cybersecurity topics, including any potentially material cybersecurity incidents, as part of its oversight of the company’s significant risks. Our management team, including the Chief Information Officer, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, including:
•periodic briefings from internal security personnel;
•periodic reviews of risk management measures implemented to prevent, detect, mitigate, and remediate cybersecurity risks and incidents, including our incident response plan;
•threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and
•alerts and periodic reports produced by security tools deployed in our IT environment.
Our Chief Information Officer has more than 20 years of cybersecurity and information technology experience and she has served as the Chief Information Officer for multiple technology companies. Similarly, the members of the ERM Committee possess significant risk management experience obtained by their collective years of experience at Bloom and other companies of similar or greater complexity.
ITEM 2 — PROPERTIES
The table below presents details for our principal properties:
| | | | | | | | | | | | | | |
| Facility | Location | Approximate Square Footage | Held | Lease Term |
| | | | |
Corporate headquarters1 | San Jose, CA | 183,000 | Leased | 2031 |
Manufacturing, warehousing, research and development2 | Sunnyvale, CA | 110,000 | Leased | 2024 |
| Research and development | Mountain View, CA | 44,000 | Leased | 2024 |
| Manufacturing, research and development | Fremont, CA | 326,000 | Leased | * |
| Manufacturing and warehousing | Newark, DE | 377,000 | Leased | ** |
Manufacturing and warehousing3 | Newark, DE | 178,000 | Owned | n/a |
| | | | |
* Lease terms expire in December 2027, February 2036 and November 2037.
** Lease terms expire in February 2026, December 2026, April 2027, June 2028 and October 2028.
1 Our corporate headquarters is used for administration, research and development, and sales and marketing.
2 As of December 31, 2023, we were in the process of vacating the 50,000 sq. ft. manufacturing, warehousing and R&D facility which was closed per the Restructuring Plan (for additional information, please see Part II, Item 8, Note 12 — Restructuring).
3 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.
We lease additional office space as field offices in the U.S. and office and manufacturing space around the world including in China, India, the Republic of Korea, Taiwan, Japan, and the United Arab Emirates. To support our growth expectations, we invested in additional manufacturing capacity at a new facility in Fremont, California. In July 2022 we announced the grand opening of this multi-gigawatt manufacturing facility, representing a $200 million investment. It followed the expansion of the company’s global headquarters in San Jose in June 2021 as well as the opening of a new research and technical center and a global hydrogen development facility in Fremont. This facility provides additional capacity necessary for future growth.
ITEM 3 — LEGAL PROCEEDINGS
We are, and from time to time we may become, involved in legal proceedings or subject to claims arising in the ordinary course of our business. For a discussion of legal proceedings, see Part II, Item 8, Note 13 — Commitments and Contingencies. 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 STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock is listed on The New York Stock Exchange (“NYSE”) under the symbol “BE.” On February 12, 2024, there were 567 registered holders of record of our Class A common 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.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return since our initial public offering of our common stock relative to the cumulative total returns of the NYSE 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 our common stock and in each of the indexes on December 31, 2018 and its relative performance is tracked through December 31, 2023.
This graph shall not be 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 $) | 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 |
| Bloom Energy Corporation | $100.00 | $129.45 | $122.94 | $32.56 | $74.84 | $52.40 | $109.00 | $180.02 | $287.10 | $270.96 | $269.15 |
| NYSE Composite Index | $100.00 | $112.36 | $116.29 | $116.63 | $125.50 | $93.57 | $108.73 | $116.79 | $134.28 | $145.09 | $154.67 |
| NASDAQ Clean Edge Green Energy Total Return Index | $100.00 | $114.10 | $120.51 | $122.34 | $142.66 | $115.55 | $170.89 | $255.64 | $406.35 | $397.37 | $401.71 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in cumulative $) | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | September 30, 2022 | December 31, 2022 | March 31, 2023 | June 30, 2023 | September 30, 2023 | December 31, 2023 |
| Bloom Energy Corporation | $187.51 | $219.65 | $241.88 | $165.26 | $200.20 | $191.48 | $199.59 | $163.73 | $132.78 | $148.20 |
| NYSE Composite Index | $151.70 | $162.04 | $158.30 | $138.45 | $129.58 | $146.89 | $149.67 | $155.57 | $151.79 | $167.12 |
| NASDAQ Clean Edge Green Energy Total Return Index | $363.73 | $395.61 | $376.27 | $304.70 | $332.41 | $276.34 | $305.95 | $301.25 | $251.14 | $248.97 |
Unregistered Sales of Equity Securities
None.
Issuer’s Purchases of Equity Securities
None.
ITEM 6 — [RESERVED]
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Description of Bloom Energy
Our mission is to make clean, reliable energy affordable for everyone in the world. We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform that empowers businesses, essential services, critical infrastructure and communities to responsibly take charge of their energy.
Our technology, invented in the U.S., 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 typically 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 with our Bloom Electrolyzer. Hydrogen is increasingly recognized as a critically important tool for the 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 U.S. and the Republic of Korea, with a growing presence in various international markets.
At Bloom Energy, we look forward to a net-zero future. Our technology is designed to help enable this future by delivering reliable, low-carbon electricity in a 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 towards renewable fuel production through our biogas, hydrogen and electrolyzer programs, and we believe that we are well-positioned as a core platform and fixture in the new energy paradigm to help organizations and communities achieve their net-zero objectives.
We market and sell our Energy Servers primarily through our direct sales organization in the U.S., and we also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a significant 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, and who may prefer to finance the acquisition using third-party financing or 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 also expanded our product and financing options to below-investment-grade customers and have also expanded internationally, including 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. Once the sale is completed, we have a large multi-disciplined team to facilitate the deployment of our projects in a wide variety of locations under a myriad of regulatory environments.
Purchase and Financing Options
Overview
In order to appeal to the largest variety of customers, we make available several options to our customers.them. Both in the United StatesU.S. and abroad,internationally, we sell our Energy Servers directly to customers. In the United States,U.S., we also enable customers'customers’ use of the Energy Servers through a pay as you go offering,Power Purchase Agreement (as defined below) and a Managed Services Agreement (as defined below) (whereby we sell and lease back the Energy Servers in order to supply energy to our customers), each made possible through third-party ownership financing arrangements.
Often, our offerings are designed to take advantage of local incentives. In the United States,U.S., our financing arrangements are structured to optimize both federal and local incentives, including the ITCInvestment Tax Credit (the “ITC”) and accelerated depreciation. Internationally, our sales are made primarily to distributors who on-sellsell 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 StatesU.S. to generate transactions.
With respect to the third-party financing options in the U.S., a customer may choose a contract for the use of the 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”.)
PPAs are typically financed on a portfolio basis whereby we make direct sales of PPAs to investors.
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 sell our products through a combination of direct and indirect sales channels. At present, most of our U.S. sales are through our direct sales force, which is segmented by vertical and type of account. We are expanding our relationship with utilities and other commercial customers across the U.S.. We have developed a network of strategic 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 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, installation, customer financing or service.
As we have cultivated sales as well as strategic and financing partners over the past several years, our sales have been concentrated among a few large customers and distributors each year. During the year ended December 31, 2023, revenue from two customers accounted for approximately 37% and 26% of our total revenue, respectively. Please see Part II, Item 8, Note 1 — Nature of Business, Liquidity and Basis of Presentation — Concentration of Risk — Customer Risk.
SK ecoplant in the Republic of Korea is our strategic power generation and distribution partner. In October 2021, we announced an expansion of our existing partnership with SK ecoplant, that includes purchase commitments for at least 500 megawatts of our Energy Servers between 2022 and 2024 on a take-or-pay basis, the creation of hydrogen innovation centers in the U.S. and the Republic of Korea to advance green hydrogen commercialization, and an equity investment in Bloom Energy. In September 2023, SK ecoplant became a related party to us with the beneficial ownership of 10.5% of our outstanding Class A common stock. On December 21, 2023, we further expanded our business partnership with SK ecoplant through the increase of SK ecoplant’s purchase commitments for Bloom Energy products of 250 megawatts through 2027 and extended the timing of delivery of the remaining take-or-pay commitment under the original agreement. For additional information, please see Part II, Item 8, Note 17 — SK ecoplant Strategic Investment.
Sustainability
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, combined heat and power, and microgrid projects critical to aligning with a 1.5 degree warming trajectory. Our natural gas-based Energy Servers are also an important source of near-term emission reductions, and we are committed to evolving the gas sector through our technology development and leading market-based activity.
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 based upon 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.
As a manufacturer, our commitment to sustainability is reflected not only through the impacts of our products in operation but also through our internal commitment to resource 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 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 refurbished as needed instead of requiring new equipment. Finally, we seek to cover as many materials and components as practicable during end-of-life management, reusing these materials and components. From 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 approximately less than 2% of the total Energy Server weight.
In 2023, we continued our responsibly sourced gas program by acquiring and retiring MiQ+ Equitable Origin certified-low-leak natural gas certificates, representing reduced release of harmful methane emissions stemming from upstream gas production. The program provides a validated leak rate that can be used to inform lifecycle carbon accounting and reinforces
our commitment to environmental stewardship and gas sector transformation. Use of certified natural gas helps us take an immediate and impactful step to help eliminate harmful methane emissions as we lay the foundation for a net-zero future.
U.S. & Global Climate Issues
Climate change and resulting extreme weather are having significant economic, environmental and social impacts in the U.S. and around the world. These effects and anticipated future impacts have resulted in a wide array of market and regulatory responses, and we expect that these types of responses will continue. 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, 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 covering 2020 followed by additional annual reports covering activities in 2021 and 2022. We plan to issue a sustainability report annually.
The direct impacts of climate change on energy systems, including the increased risk they pose to energy service disruption, may provide an opportunity for our extremely reliable and resilient energy generation. New or more stringent international accords, national or state legislation, or regulation of GHG emissions 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 GHG standard for participation in favorable fuel cell tariffs 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 Energy Server and Electrolyzer installation must be designed, constructed and operated in compliance with applicable federal, state, international and local regulations, codes, standards, guidelines, policies and laws. To operate our systems, we, our customers and our partners are each required to obtain applicable permits and approvals for the installation of the Energy Servers and the Electrolyzers, which may include federal, state, and local authority approvals; for the interconnection systems with the local electrical 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 U.S. and internationally designed to support and accelerate the adoption of clean and/or reliable distributed power generation and hydrogen technologies, such as the manufacturing and deployment of our Energy Servers and our Electrolyzers. These policy initiatives often come in the form of tax incentives, cash grants, performance incentives, environmental attribute credits, permitting regimes, interconnection policies and/or applicable gas or electric tariffs.
The U.S. federal government provides businesses with the ITC under Section 48 of the Internal Revenue Code, available to the owners of our Energy Servers for the tax year in which the systems are placed into service. On August 7, 2022, the IRA under the fiscal year 2022 budget reconciliation instructions. On August 16, 2022, the IRA was signed into law. The IRA includes numerous investments in climate protection, and, among them, an extension and expansion of the ITC and the Production Tax Credit under Section 45 of the Internal Revenue Code, the addition of expanded tax credits for other technologies and for manufacturing of clean energy equipment, as well as terms allowing parties to more easily monetize the tax credits. The IRA contains a multi-tiered credit-amount structure for many applicable tax credits. Specifically, many of the credits have a lower base credit amount that can be increased up to five times if the taxpayer can satisfy applicable prevailing wage or apprenticeship requirements. The IRA also creates certain bonus tax credit amounts relevant to projects involving Bloom products that are placed in service, or of which construction begins, in 2023 and 2024 and that satisfy domestic content criteria and/or are located within an “energy community.” The IRA also creates tax credits for the production of hydrogen and carbon capture, as well as incentives for clean energy manufacturing. By implementing the IRA, the U.S. federal government aims to make an impact on energy markets so that cleaner options are more affordable to consumers.
Our Energy Servers are currently installed at customer sites in twelve states in the U.S., each of which has its own enabling policy framework. Some states have utility procurement programs and/or renewables portfolio standards for which our technology is eligible. Our Energy Servers currently qualify for a variety of benefits and incentives, such as tax exemptions,
interconnection benefits, relief from utility charges and other forms of economic and energy benefits, in 21 states including Connecticut, New Jersey, Maryland, Massachusetts, New York, Pennsylvania, Rhode Island, Illinois, Indiana, Michigan, Ohio, West Virginia, Tennessee, Virginia, North Carolina, Delaware, Kentucky, Washington, New Hampshire, Vermont, and Maine. These policy provisions are subject to change.
Some municipal jurisdictions are considering or have recently enacted building codes or local ordinances that limit access to the natural gas pipeline distribution network, primarily in California and the Northeast. Specific policies vary widely as to whether or not they impact our ability to do business in a given jurisdiction and the vast majority apply only to new, rather than existing, buildings. While these jurisdictions comprise a small minority of our current and prospective business footprint, local consideration of such codes and ordinances continues to evolve.
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 Energy Servers 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 (the “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 investment vehicles who own Bloom Energy Servers are subject to regulation under the FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with the 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 (the “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. The 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.
Environmental laws and regulations 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, maintaining compliance with applicable environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act in the U.S., requires significant time and management resources.
Several states and regions in which we currently operate require permits where emissions of air pollutants would exceed applicable thresholds. In most states and regions where this is the case, permits have only been required for larger Energy Server installations. Other states and regions in which we operate, including New York, New Jersey and North Carolina, have specific air permitting exemptions for fuel cells.
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 Part I, Item 1A, Risk Factors — Risks Related to Legal Matters and Regulations.
Backlog
The timing of delivery and installations of our products has a significant impact on the timing of the recognition of our product and installation revenues. Many factors can cause a lag between the time a customer signs a contract and our recognition of product revenue. These factors include the number of our 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 financing arrangements. Further, due to unexpected delays, deployments may require unanticipated expenses to expedite delivery of materials or labor to ensure the installation meets our 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.
Human Capital
We are committed to attracting and retaining exceptional talent. Investing in and inspiring our people to do their best work is critical for our success. As of December 31, 2023, we had 2,377 full-time employees worldwide, of which 1,948 were located in the U.S., 383 were located in India, and 46 were located in other countries. During 2023, our workforce decreased by 6% as compared to fiscal 2022, predominantly because of the restructuring actions we initiated in September 2023 with one of the goals being an optimization of our workforce across multiple functions. For additional information, please see Part II, Item 8, Note 12 — Restructuring.
In order to attract and retain our employees, we strive to maintain an inclusive, diverse and safe workplace, with opportunities for our employees to grow and develop in their careers. This is supported by strong compensation, benefits, and health and wellness programs. We are mission driven and hire and develop talent with a passion toward achieving our mission.
Inclusion and Diversity
Our cultural foundation is that of innovation, results, respect, and doing the right thing. One of our greatest strengths is a very talented and diverse employee population. We believe diverse talent leads to better decision making and 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, track our progress and hold 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. In fiscal 2023, we continued with our Effective Interviewing course for hiring managers and interviewers, which covered unconscious bias, legal questions, and a positive candidate experience.
Our continued engagement with organizations that partner with diverse communities have been essential to our efforts to increase women, veteran, and minority representation in our workforce. We are actively engaged with local community leaders to broaden our reach to underserved communities. One example is establishing the Smart Manufacturing Technology Earn and Learn program with Ohlone College, Fremont CA. Through the program we hired 8 interns and converted 3 to full time employees. We also partner with several veteran search firms to identify talent leaving the military. In fiscal 2023, we filled with veterans 40% of Bloom’s field service and remote monitoring service roles. In Delaware State, we have worked with the Dover Air Force base and Delaware National Guard for hiring events. Bloom was awarded the Warrior Friendly Business award for 2023 by the Delaware National Guard.
Finally, our University/Early Careers Program has allowed the company to focus on hiring a diverse early careers workforce. We are also partnering with City College of New York/Colin Powell School to identify summer intern talent. These are students from underrepresented minorities, with the majority of them being the first to attend college in their family. We also have partnerships with a number of HBCUs, including Delaware State University and Howard University. The result of these outreach commitments was that 64% of our interns were ethnically diverse and 40% were women. The City College of New York collaboration will be continuing in 2024 with more interns.
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 Bloom held numerous job fairs in the community including underserved areas around Fremont, Stockton, Salinas, Soledad, Seaside, Marina, Gilroy and Alameda in California State. To help preserve jobs in the community, Bloom partnered with local companies doing layoffs to hire manufacturing talent. Cepheid being one such organization that we hired 171 employees from.
Employee Demographics
We believe that our statistics are strong, our culture of inclusivity is stronger (as of December 31, 2023):
•66% of our employee population in the U.S. is ethnically diverse
•Women make up 25% of our employee population globally
•Our senior leadership team of eleven individuals included on December 31, 2023 seven ethnically diverse individuals and two women
•Women make up 16% of our leadership population (Director-level and above)
•Ethnic minorities represent 43% of our leadership (Director-level and above)
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. In fiscal 2023, we also introduced Tuition Reimbursement and family forming benefits. 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.
Seasonal Trends and Economic Incentives
Our business and results of financial operations are subject to industry-specific seasonal fluctuations with the majority of bookings completed in the second half of a fiscal year. The desirability of our solution can be impacted by the availability and value of various governmental, regulatory and tax-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. 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. Websites are provided throughout this document for convenience only. The information contained on the referenced websites does not constitute a part of and is not incorporated 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 Reports 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 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. A manifestation of any of the following risks could, in circumstances we may or may not be able to accurately predict, render us unable to conduct our business as currently planned and materially and adversely affect our reputation, business, prospects, growth, financial condition, cash flows, liquidity, and operating results. In addition, the occurrence of one or more of these risks may cause the market price of our common stock to 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 presenting 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.
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 and should not be relied upon as an exhaustive summary of all the material risks facing our business.
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 or demand may be lower than we expect.
•Our products involve a lengthy sales and installation cycle, which may lengthen further as we seek larger transactions.
•Our products have significant upfront costs, and we need to attract investors to help customers finance purchases.
•The economic benefits of our Energy Servers to our customers depend on both the price of gas available from the local gas utilities and the cost of electricity available from alternative sources, including local electric utility companies.
•If we are not able to reduce our costs or meet service performance expectations with respect to our products, our profitability may be impaired.
•Deployment of our Energy Servers relies on interconnection requirements, export tariff arrangements and utility tariff requirements that are subject to change.
•Deployment of our Energy Servers relies on fuel supply and fuel specification requirements, which may change.
•We face significant competition.
•We derive a substantial portion of our revenue and backlog from a limited number of customers.
•Our future growth will depend on expanding and diversifying our products and market opportunities.
•Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify and successfully engage with partners to assist in such development or expansion.
•Our products may not be successful if we are unable to maintain alignment with industry standards and requirements.
Risks Related to Our Products and Manufacturing
•Our future success depends in part on our ability to increase production capacity for our products.
•If our products contain manufacturing defects, our business and financial results could be harmed.
•The performance of our products may be affected by factors outside of our control.
•If our estimates of the useful life for our products are inaccurate or we do not meet our performance warranties and guaranties, our business and financial results could be harmed.
•Our business is subject to risks associated with construction, utility interconnection, fuel supply, cost overruns and delays, including those related to obtaining government permits and other contingencies.
•The failure of our suppliers to continue to deliver necessary raw materials or other components of our products in a timely manner and to specification could prevent us from delivering our products.
•We have long-term supply agreements that could result in excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, and negatively affect our results of operations.
•We face supply chain competition which could result in insufficient inventory and affect 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 products on time will suffer.
•Possible new trade tariffs could have a material adverse effect on our business.
•A failure to properly comply with foreign trade zone laws and regulations could increase the cost of duties and tariffs.
•Significant disruption to the operations at our headquarters or manufacturing facilities could delay product production.
•Our limited history of manufacturing new products, such as our Electrolyzers, makes it difficult to evaluate our future prospects and challenges we may encounter.
Risks Related to Government Incentive Programs
•Our business currently benefits from the availability of rebates, tax credits and other financial programs and incentives, and changes to such benefits could cause our revenue to decline and harm our financial results.
•We rely on tax equity financing arrangements to realize the benefits provided by U.S. federal tax benefits and accelerated tax depreciation and we also rely on incentives in the Korean, European and other international markets.
Risks Related to Legal Matters and Regulations
•We are subject to laws and regulations, including environmental laws and regulations, regarding the delivery and installation of our products.
•As we expand into international markets, we may be subject to local content requirements or pressures which could increase costs or reduce demand for our products.
•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.
•Existing regulations and changes to such regulations may create technical, regulatory, and economic barriers, which could significantly reduce demand for our products or affect the financial performance of current sites.
•We may become subject to product liability claims.
•Litigation or administrative proceedings could have a material adverse effect on our business.
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 be successfully challenged in litigation or post-grant proceedings.
•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 in future periods.
•Our financial condition and results of operations and other key metrics are likely to fluctuate.
•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 deferred tax assets to offset future taxable income may be subject to limitations.
Risks Related to Our Liquidity
•We must maintain the confidence of our customers in our liquidity, including our ability to timely service our debt obligations and grow our business over the long term.
•Our indebtedness, and restrictions imposed by the agreements governing our 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 or growth plans.
Risks Related to Our Operations
•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, product performance, brand 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.
•Competition for manufacturing employees is intense, and we may not be able to attract and retain skilled employees.
Risks Related to Ownership of Our Common Stock
•The stock price of our common stock has been and may continue to be volatile.
•We may issue additional shares of our common stock in connection with future conversions of the Green Notes, which may dilute our existing stockholders and potentially adversely affect the market price of our common stock.
•We do not intend to pay dividends for the foreseeable future.
•Provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit stockholders’ rights, and limit the market price of our common stock.
•Increased scrutiny regarding ESG could result in additional costs and adversely impact our business.
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 or demand may be lower than we expect, which maymake evaluating our business and future prospects difficult.
The distributed generation industry is still an emerging market in the heavily regulated energy utility industry. It is uncertain whether potential customers will embrace distributed generation in general, or our Energy Servers in particular. Enterprises may be unwilling to adopt our Energy Server solution over traditional or competing power sources such as distributed solar or electricity from the grid. This could be due to the perception that our technology or our company is unproven, lack of confidence in our business model, unavailability of third-party service providers to operate and maintain the Energy Servers, lack of awareness of our product, or their perception of regulatory or political challenges, including challenges pertaining to technologies that use natural gas fuels or have carbon emissions.
The viability and demand for our Energy Servers in the distributed generation market may be impacted by many factors outside of our control, including:
•market acceptance of our products (including, for example, anti-natural gas sentiment or misalignment with renewable and zero carbon procurement goals);
•cost competitiveness, reliability, and performance of our products compared to traditional or competing power sources;
•availability and amount of government subsidies and incentives;
•the emergence, continuance, or success of, or increased government support for, other alternative energy generation technologies and products;
•prices of traditional or competing power sources;
•geopolitical and macroeconomic instability, including wars, terrorism, political unrest, actual or threatened public health emergencies and outbreak of disease, inflation, the recessionary environment, boycotts, adoption or expansion of government trade restrictions, and other business restrictions which may negatively impact the demand for our products, or which may cause our customers to push out, cancel, or refrain from placing orders; and
•an increase in interest rates or tightening of the supply of capital in the global financial markets (including a reduction in total tax equity availability) which could make it difficult to finance our products.
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. To make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our products and technology. The period between initial discussions with a potential customer and the eventual sale usually depends on a number of factors, including the potential customer’s budget, selection of financing type, and term of the contract. In addition, we have started to focus on larger projects, which tend to have longer sales cycles. Prospective customers often undertake a significant evaluation process that may further extend the sales cycle, and which evaluation may be negatively impacted by general market and economic conditions such as inflation, rising interest rates, availability of capital, a recessionary environment, geopolitical instability, energy availability and costs, and the availability and effects of government initiatives. Once a customer decides to purchase our product, it takes a significant amount of time for us to fulfill the sales order. Generally, it takes between nine to twelve months or more from the entry into a sales contract until the installation of our products. The lengthy sales and installation cycles are subject to a number of significant risks, some of which are outside of our control. Due to the long sales and installation cycles, we may expend significant resources without being certain of generating a sale.
The transfer of control of our product to our customer based on its delivery and installation has a significant impact on the timing of the recognition of our product and installation revenue. Many factors can cause a lag between the time that a customer signs a contract and our recognition of product revenue. These factors include the number of the Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, customer facility construction 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, such as, for sales contracts, delays in their financing arrangements. 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.
Our products have significant upfront costs, and we need to attract investors to help customers finance purchases.
Our products have significant upfront costs, which may be a barrier for some customers who may not have the financial capability to purchase our products directly. To address this, we have developed various financing options that allow customers to use our products on a pay-as-you-go basis or through third-party financing arrangements. These options enable our customers to access our products without making a direct purchase. For more information on the different financing arrangements available, 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 or our customers are not able to secure funding, our financial condition and results of operations would be harmed. To attract new customers, we continually innovate our customer contracts which 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 expand our product offerings. Additionally, our ability to deploy our backlog is directly tied to our ability to secure financing, which is often an unpredictable process. Attracting third-party financing is a complex process that is influenced by factors beyond our control, including the fluctuations of interest and currency exchange rates, the availability of tax credits and government incentives for investors, our perceived creditworthiness and the prevailing condition of credit markets. We finance our customers’ purchases of our products based on certain conditions, such as their credit quality and the expected minimum internal rate of return on the customer engagement. If these conditions are not met, we may not be able to finance their purchases of our products, which would have a negative impact on our revenue in a particular period. If we are unable to help customers arrange financing for our products, our business could 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 products’ performance or our performance of our obligations under the customer agreement. If we are unable to arrange future financing for any of our current projects, it could negatively impact our business.
In the U.S., our capacity to offer our Energy Servers through financed arrangements depends in large part on the ability of financing parties to optimize the tax benefits associated with the Energy Servers, such as the ITC or accelerated depreciation. Interest rate fluctuations, and internationally, currency exchange rate fluctuations, may also impact the attractiveness of any financing offerings for our customers. Our ability to finance a PPA or a lease is also related to, and may be limited by, the creditworthiness of the customer.
In our sales process for transactions that require financing, we make certain assumptions regarding the cost of financing capital. Actual financing costs may differ from our estimates and financing may be more difficult or costly to secure, or may not be available, due to factors beyond our control, such as changes in customer creditworthiness, macroeconomic factors, like inflation, interest rates, a recessionary environment, geopolitical instability, and capital market volatility. The returns offered by other investment opportunities available to our financing partners and other factors may further affect financing availability. If the cost of financing ultimately exceeds our estimates, or we or our customers are unable to secure financing, we may not be able 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 both the price of gas available from the local gas utilities and 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 interconnection, “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, in those areas where the current cost of grid electricity is low, including in some states in the U.S. and some foreign countries, our Energy Servers may not be economically attractive.
Furthermore, actual or perceived potential increases in the price of natural gas or other fuels or curtailment of availability (e.g., as a consequence of physical limitations or adverse regulatory conditions for the delivery or production of natural gas or other fuels) or the inability to obtain natural gas or other fuel service could make our Energy Servers less economically attractive to potential customers and reduce demand. While our Energy Servers can operate using hydrogen or biofuels, the availability and current high cost of those natural gas alternatives in a particular location may make them less attractive to potential customers, reducing the demand for our products.
If we are not able to reduce our costs or meet service performance expectations with respect to our products, our profitability may be impaired.
We need to reduce the manufacturing costs for our products to expand our markets. Additionally, certain of our existing service contracts rely on projections regarding service cost reductions that may not be realized. Increases in component and raw material costs could offset our cost-cutting efforts, slowing our growth and causing our financial results and operational metrics to suffer. 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.
Our expenses have increased and may increase in the future due to factors such as increases in wages or other labor costs, marketing and sales. We need to reduce costs to expand into new markets (in which the price of electricity from the grid is lower) while maintaining our current margins. Any failure to achieve cost reductions could adversely affect our results of operations and financial condition and harm our business and prospects. Our inability to reduce product costs may impact our profitability, which could have a material adverse effect on our business and prospects.
Deployment of our Energy Servers relies on interconnection requirements, export tariff arrangements and utility tariff requirements that are each 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 is generally exported to the local electric utility. Export of customer-generated power from our Energy Servers is generally provided for in the markets in which we offer our fuel cells pursuant to applicable laws, regulations and tariffs, but not under all circumstances, and may be restricted or made costlier due to interconnection, relevant tariff or other issues. 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 could adversely affect the demand for our Energy Servers. For example, in California, the fuel cell net metering tariff expressly addressing fuel cells and providing certain incentives and export capability (referred to as the “Fuel Cell Net Energy Metering” (“FC NEM”)) expired at the end of 2023 and is no longer available to new customers. Existing customers can remain on the tariff if they comply with adopted greenhouse gas emission standards, which in some cases may result in increased cost. There are also some more generally applicable tariffs available for customers deploying new fuel cells, however, they have limitations and the loss of FC NEM may impact our ability to sell our Energy Servers for use in California. We cannot predict the outcome of the many regulatory proceedings addressing tariffs that would include customers utilizing fuel cells. If an economical tariff for customers utilizing fuel cells is not available in a given jurisdiction, it may limit or end our ability to sell and install our Energy Servers in that jurisdiction. Further, permits 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.
Deployment of our Energy Servers relies on fuel supply and fuel specification requirements, which are subject to change.
Our Energy Servers are designed to operate at a constant output 24x7. Therefore, they need a constant source of fuel such as natural gas, biogas, or hydrogen to keep them running. Fuel for our Energy Servers is typically provided by local gas utilities. Our customers rely on such utilities to provide a constant supply of fuel that meets our specifications. However, if new regulations require a switch to a different fuel for which there may be limited availability, such as biogas, it can create challenges for our products and their sales. Adverse fuel supply constraints or fuel outside of our fuel specifications may delay or prevent the deployment of our Energy Servers.
We face significant competition.
We compete for customers, financing partners and incentive dollars from other electric power providers. Our Bloom Energy Servers compete with a broad range of companies and technologies, including traditional energy suppliers, such as public utilities, and other energy providers utilizing traditional co-generation systems, nuclear, hydro, coal or geothermal power, companies utilizing intermittent solar or wind power paired with storage, and other commercially available fuel cell companies. We also compete with traditional backup energy equipment such as diesel generators. Our Electrolyzers compete with low temperature electrolyzer companies using Alkaline, Proton, PEM or AEM electrolysis. See our discussion of competition in Item 1— Business — Energy Server Competition.
Many of our competitors, 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 with better technologies, products, or resources. 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, 2023, two customers accounted for approximately 37% and 26% of our total revenue. The loss of any large customer order or any delays in installations of new products with any large customer would materially and adversely affect our business results.
Our future growth will depend on expanding and diversifying our products and market opportunities, and if we are not successful, our operating results and future growth prospects could be adversely affected.
We plan to enhance our future growth opportunities by expanding the features of and uses for our Energy Servers, including providing options for carbon capture and heat output, by expanding our production and sales of our Electrolyzer, and by expanding the markets in which we sell our products. As a result, these opportunities will require our attention, which includes personnel, financial resources and management attention. If we do not appropriately allocate our resources to, or execute on, these opportunities, our business and results of operations could be adversely affected.
Our investments may not result in the growth we expect, or the timing of when we expect it, for a variety of reasons, including changes in growth trends, evolving and changing markets and increasing competition, market opportunities, technology and product innovation, and changes in policy support, taxation and subsidies, and regulation. We may introduce new technologies or products that do not work, are not delivered on a timely basis, are not developed according to product or cost specifications, are not well received by customers, or do not receive the policy, taxation and subsidies, or other regulatory support that was anticipated. Moreover, there may be fewer opportunities than we expect due to a decline in business or economic conditions or a decreased demand in these markets or for our new products from our expectations, our inability to successfully execute our sales and marketing plans, or for other reasons. In addition to our current growth opportunities, our growth may be reliant on our ability to identify and develop new opportunities. This process is inherently risky and may result in investments in time and resources for which we do not achieve any return or value. These risks are enhanced by attempting to introduce multiple breakthrough technologies and products simultaneously.
Our growth opportunities are subject to constant and rapidly changing and evolving technologies and evolving industry standards and may be replaced by new technology concepts or platforms. If we do not develop innovative and reliable product offerings and enhancements in a cost-effective and timely manner that are attractive to customers in these markets, if we are otherwise unsuccessful entering and competing in these new product categories, if the new product categories in which we invest our limited resources do not emerge as opportunities or do not produce the growth or profitability we expect, or when we expect it, or if we do not correctly anticipate changes and evolutions in technology and platforms, our business and results of operations could be adversely affected.
Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify and successfully engage with partners to assist in such development or expansion.
As we continue to develop new features and products and expand into new markets, including international markets, we may need to identify business partners and suppliers to facilitate such development and expansion. 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 or such partner’s inability to execute as negotiated. 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 or entry into new markets, limiting our ability to expand our business and harming our financial condition and results of operations.
Our products may not be successful if we are unable to maintain alignment with evolving industry standards and requirements.
As we invest in research and development to sustain or enhance our existing products, it is possible that the introduction of new technologies and the emergence of new industry standards or requirements could make our products less desirable or obsolete. Further, in developing our products, we make assumptions with respect to which standards, requirements, or policies will be demanded by our customers, standards-setting organizations and applicable law. If market acceptance of our products is reduced or delayed or the standards-setting organizations or legislative or regulatory authorities fail to develop timely, commercially-viable standards that support our products, our business would be harmed.
Risks Related to Our Products and Manufacturing
Our future success depends in part on our ability to increase production capacity for our products, and we may not be able to do so in a timely or cost-effective manner.
To the extent we are successful in growing our business, we may need to increase the production capacity of our products. Our ability to plan, construct and equip additional manufacturing facilities is subject to significant risks and uncertainties, including delays, cost overruns, geopolitical instability, and labor shortages. Expanding manufacturing capacity internationally may also expose us to new laws and regulations and carries risks. There is also a possibility that we may not be able to achieve our production targets for a variety of reasons, including reliance on third parties who do not fulfill their obligations to us.
If we are unable to expand our manufacturing facilities or develop our existing facilities in a timely manner, 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 products or our production output 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 results of operations.
If our products contain manufacturing defects, our business and financial results could be harmed.
Our products are complex, and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects that were discovered once the Energy Server was 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 in our products. As we grow our manufacturing volume, the chance of manufacturing defects could increase. In addition, new feature launches, product introductions or design changes could introduce new design defects that may impact product performance and life. Any design or manufacturing defects or other failures of our products, including catastrophic product failures, could cause us to incur significant costs, a large field recall, divert the attention of our engineering personnel from product development efforts, and significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
If any of our products are defective or fail because of their design, or if changes in applicable laws or regulations, or in the enforcement thereof, require us to redesign or recall our products, we also may incur additional costs and expenses. The process of identifying and recalling a product may be lengthy and require significant resources, and we may incur significant replacement costs, contract damage claims from our customers, product liability, property damage, personal injury or other claims and liabilities, and brand and reputational harm. Significant costs or payments made in connection with warranty and product liability claims and product recalls could harm our financial condition and results of operations.
Furthermore, we may be unable to correct manufacturing defects or other failures of our products in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance, and our business reputation.
The performance of our products 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 fuel supply and environmental factors can impact the performance of our products in unpredictable ways. As we move into new geographies and deploy new features, products and service configurations, we encounter new field conditions from time to time (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 products are inaccurate or we do not meet our performance warranties and guaranties, our business and financial results could be harmed.
We offer customers the opportunity to renew their O&M Agreements on an annual basis, for up to 20 years, at predetermined prices. We also provide performance warranties and guaranties covering the efficiency and output performance of our products. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the useful life of our products and those components that are replaced as a part of standard maintenance, including assumptions regarding improvements in power module life that may fail to materialize. We do not have a long history at a large scale, and our estimates may prove to be incorrect. Failure to meet these warranty and performance requirements may require us to replace the products or to make cash payments to customers. Actual warranty expenses may exceed estimates. If our estimates are inaccurate or we fail to accrue adequate reserves to make cash payments as required, our business and financial results could be harmed.
Our business is subject to risks associated with construction, utility interconnection, fuel supply, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
Our financial results depend on the timely installation of our products, which may be on a fixed price basis, subjecting us to the risk of cost overruns or other unforeseen expenses in the installation process. Our products are subject to regulation and oversight in compliance with laws and ordinances relating to building codes, safety, environmental protection, and related matters in the jurisdictions where we operate, and typically require various local and other governmental approvals and permits, including environmental approvals and permits. Delays in obtaining these approvals and permits could stall the installation process of our products and adversely affect our revenue. For more information regarding these restrictions, please see the risk factors in the section titled “Risks Related to Legal Matters and Regulations.”
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 the installation of natural gas service to new construction. For more information regarding these restrictions, please see the risk factor titled “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.” 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 could have a material adverse effect on our results and could cause operating results to vary materially from period to period.
As our business grows and we increase the number of distributors to sell our products, delays in project development, interconnection and permitting may affect our distributors’ ability to sell their inventories of our products and they may decide
to decrease future orders of our products or we may choose to support deployment of their inventory with our end customers, either of which could adversely affect revenue and cash flows.
Furthermore, we rely on the ability of our third-party contractors to install products at our customers’ sites and to meet our installation requirements. We currently work with a limited number of contractors, which has impacted and may continue to impact our ability to make installations as planned. Our work with contractors may have the effect of our being required to comply with additional rules unique to our customers, site remediation, and other 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 contractors in the past have not always met our expectations or standards and may not meet our expectations and standards in the future.
Lengthy sales and installation cycles can increase the risk of customer disputes or delayed or incomplete installations. For example, see Part II, Item 7, Certain Factors Affecting Our Performance, Energy Market Conditions. Sometimes, a customer may cancel an order prior to installation, meaning we may be unable to recover some, or all of our costs incurred in connection with design, permitting, installation and site preparations. Cancellation rates can be as high as 5% to 10% in any given period due to factors outside of our control, such as permitting or regulatory issues, delays or unexpected costs in securing interconnection approvals, utility infrastructure, cost changes, 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 customer disputes, delays or cancellations, our reputation, business, financial condition, results of operations or cash flows could be materially and adversely affected. Additionally, under our revenue recognition policy, we do not recognize revenue on product sales until delivery or complete installation. Therefore, a small fluctuation in the timing of the sales transaction’s completion could cause our operating results to vary materially from period to period.
The failure of our suppliers to continue to deliver necessary raw materials or other components of our products 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 brand and 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 used to manufacture our products, including certain rare earth materials and other materials that are in limited supply. If our suppliers provide insufficient inventory to meet customer demand, or such inventory is not at the level of quality required to meet our standards, 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 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 products, or our products may be available only at a higher cost or after a long delay.
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 macroeconomic environment and geopolitical instability have also contributed to and exacerbated this strain. There can be no assurance that the impact of these issues on the supply chain will not continue, or worsen, in the future. Significant delays and shortages could prevent us from delivering our products to customers within required time frames and cause order cancellations, and could increase our costs, which would adversely impact our cash flows and the 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 to expand and bolster 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, which are 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 to meet our requirements, 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 requirements could impair our ability to manufacture our products, increase the costs of our products, or increase the costs of servicing our existing portfolio of products. If we cannot obtain substitute materials or components on a timely basis or
on acceptable terms, we could be prevented from delivering our products to our customers or service our existing fleet of products, which could result in sales and installation delays, cancellations, penalty payments, warranty breaches, or damage to our brand and 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 brand and reputation.
We have, in some instances, entered into long-term supply agreements that could result in excess or, if one or more suppliers do not produce for any reason, insufficient inventory, above market pricing or higher costs, and negatively affect our results of operations.
We have 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 do not need or that is 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 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 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 products 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 products. 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 could have a material adverse effect on our business, results of operations and financial condition.
A failure to properly comply with foreign trade zone laws and regulations could increase the cost of our duties and tariffs.
We have established foreign trade zones in California and Delaware, through qualification with U.S. Customs and Border Protection, which allow for “zone to zone” transfers between our facilities located in those states. 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 to the operations at our headquarters or manufacturing facilities could delay the production of our products, which would harm our business and results of operations.
We manufacture our products in a limited number of facilities, any of which could become unavailable either temporarily or permanently for any number of reasons, including equipment failure, material supply, public health emergencies, cyber-attacks or catastrophic weather, including extreme weather events or flooding resulting from the effects of climate change, or geologic events. Our headquarters and our Fremont manufacturing facility 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, financial condition and results of operations. Our disaster recovery plans, and insurance may not be sufficient to restore our operations and to cover our losses, respectively.
Our limited history of manufacturing new products, such as our Electrolyzers, makes it difficult to evaluate our future prospects and the challenges we may encounter.
While we have a history of manufacturing and selling our Energy Servers, we have a limited history with regard to our Electrolyzers, which are based in part on the same technology. As a result, there is little historical basis to make judgments on the capabilities associated with our enterprise, management, and ability to produce Electrolyzers. Our ability to generate the profits we expect to achieve from the sale of Electrolyzers will depend, in part, on our ability to effectively manufacture Electrolyzers, respond to market demand, and add new manufacturing capacity in an efficient, cost-effective manner.
Risks Related to Government Incentive Programs
Our business currently benefits from the availability of rebates, tax credits and other financial programs and incentives, and changes to such benefits could cause our revenue to decline and harm our financial results.
We utilize governmental rebates, tax credits, and other financial incentives to lower the effective price of our products to customers in the U.S. and Japan, India, the Republic of Korea and Taiwan (collectively, our “Asia Pacific region”).
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. Our Energy Servers have qualified for tax exemptions, incentives, or other customer incentives in many states. Some states have utility procurement programs, Renewables Portfolio Standards (“RPSs”) or Clean Energy Standards (“CESs”) for which our technologies are eligible; our Energy Servers may not be eligible for other RPSs and CESs, particularly when fueled in whole or in part with natural gas. Financiers and Equity Investors (as defined below) may also take advantage of these financial incentives, lowering the cost of capital and energy to our customers.
For example, many of our installations in California interconnect with investor-owned utilities on Fuel Cell Net Energy Metering (“FC NEM”) tariffs. FC NEM tariffs were available for new California installations until December 31, 2023. To remain eligible for those FC NEM tariffs, installations currently on those tariffs are required to meet greenhouse gas emissions standards. Bloom has filed an Application for Rehearing and a Stay in the FC NEM proceeding that challenges the legality of implementing said greenhouse gas emissions standards, which require our systems to be significantly cleaner than the grid resources they are displacing. If that challenge is unsuccessful, however, compliance with the greenhouse gas emissions standards may be required for any customer that remains on the FC NEM tariffs in 2024 and could require acquiring in-state biogas that is scarce and where available comes at a significant cost. Other generally applicable tariffs are available for customers deploying fuel cells, and do not impose the greenhouse gas standards currently limited to FC NEM. We are working through the appropriate channels to determine whether to migrate certain customers to these generally applicable tariffs. We are also working through appropriate regulatory channels to establish alternative tariffs for our customers. If the cost to remain on theFC NEM tariffs is significantor suitable alternatives are not available, it may negatively impact our existing customer base and futuredemand 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.
The U.S. federal government offers certain federal tax benefits, including the Production Tax Credit under Section 45 of the Internal Revenue Code (the “PTC”) and the Investment Tax Credit under Section 48 of the Internal Revenue Code (the “ITC”), both of which are currently set to be succeeded by “technology-neutral” versions set forth in Sections 45Y and 48E, respectively, for projects that commence construction beginning in 2025. The IRA offers a number of federal tax benefits, many of which we may utilize in connection with the sale of our Energy Servers and Electrolyzers. Our customers, financiers, and Equity Investors may expect us to be able to facilitate their optimization of the tax benefits available pursuant to the IRA. Each of these federal tax benefits have certain legal and operational requirements. For example, any taxpayer taking the benefit of the ITC must meet certain requirements regarding ownership and use for a period of five years. If the energy property is disposed of or otherwise ceases to be qualified investment credit property before expiration of such a five-year period, it could result in a partial reduction in incentives. There may be uncertainty as to how the new regulations promulgated under the IRA are interpreted. If IRS guidance regarding implementation of the IRA is delayed or viewed by investors as unclear, tax credit financing may be delayed or downsized, harming our ability to finance sales. Our failure to either (i) interpret the new requirements under the IRA regarding among other things, prevailing wage, apprenticeship, domestic content, siting in an “energy community,” accurately or (ii) adequately update our supply-chain, manufacturing, installation, and record-keeping processes to meet such requirements, may result a partial or full reduction in the related federal tax benefit and our customers, financiers and Equity Investors may require us to indemnify them for certain of such reductions. Changes in federal tax benefits over time also may affect our future performance. For example, currently commercial purchasers of fuel cells are eligible to claim the federal bonus depreciation benefit. However, under current rules it will be phased down, which began in 2023 and will continue until expiring at the end of 2026 in the absence of legislation. Similarly, commercial fuel cell purchasers can claim the ITC. Under current law, fuel cell projects must begin construction on or before December 31, 2024, in order to claim up to 50% ITC, after which part of this benefit will expire unless extended.
Some countries outside the U.S. also provide incentives to current and future end users and purchasers of our Energy Servers and Electrolyzers. For example, in the Republic of Korea, RPSs and CESs are in place to promote the adoption of renewable, low- or zero-carbon power generation. The Korean RPSs were replaced in 2023 with the Clean Hydrogen Portfolio Standard (“CHPS”). This may impact the demand for our Energy Servers in the Republic of Korea. Initially, we do not expect the CHPS to require 100% hydrogen as a feedstock for fuel cell projects.
Changes in the availability of rebates, tax credits, and other financial programs and incentives could reduce demand for our products, impair sales financing, and adversely impact our business results. Additionally, 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. The continuation of these programs and incentives depends upon continued political support.
In the U.S., we rely on tax equity financing arrangements to realize the benefits provided by federal tax benefits and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed. We also rely on incentives in the Korean, European and other international markets.
U.S. Equity Investors typically derive a significant portion of their economic returns through tax benefits when they finance an Energy Server. 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. We expect that future Equity Investors will also be interested in taking the benefit of the PTC in connection with financing our Electrolyzers. 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 at a large scale, 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 depends on the continued confidence of banks and other financing sources in our business model, the market for our Energy Servers and Electrolyzers, and the continued availability of tax benefits applicable to our Energy Servers and Electrolyzers, regardless of whether we arrange the financing, or our customers finance the products themselves. In addition, conditions in the general economy and financial and credit markets may result in the contraction of available tax equity financing. Similarly, in international markets such as Korea and Europe, economic benefits applicable to fuel cells may include subsidies for deployment as well as exemptions or reductions from taxes and fees. If as a result of changes to these benefits we, or in some cases our customers, are unable to enter into tax equity or other financing agreements with attractive pricing terms, or at all, neither we nor our customers, may be able to obtain the capital needed to finance the purchase of our products. Such circumstances could also require us to reduce the price at which we are able to sell our products in the applicable markets and therefore harm our business, financial condition, and results of operations.
Risks Related to Legal Matters and Regulations
We are subject to laws and regulations that could impose substantial costs upon us and cause delays in the delivery and installation of our products.
The construction, installation, and operation of our products are generally subject to oversight and regulation in accordance with laws and ordinances relating to building codes, safety, environmental and climate protection, domestic content requirements and related matters, as well as energy market rules, regulations and tariffs, and typically require governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits change or require periodic renewal. These laws and regulations can affect the markets for our products and the costs and time required for their installation and may give rise to liability for administrative oversight costs, compliance costs, clean-up costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with these 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 products 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 or excessive costs, such as costs for upgrading utility interconnection equipment, would impair our ability to develop the project. In addition, we cannot predict whether the approval or permitting process will be lengthened due to complexities and appeals. A delay in the review and approval of permits 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 products 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 many cases we contractually commit to performing all necessary installation work on a fixed-price basis, and unanticipated costs associated with approval, permitting or compliance expenses may cause the cost of performing such work to exceed our revenue. In addition, emerging federal and state emissions disclosure requirements may pose a burden to existing or potential customers. 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 operating results.
In addition, the rules and regulations regarding the production, transportation, storage, and use of hydrogen, including with respect to safety, environmental and market regulations and policies, are in flux and may limit the market for our Electrolyzers and Energy Servers that operate using hydrogen.
The installation and operation of our products are subject to environmental laws and regulations in various jurisdictions, and there has been in the past and could continue to be uncertainty with respect to both how these laws and regulations may change over time and the interpretation of these environmental laws and regulations to our products.
We are committed to compliance with applicable environmental laws and regulations including health and safety standards, and we continuously review the operation of our products for health, safety, and environmental compliance. Our products produce small amounts of hazardous wastes and air pollutants, and we seek to address these in accordance with applicable regulatory standards. In addition, environmental laws and regulations in the U.S., such as the Comprehensive Environmental Response and Compensation and Liability Act, impose liability on several grounds including for the investigation and clean-up of contaminated soil and ground water, impacts to human health and damages to natural resources. If contamination is discovered at properties currently or formerly 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 products have high sustainability standards, and any environmental non-compliance by us could harm our brand and reputation and impact customers’ buying decisions.
Maintaining environmental compliance can be challenging given the changing patchwork of environmental laws and regulations that prevail at the U.S. federal, state, regional, and local level and internationally. 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). Guidance from these agencies on how certain environmental laws and regulations may or may not be applied to our technology can be inconsistent.
In most jurisdictions where air permits and various land use permits are required for installation of larger Energy Server installations, the length of time to obtain these permits has increased. Moreover, the level of certainty around the issuance of such permits has decreased and where issued, the cost of compliance has been and can be prohibitive. We have experienced a
reluctance in certain areas to issue permits for natural gas Energy Servers and, even when that reluctance is overcome, we have seen conditions imposed, including a requirement to blend costly renewable fuels or other similar measures that might advance climate goals. The timing associated with these processes and the cost associated with related conditions have impacted our selling activities.
Our technology is moving faster than the regulatory process in many instances and 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 our 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 equipment, any of which could adversely affect our business, financial performance, and brand and 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.
As we expand into international markets, we may be subject to local content requirements or pressures which could increase costs or reduce demand for our products.
Foreign jurisdictions where we conduct or wish to conduct our business may impose domestic content requirements (requiring goods, materials, components, services or labor to be supplied from or made in country). Domestic or local content requirements favor domestic industry over foreign competitors and there has been a significant increase in the use of these programs in recent years. For example, in the Republic of Korea, customers and prospective customers may be pressured to select domestic competitors over Bloom.
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.
The current generation of our Energy Servers that run on natural gas generally produce fewer carbon emissions than the average U.S. marginal power generation sources that our projects displace. However, the operation of our current Energy Servers does produce some carbon dioxide (“CO2”), which contributes 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, as well as potential scrutiny around voluntary or regulatory carbon emissions reporting by our existing or potential customers. Changes in any of the laws, regulations, ordinances, or rules that apply to our installations and new technology could make it more difficult or costly to install and operate our Energy Servers, thereby negatively affecting our ability to deliver cost savings to our customers. Certain municipalities in which we operate have 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 may create technical, regulatory, and economic barriers, which could significantly reduce demand for our products or affect the financial performance of current sites.
The markets for our products are heavily influenced by laws, regulations and policies, including customers’ voluntary procurement standards, as well as by tariffs, internal policies and practices of electric utility providers. These regulations, tariffs, standards, and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. These regulations, tariffs, standards, and policies are often modified and could continue to change, which could result in a significant reduction in demand for our products. For example, utility companies commonly charge fees to industrial customers for disconnecting from the electric grid. These fees could change, thereby increasing the cost to our customers of using our products and making them less economically attractive.
At the federal level in the U.S., 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 the tax equity partnerships we are involved with 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, statutes, regulations, tariffs and market 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 U.S., governments and market operators frequently modify these statutes, regulations, tariffs and market rules. Governments, often acting through state utility or public service commissions, as well as market operators, change, adopt or approve different utility requirements 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 products and could negatively affect our ability to deliver cost savings to 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 become subject to product liability claims. Our Energy Servers are considered high energy systems because they consume or produce flammable fuels and may operate up to 480 volts. High-voltage electricity poses potential shock hazards, while natural gas and hydrogen, associated with both our Energy Servers and our Electrolyzers, are flammable gases and therefore a potentially dangerous fuel capable of causing fires and other harm. There can be no assurance that our products will continue to be certified to meet certain design and safety standards, and if our equipment is not properly handled or if there are undiscovered issues with our equipment, there could be a system failure and resulting damage, injury or 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 us and could materially impede widespread market acceptance and demand for our products, which could harm our brand, business prospects, and operating results. Our product liability insurance may not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of or outside of our coverage may have a material adverse effect on our business and financial condition.
Litigation or administrative proceedings could have a material adverse effect on our business, financial condition and 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. For information regarding pending legal proceedings, please see Part I, Item 3, Legal Proceedings and Part II, Item 8, Financial Statements and Supplementary Data, Note 13 — Commitments and Contingencies. In addition, since our Energy Server and Electrolyzers are new types of products in nascent markets, we have in the past needed and may in the future need to seek administrative guidance, the amendment of existing regulations, or the development of new regulations, to operate our business in some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could lead 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, financial condition, and results of operations. In addition, settlement of claims could adversely affect our financial condition and results of operations.
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.
Policing unauthorized use of proprietary technology can be difficult and expensive, and the measures we have taken to protect our intellectual property rights, including 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 leaving employment with us and working for a competitor. Also, litigation may be necessary to enforce our intellectual property rights, including 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, business, prospects, brand, and reputation.
We rely primarily on patents, trade secrets, and trademarks, 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 intellectual property 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 discovered by or disclosed in an unauthorized manner to third parties. Additionally, our owned or licensed intellectual property rights could be challenged, invalidated, or declared unenforceable in judicial or administrative proceedings, or circumvented, designed around by our competitors, infringed, or misappropriated. Competitors could copy or reverse engineer our products or develop and market products that are substantially equivalent to or superior to our own. Any of these issues, including the unauthorized use of our intellectual property by others, could reduce our competitive advantage and have a material adverse effect on our business, financial condition, or operating results. In addition, the laws of some countries do not protect intellectual property rights as fully as do the laws of the U.S. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. We may not be able to effectively protect our intellectual property rights in these markets or elsewhere. If an impermissible use of our intellectual property or trade secrets were to occur, our ability to sell our products at competitive prices may be adversely affected and our business, financial condition, operating results, and cash flows could be adversely affected.
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 be successfully challenged in litigation or post-grant proceedings, 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 subject to disagreement. 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 U.S., 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 the U.S.
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, prospects, and 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 believe are infringed by our products or services. These companies holding patents or other intellectual property rights could make claims or bring suits alleging infringement, misappropriation, or other violations of such rights, or otherwise assert their rights by seeking royalties or injunctions. Several of the proprietary components used in our products have been subjected to infringement challenges in the past. We generally indemnify our customers against claims that the products we supply do not 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;
•redesign our products or means of production, which may not be possible or cost-effective; or
•in some instances, re-purchase products from our customers.
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 brand and 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 right to indemnification or our suppliers’ resources may be unavailable or insufficient to cover our costs and losses.
Risks Related to Our Financial Condition and Operating Results
We have incurred significant losses in the past and we may not be profitable in future periods.
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of December 31, 2023, we had an accumulated deficit of $3.9 billion. We expect to continue to expand our operations domestically and internationally, including by investing in manufacturing, sales and marketing, research and development, staffing, and infrastructure to support our growth. We may continue to incur net losses in future periods. Our ability to achieve profitability will depend on a number of factors, including our ability to:
•grow our sales volume;
•expand into new geographical markets and industry market sectors;
•attract and retain financing partners;
•continue to improve the useful life of our technology and reduce our warranty servicing costs;
•reduce the cost of producing our products;
•improve the efficiency and predictability of our installation process;
•introduce new products, including products for the hydrogen market;
•improve the effectiveness of our sales and marketing activities; and
•attract and retain key talent in a competitive labor 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, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our 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 products in that period and the type of financing used by the customer.
In addition to the other risks described herein, the following factors subject us to quarterly fluctuations in our financial condition and results of operations:
•the timing of installations, which may depend on many factors such as availability of inventory, product quality or performance issues, local permitting requirements, utility requirements, environmental, health, and safety requirements, weather, availability of labor, health emergencies, and customer facility construction schedules;
•size of particular installations and number of sites involved in any particular quarter;
•the mix in purchase or financing options used by customers, the geographical mix of customer sales, and the rates of return required by financing parties;
•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;
•delays or cancellations of product installations;
•fluctuations in our service costs, particularly due to unexpected costs and rising labor costs;
•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;
•the length of the sales and installation cycle for a particular customer;
•the timing and level of additional purchases by new and existing customers, which may be impacted by macroeconomic factors including inflation, interest rates, the recessionary environment, and availability of capital;
•the timing of the development of the market for our new features and products, including our Electrolyzer;
•unanticipated expenses or installation delays associated with changes in governmental regulations, permitting requirements, 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 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 common stock.
If we fail to manage our growth effectively, our business and operating results may suffer.
In order to grow effectively, we must efficiently operate our business, manage our capital expenditures and control our costs. If we experience a significant growth in orders without improvements in automation and efficiency, we may not be able to meet product demand in a timely manner. We may need additional manufacturing capacity and we and some of our suppliers may need additional capital-intensive equipment. Any growth in manufacturing must include scaling 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 products 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, prospects, operating results, and financial condition. Our future operating results depend to a large extent on our ability to manage this 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. The provisions 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 calculating revenue, deferred revenue and inventory costs. While we continue to automate our 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 successfully maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial 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 common stock.
Our ability to use deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.
Our ability to use net operating loss carryforwards (“NOLs”) to offset future taxable income may be limited due to expiration, lack of taxable income in the future, changes in our stock ownership, and other factors that may be outside of our control. Our deferred tax assets may also expire or be underutilized, which could prevent us from offsetting future taxable income.
Risks Related to Our Liquidity
We must maintain the confidence of our customers in our liquidity, including our ability to timely service our debt obligations and grow our business over the long term.
Currently, we are the only provider able to fully support and maintain our products. 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 or support our products, 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;
•profitability concerns;
•unfamiliarity with or uncertainty about our products and the overall perception of the distributed generation market;
•prices for electricity or natural gas;
•competition from alternate sources of energy;
•warranty or unanticipated service issues we may experience;
•the 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” section.
Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects would likely harm our business.
Our indebtedness, and restrictions imposed by the agreements governing our outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
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 or maintain our operations, develop our products, and 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 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;
•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.
Upon the occurrence of certain events to us, including a change in control, a significant asset sale or merger or similar transaction, our liquidation or dissolution or the cessation of our stock exchange listing, each of which may constitute a fundamental change under the outstanding notes, holders of certain of the notes have the right to cause us to repurchase for cash any or all of such outstanding notes. We cannot provide assurance that we would have sufficient liquidity to repurchase such notes. Furthermore, our financing and debt agreements 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. 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.
We may not be able to generate sufficient cash to meet our debt service obligations or our growth plans.
Our ability to generate sufficient cash to meet our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive, and business factors. If we do not generate sufficient cash to satisfy our debt obligations, 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 of these alternatives would be available or permitted under the terms of our 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. 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, results of operations and financial condition.
Risks Related to Our Operations
Expanding operations internationally could expose us to additional risks.
Although we currently operate primarily in the U.S., we continue to expand our business internationally. We currently have operations in the Asia Pacific region and Europe. Any expansion internationally could subject our business to risks associated with international operations, including:
•increased complexity and costs of managing international operations;
•conformity with applicable business customs, including translation into foreign languages and associated expenses;
•lack of availability of government incentives and subsidies;
•financing challenges for our customers;
•potential changes to our established business model, including installation and/or service challenges that we may have not encountered before;
•cost of alternative power sources, which could be meaningfully lower outside the U.S.;
•availability and cost of natural gas;
•variability in gas specifications from jurisdiction to jurisdiction;
•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 regulations, and customers, and the increased travel, infrastructure, and legal and compliance costs associated with international operations;
•our ability to develop and maintain relationships with suppliers and other local businesses;
•compliance with product safety requirements and standards;
•our ability to obtain business licenses that may be needed in international locations to support expanded operations;
•compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations;
•challenges in managing taxation in cross-border transactions;
•greater difficulties in securing or enforcing our intellectual property rights in certain jurisdictions;
•difficulties in enforcing contracts in certain jurisdictions;
•risk of nationalization or other expropriation of private enterprises;
•trade barriers such as export requirements, tariffs, taxes, local content requirements, anti-dumping regulations and requirements, and other restrictions and expenses, which could increase the effective price of our products and make us less competitive in some countries or increase the costs to perform under our existing contracts;
•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, regional conflicts, and public health emergencies; and
•adverse social, political and economic conditions, including inflation, a recessionary environment, and disruptions in capital markets.
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 war in Ukraine resulted in increased sanctions that affected the price of raw materials used in our products, which had and could continue to have an adverse impact on our operating results.
Our cross-border transactions and 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 our 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 acts 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 large 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 could adversely affect our operations and financial results.
Data security breaches and cyberattacks could compromise our intellectual property or other confidential information and cause significant damage to our business, product performance, brand, 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. Additionally, our information technology provides us with the ability to remotely control some variables of our products; they are connected to, controlled and monitored by our centralized remote monitoring service. 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 the 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, as well as the operation of our products.
There is no assurance that any measures we may take to combat known and unknown cybersecurity risks will be sufficient to prevent future security breaches and cyberattacks. The security of our infrastructure, including the network that connects our products 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 products 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 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 products and could result in disruption to our business and legal liability.
In addition, security breaches and cyberattacks could negatively impact our brand and 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 Founder, President, Chief Executive Officer and Director, and other certain key employees. None of our key employees are bound by employment agreements for any specific term and we cannot assure you that we will be able to successfully attract and retain the senior leadership necessary to grow our business. There is intense competition for talented individuals in our industry, particularly 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, finance and sales personnel, could adversely impact our business, our financial condition and our operating results.
Competition for manufacturing employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe part of our success depends on the efforts and talent of our manufacturing employees and our ability to attract, develop, motivate and retain such employees. Competition for manufacturing employees is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
Risks Related to Ownership of Our Common Stock
The stock price of our common stock has been and may continue to be volatile.
The market price of our 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 common stock may fluctuate significantly in response to numerous variables, 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 a recessionary environment, rising interest rates and inflationary pressures;
•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors;
•the issuance of negative reports from short sellers;
•recruitment or departure of key personnel;
•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;
•the failure or distress of competitors 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.
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.
We may issue additional shares of our common stock in connection with future conversions of the Green Notes, which may dilute our existing stockholders and potentially adversely affect the market price of our common stock.
In the event that some or all of the Green Notes are converted, and we elect to deliver shares of common stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our 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 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 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 us more difficult, limit stockholders’ rights, and limit the market price of our 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;
•authorize only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors to call a special meeting of stockholders;
•prohibit stockholder action by written consent;
•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 U.S. 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.
Increased scrutiny regarding ESG practices and disclosures could result in additional costs and adversely impact our business, brand and reputation.
Like many companies, we face increased scrutiny relating to our Environmental, Social and Governance (“ESG”) practices and disclosures. Investors are increasingly using ESG screening criteria in making investment decisions. Our disclosures on these matters or a failure to satisfy evolving stakeholder expectations for ESG practices and reporting may harm our brand and reputation and impact employee retention and our access to capital. In addition, our failure, or perceived failure, to pursue or fulfill our goals, targets, and objectives or to satisfy various reporting standards, could expose us to government enforcement actions and private litigation.
Our ability to achieve any ESG goal, target, or objective, is subject to numerous risks, many of which are outside of our control. Examples of such risks include the availability and cost of technologies and products, evolving regulatory requirements affecting ESG standards or disclosures, our ability to recruit, develop, and retain diverse talent in our labor markets, and our ability to develop and maintain reporting processes and controls that comply with evolving standards for identifying, measuring and reporting ESG metrics. As ESG stakeholder expectations, reporting standards, and disclosure requirements continue to develop, we may incur increasing costs related to ESG monitoring and reporting.
ITEM 1B — UNRESOLVED STAFF COMMENTS
None.
ITEM 1C — CYBERSECURITY
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program designed to assess, identify, and manage risks from potential unauthorized occurrences on or through our information technology systems that may result in adverse effects on the confidentiality, integrity, or availability of our information technology systems or any information residing therein. Our cybersecurity risk management program includes a cybersecurity incident response plan.
We design and assess our program based on the Center for Internet Security (“CIS”) 18 Framework. This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the CIS 18 Framework as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
•Periodic risk assessments are designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment.
•A security team principally responsible for managing our cybersecurity risk assessment processes, security controls, and response to cybersecurity incidents.
•The use of external service providers, where appropriate, to assess, test, or otherwise assist with aspects of our security controls.
•Our Internal Audit department which monitors certain IT systems controls that are integrated into our larger Sarbanes-Oxley control environment.
•Periodic cybersecurity awareness training for our employees and contractors with access to our information technology systems.
•A cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents, including incidents that could be indicators of attack against availability, integrity and confidentiality of information systems.
•A third-party risk management process for service providers, suppliers, and vendors that includes examining their security postures and assessing their data and system protection controls.
Our business has not been materially affected by cybersecurity incidents to date. For a discussion of how cybersecurity risks could materially affect us in the future, please see the risk factors set forth under the caption Part I, Item 1A, Risk Factors — Risks Related to our Operations.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit and Risk Committee (the “Audit Committee”) oversight of cybersecurity and other information technology risks. The Audit Committee oversees management’s implementation of our cybersecurity risk management program. The Board receives periodic reports from the Audit Committee on these and other activities. The Audit Committee receives periodic reports from management on our cybersecurity risks, including presentations from our Chief Information Officer, internal security staff, and external experts. This includes updates to the Audit Committee, as appropriate, regarding any significant cybersecurity incidents, or multiple incidents that could be significant in the aggregate. These updates may occur in between regularly scheduled Audit Committee meetings.
At the management level, the Enterprise and Risk Management Committee (the “ERM Committee”) discusses cybersecurity topics, including any potentially material cybersecurity incidents, as part of its oversight of the company’s significant risks. Our management team, including the Chief Information Officer, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, including:
•periodic briefings from internal security personnel;
•periodic reviews of risk management measures implemented to prevent, detect, mitigate, and remediate cybersecurity risks and incidents, including our incident response plan;
•threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and
•alerts and periodic reports produced by security tools deployed in our IT environment.
Our Chief Information Officer has more than 20 years of cybersecurity and information technology experience and she has served as the Chief Information Officer for multiple technology companies. Similarly, the members of the ERM Committee possess significant risk management experience obtained by their collective years of experience at Bloom and other companies of similar or greater complexity.
ITEM 2 — PROPERTIES
The table below presents details for our principal properties:
| | | | | | | | | | | | | | |
| Facility | Location | Approximate Square Footage | Held | Lease Term |
| | | | |
Corporate headquarters1 | San Jose, CA | 183,000 | Leased | 2031 |
Manufacturing, warehousing, research and development2 | Sunnyvale, CA | 110,000 | Leased | 2024 |
| Research and development | Mountain View, CA | 44,000 | Leased | 2024 |
| Manufacturing, research and development | Fremont, CA | 326,000 | Leased | * |
| Manufacturing and warehousing | Newark, DE | 377,000 | Leased | ** |
Manufacturing and warehousing3 | Newark, DE | 178,000 | Owned | n/a |
| | | | |
* Lease terms expire in December 2027, February 2036 and November 2037.
** Lease terms expire in February 2026, December 2026, April 2027, June 2028 and October 2028.
1 Our corporate headquarters is used for administration, research and development, and sales and marketing.
2 As of December 31, 2023, we were in the process of vacating the 50,000 sq. ft. manufacturing, warehousing and R&D facility which was closed per the Restructuring Plan (for additional information, please see Part II, Item 8, Note 12 — Restructuring).
3 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.
We lease additional office space as field offices in the U.S. and office and manufacturing space around the world including in China, India, the Republic of Korea, Taiwan, Japan, and the United Arab Emirates. To support our growth expectations, we invested in additional manufacturing capacity at a new facility in Fremont, California. In July 2022 we announced the grand opening of this multi-gigawatt manufacturing facility, representing a $200 million investment. It followed the expansion of the company’s global headquarters in San Jose in June 2021 as well as the opening of a new research and technical center and a global hydrogen development facility in Fremont. This facility provides additional capacity necessary for future growth.
ITEM 3 — LEGAL PROCEEDINGS
We are, and from time to time we may become, involved in legal proceedings or subject to claims arising in the ordinary course of our business. For a discussion of legal proceedings, see Part II, Item 8, Note 13 — Commitments and Contingencies. 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 STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock is listed on The New York Stock Exchange (“NYSE”) under the symbol “BE.” On February 12, 2024, there were 567 registered holders of record of our Class A common 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.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return since our initial public offering of our common stock relative to the cumulative total returns of the NYSE 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 our common stock and in each of the indexes on December 31, 2018 and its relative performance is tracked through December 31, 2023.
This graph shall not be 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 $) | 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 |
| Bloom Energy Corporation | $100.00 | $129.45 | $122.94 | $32.56 | $74.84 | $52.40 | $109.00 | $180.02 | $287.10 | $270.96 | $269.15 |
| NYSE Composite Index | $100.00 | $112.36 | $116.29 | $116.63 | $125.50 | $93.57 | $108.73 | $116.79 | $134.28 | $145.09 | $154.67 |
| NASDAQ Clean Edge Green Energy Total Return Index | $100.00 | $114.10 | $120.51 | $122.34 | $142.66 | $115.55 | $170.89 | $255.64 | $406.35 | $397.37 | $401.71 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in cumulative $) | September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | September 30, 2022 | December 31, 2022 | March 31, 2023 | June 30, 2023 | September 30, 2023 | December 31, 2023 |
| Bloom Energy Corporation | $187.51 | $219.65 | $241.88 | $165.26 | $200.20 | $191.48 | $199.59 | $163.73 | $132.78 | $148.20 |
| NYSE Composite Index | $151.70 | $162.04 | $158.30 | $138.45 | $129.58 | $146.89 | $149.67 | $155.57 | $151.79 | $167.12 |
| NASDAQ Clean Edge Green Energy Total Return Index | $363.73 | $395.61 | $376.27 | $304.70 | $332.41 | $276.34 | $305.95 | $301.25 | $251.14 | $248.97 |
Unregistered Sales of Equity Securities
None.
Issuer’s Purchases of Equity Securities
None.
ITEM 6 — [RESERVED]
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Description of Bloom Energy
Our mission is to make clean, reliable energy affordable for everyone in the world. We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform that empowers businesses, essential services, critical infrastructure and communities to responsibly take charge of their energy.
Our technology, invented in the U.S., 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 typically 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 with our Bloom Electrolyzer. Hydrogen is increasingly recognized as a critically important tool for the 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 U.S. and the Republic of Korea, with a growing presence in various international markets.
At Bloom Energy, we look forward to a net-zero future. Our technology is designed to help enable this future by delivering reliable, low-carbon electricity in a 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 towards renewable fuel production through our biogas, hydrogen and electrolyzer programs, and we believe that we are well-positioned as a core platform and fixture in the new energy paradigm to help organizations and communities achieve their net-zero objectives.
We market and sell our Energy Servers primarily through our direct sales organization in the U.S., and we also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a significant 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, and who may prefer to finance the acquisition using third-party financing or 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 also expanded our product and financing options to below-investment-grade customers and have also expanded internationally, including 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. Once the sale is completed, we have a large multi-disciplined team to facilitate the deployment of our projects in a wide variety of locations under a myriad of regulatory environments.
Strategic Investment
On October 23, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with SK ecoplant in connection with our strategic partnership. Pursuant to the SPA, on December 29, 2021, we sold to SK ecoplant 10,000,000 shares of our zero coupon, non-voting redeemable convertible Series A preferred stock, par value $0.0001 per share (the “Series A RCPS”), at a purchase price of $25.50 per share for an aggregate purchase price of $255.0 million (the “Initial Investment”). On November 8, 2022, each share of Series A RCPS was converted into 10,000,000 shares of Class A common stock.
Simultaneous with the execution of the SPA, we and SK ecoplant executed an amendment to the Joint Venture Agreement (the “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.
On March 20, 2023, SK ecoplant entered into an amendment of the SPA (the “Amended SPA”) with us, pursuant to which on March 23, 2023, we issued and sold to SK ecoplant 13,491,701 shares of non-voting Series B redeemable convertible preferred stock, par value $0.0001 per share (the “Series B RCPS”), at a purchase price of $23.05 per share for cash proceeds of $311.0 million, excluding issuance cost of $0.5 million.
On March 20, 2023, in connection with the Amended SPA, we also entered into a Shareholders’ Loan Agreement with SK ecoplant (the “Loan Agreement”), pursuant to which we had the option to draw on a loan from SK ecoplant with a
maximum principal amount of $311.0 million, a maturity of five years and an interest rate of 4.6%, should SK ecoplant have sent a redemption notice to us under the Amended SPA.
On September 15, 2023, we entered into the Amended and Restated JVA and the Share Purchase Agreement (together, the “Amended JV Agreements”) with SK ecoplant which changed the share of our voting rights in the Korean joint venture to 40% and increased the scope of assembly done by the joint venture facility in the Republic of Korea to full assembly.
On September 23, 2023, all 13,491,701 shares of the Series B RCPS were automatically converted into shares of our Class A common stock pursuant to the Certificate of Designation, dated as of March 20, 2023, setting forth the rights, preferences, privileges, and restrictions of the Series B RCPS, as amended by the Certificate of Amendment to the Certificate of Designation, dated as of April 18, 2023. Upon conversion of all the Series B RCPS into shares of our Class A common stock, SK ecoplant became a related party to us with the beneficial ownership of 10.5% of our outstanding Class A common stock.
For additional details about the transaction with SK ecoplant, please see Part II, Item 8, Note 17 — SK ecoplant Strategic Investment, and for more information about our joint venture with SK ecoplant, please see Part II, Item 8, Note 11 — Related Party Transactions.
Certain Factors Affecting our Performance
Energy Market Conditions
The global energy transition to a zero-carbon environment has created new challenges and opportunities for utilities, suppliers of energy solutions and customers. Shifts and uncertainty in market and regulatory dynamics and corporate and governmental policies are currently impacting the selling process and extending sales cycles and timelines for our natural gas-, biogas- and hydrogen-related products. Increasing electricity rates, decreasing energy reliability, and delays in the development of transmission infrastructure and grid interconnection have led to increased customer interest in our power solutions. At the same time, natural gas supply and pricing concerns due to geopolitical stresses and resulting market changes as well as increasing focus on sustainability targets have led to increased caution from potential customers. The increased use of renewable power generation and the weather effects of climate change have exacerbated aging grid fragilities, increased the occurrence of power outages, created grid transmission shortages, and lengthened already extensively delayed interconnection cycles. Low- and zero-carbon sources of baseload energy have also been curtailed and even banned in some locations, forcing utilities, states and countries to revisit less clean sources of baseload and intermediate power in an attempt to ensure energy reliability. This supply and demand mismatch globally has threatened energy security reliability, reduced the availability of energy, and increased the cost of energy.
Bloom’s power solutions enable customers to address these energy market challenges by offering fuel flexible solutions that are designed to provide cost predictable, resilient, and reliable energy in a timely fashion. As customers and utilities navigate the energy transition and evolving landscape, the ability of our power solutions to fit their economic, regulatory, and policy needs depends on a number of factors, including natural gas availability and pricing, electrical interconnection needs and availability, redundant back up power requirements, cost requirements, and sustainability profile. Even in those situations where the time to power from the utility is years away in light of the need to build out energy transmission infrastructure, these factors still may impact a customer’s buying decision. For example, although our power generation solutions can operate as microgrids, independent from the grid, if a customer desires back up power or a “grid parallel” solution in combination with the Bloom microgrid, required interconnection studies and lengthy interconnection queues remain, eroding the time to power value proposition. According to the Lawrence Berkeley National Lab, U.S. interconnection queue delays are growing, with a forty percent year over year increase in 2022. The typical project interconnection process for large scale projects grew to five years in 2022 compared to three years in 2015 and two years in 2008. In addition, many data center customers and other large power users have signed exclusivity arrangements with their utilities, and this often creates a more complicated dynamic for them to move to a behind the meter solution. To add to this, the rising cost of natural gas, increases in gas distribution rates, limited availability of natural gas supply, as well as disruptions to the world gas markets, has increased the cost of our power solutions for customers and, in certain cases where there is a lack of fuel supply, a complete inability to operate the systems. In the U.S., the lack or slow development of pipeline infrastructure is impacting the timing of customers being able to take advantage of our power solution opportunities. In certain jurisdictions in the U.S. and Europe, natural gas bans have been enacted that prevent the use of our power solutions unless alternative fuels are available. In addition, there is a growing hesitancy among potential customers to purchase our power solutions to run on natural gas. Increasingly, customers want a zero-carbon solution for power, and, although our power solutions are designed to run on biofuels or hydrogen (in addition to natural gas) and help our customers achieve their sustainability goals, these fuels continue to have very limited availability and, for most customers, are not yet economical. This impetus by customers to use zero-carbon solutions today, combined with the current lack of availability of zero-carbon fuels, is adversely impacting our power solution selling opportunities. In addition, many of our
potential data center and industrial customers are pursuing greenfield opportunities where the development cycle is long and laden with permitting requirements and the uncertainty of these factors is leading to a more difficult customer decision-making process and longer sales cycles. For example, in the fourth quarter of 2022, we entered into a PPA contract for the sale of electricity to a customer for three greenfield sites that were at various stages of development (the “Project”). The first site was expected to be operational with power by the third quarter of 2024. We sold 73 megawatts of the Energy Servers to a Distributor with the expectation that the Distributor would support installation on the Project and install the Energy Servers at the three Project sites. The Project is currently delayed, and we are in discussions with the end customer regarding if and how to move forward. If the Project continues to be delayed or is terminated we may work with the Distributor to deploy the Energy Servers at our future installation sites with a different customer or customers or the Distributor may decide to reduce future orders or cancel existing orders until the Energy Servers are deployed, and either action could materially and adversely affect our product revenue and the timing of the associated cash flows in 2024.
Corporate procurement policies are also undergoing change that creates uncertainty; while some customers are increasingly focused on decarbonizing their own direct energy supply, including aligning the timing of their zero-carbon power generation with their energy consumption, others are shifting to prioritize overall carbon emissions from the energy system, both of which are impacting our sales.
The regulatory environment for energy solutions continues to shift. In South Korea, the government recently moved to a new, government-run bidding process for fuel cell purchases, which has impacted and may continue to impact demand for our power solutions. In the U.S., the ITC for fuel cells running on a non-zero carbon fuel currently expires at the end of 2024. In Ireland, which is a large data center market, a directive from the Minister of the Department of the Environment, Climate and Communications to restrict grid connections to data centers and other large power users, along with a halt in high-pressure gas installations has delayed our selling activities in Ireland. Delays in adoption of Renewable Fuel Standard regulations in the U.S. for the use of biogas to generate electricity for electric vehicles, and minimal governmental focus on utilization of biogas outside of its direct use by methane-fueled vehicles, have created uncertainty in prospects for broader biogas availability for industrial uses, including our power solutions. In addition, in most jurisdictions, air permits and various land use permits are required for installation of our solutions over a certain amount of mega-watts, and generally the length of time to obtain these permits increased, while the level of certainty of issuance has decreased and if issued, the cost of compliance requirements can be cost prohibitive. We have experienced a reluctance in certain states to issue permits for gas generation equipment. Even if issued, states may require a blend of costly renewable fuels or other measures to advance climate goals. This has adversely impacted our selling activities.
Significant governmental interest, investment and stimulation of clean hydrogen in the U.S., Europe and in many other regions across the globe have not yet had significant impacts on demand for hydrogen. To date, while the number of proposed hydrogen production projects has grown rapidly, only a small fraction has reached the final investment decision (FID) stage, and an even smaller fraction have been deployed. In addition, the infrastructure needed to transport hydrogen, whether through pipelines or maritime or land-based tankers, is currently only sufficient for existing uses, and has not begun to be extended for anticipated future uses, with hydrogen blending and other approaches remaining at pilot stages. It remains unclear whether regulators in some jurisdictions will allow hydrogen to be introduced into gas distribution systems, which could effectively preclude or severely limit our ability to transport hydrogen from the point of production to the point of consumption.
All of these factors have lengthened the selling cycles for our electrolyzer product and power solutions, and we have experienced delays in our anticipated bookings. Our revenue, margins, and cash flow in any given year are largely dependent on bookings during the prior year. Historically, the majority of our bookings have occurred in the second half of the year, with a significant portion occurring in the fourth quarter. That trend did not continue to the same degree in 2023. If a substantial portion of our anticipated bookings continue to be delayed, our future revenue, margins and cash flow could be materially adversely impacted.
Supply Chain Constraints
We continue to see effects from global supply chain tightness due to the current inflationary environment, war in Ukraine, and trade tensions between the U.S. and China. We are not aware of, and do not expect any significant direct impact on our business or supply chain from the Israel-Gaza Strip armed conflict. While we have not experienced any significant component shortages to date, we are facing pressures from inflation. These dynamics could worsen as a result of continued geopolitical instability. In the event we are unable to mitigate the impacts of delays and/or price increases in raw materials and components, it could delay the manufacturing and installation, and increase the costs of, our products, which would adversely impact our cash flows and results of operations, including our revenues and gross margin. We expect these supply chain challenges to continue in the short term.
Customer Financing Constraints
Our ability to obtain financing for our Energy Servers depends partially on the creditworthiness of our customers, and deterioration of our customers’ credit ratings can impact the financing for their use of our Energy Servers. Regional banking and financial institution instability, such as the failure of Silicon Valley Bank in the first quarter of 2023, may make it more difficult for our customers to obtain financing. Rising interest rates have also increased the cost of financing for our customers. As interest rates rise, the financiers of our installations demand a higher rate of return, which puts pressure on our margins. We continue to work on obtaining the financing required for our 2024 installations, but if we are unable to secure such financing, our revenue, cash flow, and liquidity could be materially impacted. We expect that in the U.S., the IRA and the transferability of tax credits, should make the financing market more robust in 2024, thereby easing some of these customer financing constraints, but this cannot be assured.
Manufacturing and Labor Market Constraints
As recently as 2022, we experienced impacts from labor shortages and challenges in hiring for our manufacturing facilities. While these constraints abated in 2023 and we reduced headcount as part of the Restructuring Plan adopted in September 2023, we may still experience difficulties with hiring and retention, and may face additional labor shortages in the future. The Restructuring Plan included (i) an optimization of our workforce across multiple functions, (ii) a relocation of a portion of our R&O department of our manufacturing and warehousing facility in Newark, Delaware, to Mexico, and (iii) a closure of a manufacturing, warehousing, R&D facility in Sunnyvale, California. According to the Restructuring Plan, 74 full-time employees and 48 contractors separated from the Company in September 2023. An additional 71 full-time employees and 8 contractors separated from the Company in October 2023. Also, in October 2023 we communicated to 61 full-time manufacturing employees about their forthcoming separation from the Company. These employees were sent on paid leave and left the Company in January 2024. For additional information, please see Part II, Item 8, Note 12 — Restructuring. In addition, the current inflationary environment has led to rising wages and labor costs as well as increased competition for labor. In the event these constraints return, and we are unable to continue to mitigate the impacts of these challenges, it could delay the manufacturing and installation of our Energy Servers or Electrolyzers, and we may be unable to meet customer demand, which could adversely impact our cash flows and results of operations, including our revenues and gross margin.
Installations and Maintenance of Energy Servers
In 2023, our installation projects experienced some delays relating to, among other things, permitting, utility delays, and access to customer facilities. However, these delays did not significantly impact our revenue.
If we are delayed in or unable to perform maintenance, our previously installed Energy Servers would 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 incur higher costs in the future. During the year ended December 31, 2023, we experienced no significant delays in servicing our Energy Servers.
Environmental, Social and Governance (“ESG”)
We are committed to a goal of providing consistent returns to our stockholders while maintaining a strong sense of good corporate citizenship that places a high value on the environment, welfare of our employees, the communities in which we operate, the customers we serve, and the world as a whole. We believe that prioritizing, improving, and managing our ESG related risks, opportunities, and programs help us to better create long-term value for our investors.
In April 2023, we released our 2022 Sustainability Report, Advancing the Mission of Decarbonization (the “Sustainability Report”), using generally accepted ESG frameworks and standards, including alignment with Sustainability Accounting Standards Board standards and the Task Force on Climate-related Financial Disclosures recommendations. In addition, the Sustainability Report also utilized certain Global Reporting Initiative standards and was mapped against the United Nations Sustainable Development Goals. We plan to issue a sustainability report on an annual basis.
Our mission is to make clean, reliable energy affordable for everyone in the world. To that end, we strive to empower businesses and communities to responsibly take charge of their energy while addressing both the causes and consequences of climate change. We aim to serve our customers with products that are resilient, providing uninterrupted power with predictable pricing over the long-term, while addressing sustainability issues by developing an increasingly broad portfolio of solutions for decarbonization.
The Sustainability Report can be found on our website at https://www.bloomenergy.com/sustainibility. Website references throughout this document are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this report.
Inflation Reduction Act of 2022
On August 16, 2022, President Biden signed into law the IRA. It contains provisions which have a significant impact on the development and financing of clean energy projects in the U.S. The IRA includes the extension and expansion of the ITC and the Production Tax Credit (the “PTC”) and the addition of expanded tax credits for other technologies and for manufacturing of clean energy equipment as well as terms allowing parties to more easily monetize the tax credits. The IRA also includes some targeted bonus credit incentives intended to encourage development in low-income communities, the use of domestically produced materials, and compliance with certain labor-related requirements.
The IRA contains several credits and incentive provisions that may be relevant to us, which we have summarized below:
•Section 48 – the ITC, which provides a tax credit based on capital investment in a variety of renewable and conventional energy technologies to incentivize investment in new energy resources and more efficient use of fuel, including fuel cell technology;
•Section 48C – Qualified Advanced Energy Project (reenacted), which provides the ITC through a competitive application process administered through the Department of Energy equal to 6% or 30% of the investment with respect to advanced energy projects;
•Section 45V – Clean Hydrogen, which provides a PTC of up to $3 per kg of qualified clean hydrogen over a 10-year credit period for the production of qualified clean hydrogen at a qualified facility in the U.S.; and
•Section 45Q – Carbon Capture Sequestration, which provides a credit ranging from $12-$17 or $60-$85 per metric ton based on the amount of carbon oxides captured from a qualified facility over a 12-year period.
We believe that the programs and credits included in the IRA align well with our business model and could provide significant benefits with respect to incentivizing the purchase of our current product offerings and technologies. In particular, the IRA authorized a competitive process to apply for credits to expand or enhance manufacturing capacity under IRC 48C, and we have applied for a credit under this provision; at this time, we cannot be assured our application will ultimately be accepted or result in our receipt of credits. Also, the new PTC for qualified clean hydrogen and credit for carbon capture could result in increased demand for commercial solutions to hydrogen production technology and carbon capture, including our solid oxide fuel-cell based Electrolyzer and Energy Servers.
New Foreign Tax Rules
In 2021 the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in. However, no material impact to our financial statements is expected due to the relatively small operations outside the U.S.
Liquidity and Capital Resources
We raised cash and supplemented liquidity through financing activities with SK ecoplant in the first quarter of 2023 and issuing the 3% Green Convertible Senior Notes due June 2028 (the “3% Green Notes”) in the second quarter of 2023. At the same time, we increased our working capital spent. In addition, we expanded our warehouse space in Delaware and California to store more inventory to meet the anticipated increase in demand. If this increase in demand does not materialize to the degree we anticipated, our liquidity and financial condition may be adversely impacted.
On March 20, 2023, we entered into the Amended SPA, with SK ecoplant, pursuant to which we issued and sold to SK ecoplant 13,491,701 shares of Series B RCPS for cash proceeds of $311.0 million, excluding issuance cost of $0.5 million.
On March 20, 2023, in connection with the Amended SPA, we also entered into the Loan Agreement, pursuant to which we were entitled to draw down on a loan from SK ecoplant with a maximum principal amount of $311.0 million, if SK ecoplant sent a redemption notice to us under the Amended SPA or otherwise had reduced any portion of its current holdings of our Class A common stock. On September 23, 2023, all 13,491,701 shares of the Series B RCPS were automatically converted into shares of our Class A common stock. For further information on the strategic investment with SK ecoplant, see Part II, Item 8, Note 17 — SK ecoplant Strategic Investment.
On May 16, 2023, we issued the 3% Green Notes with an aggregate principal amount of $632.5 million due June 2028, unless earlier repurchased, redeemed, or converted, resulting in net cash proceeds of $612.8 million. On June 1, 2023, we used approximately $60.9 million of the net proceeds from this offering to redeem all of the outstanding principal amount of our 10.25% Senior Secured Notes due March 2027. The redemption price equaled 104% of the principal amount redeemed plus accrued and unpaid interest. We also used approximately $54.5 million of the net proceeds from the offering to purchase the privately negotiated capped call options (the “Capped Calls”). The remaining portion of the 3% Green Notes was planned to be used for working capital investment and general corporate purposes.
On August 24, 2023, as part of the PPA V Upgrade, we paid off the outstanding balance and related accrued interest of $118.5 million and $0.5 million, respectively, of our 3.04% Senior Secured Notes due June 30, 2031.
For further information on issuance of 3% Green Notes, redemption of our 10.25% Senior Secured Notes, and repayment of 3.04% Senior Secured Notes, please see Part II, Item 8, Note 7 — Outstanding Loans and Security Agreements.
As of December 31, 2023, we had cash and cash equivalents of $664.6 million. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds of $601.1 million. We maintain these balances with high credit quality counterparties, regularly monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk.
As of December 31, 2023, we had $842.0 million of recourse debt, $4.6 million of non-recourse debt and $9.0 million of other long-term liabilities. As of December 31, 2023, all of our debt was classified as long-term liabilities. For a complete description of our outstanding debt, please see Part II, Item 8, Note 7 — Outstanding Loans and Security Agreements.
The combination of our cash and cash equivalents and cash flow to be generated by our operations is expected to be sufficient to meet our anticipated cash flow needs for at least the next 12 months. If these sources of cash are insufficient or are not received in a timely manner to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, our manufacturing capacity, product development, and market expansion requirements and to timely respond to competitive market pressures or strategic opportunities, among other things. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. During the year ended December 31, 2023, we factored $291.4 million of accounts receivable. However, we may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. Although currently we do not have any floating-rate notes on the balance sheet, rising interest rates may increase our overall cost of capital, if and when we refinance our fixed-rate convertible notes. 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 depends 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 of inventory build in anticipation of future sales and installations, and overall economic conditions. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. Failure to obtain this financing in future quarters may affect our results of operations, including our revenues and cash flows.
A summary of our consolidated sources and uses of cash, cash equivalents, and restricted cash was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | | |
| | | 2023 | | 2022 | | | | | |
| Net cash (used in) provided by: | | | | | | | | | | |
| Operating activities | | $ | (372,531) | | | $ | (191,723) | | | | | | | |
| Investing activities | | (83,725) | | | (116,823) | | | | | | | |
| Financing activities | | 683,349 | | | 211,364 | | | | | | | |
| | | | | | | | | | |
Net cash provided by (used in) our PPA Entities (as defined below), which are incorporated into the consolidated statements of cash flows, was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | | |
| | | 2023 | | 2022 | | | | | |
PPA Entities1 | | | | | | | | |
| Net cash provided by PPA operating activities | | $ | 10,036 | | | $ | 245,557 | | | | | | | |
| Net cash used in PPA financing activities | | (23,594) | | | (259,854) | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
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 on consolidated cash flows of the PPA Entities in which we had only a minority interest. In fiscal 2022 we sold PPA IIIa and PPA IV entities. In August 2023, we sold our last consolidated PPA entity — PPA V. For more details, please see Part II, Item 8, Note 10 — Portfolio Financings.
Operating Activities
Our operating activities consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. Net cash used in operating activities during the year ended December 31, 2023, was $372.5 million, an increase of $180.8 million compared to the prior year period. The increase in cash used in operating activities during the year ended December 31, 2023, as compared to the prior year period, was primarily a result of an increase in working capital of $379.4 million due to (1) an increase in inventory levels of $231.7 million to support future demand, (2) an increase in accounts receivable of $89.8 million, which was primarily due to the timing of revenue transactions and corresponding collections, and (3) the timing of payments to vendors.
Investing Activities
Our investing activities have consisted of capital expenditures, including investments to increase our production capacity. We expect to continue such investing activities as our business grows. Cash used in investing activities during the year ended December 31, 2023, was $83.7 million, a decrease of $33.1 million compared to the prior year period and was primarily due to the decrease in expenditures on tenant improvements for a newly leased engineering and manufacturing building in Fremont, California, which opened in July 2022. We expect to continue to make capital expenditures over the next few quarters to expand production capacity at our new manufacturing facility in Fremont, California, 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 consisted of borrowings and repayments of debt, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests, contributions from noncontrolling interests, and proceeds from the issuances of our common stock. Net cash provided by financing activities during the year ended December 31, 2023, was $683.3 million, an increase of $472.0 million compared to the prior year period. The increase was primarily due to (1) proceeds from the issuance of the 3% Green Notes of $612.8 million, net of paid issuance costs of $19.7 million, (2) proceeds from the issuance of redeemable convertible preferred stock of $310.6 million, net of paid issuance costs of $0.4 million, as a
result of SK ecoplant Second Tranche Closing, (3) proceeds from the issuance of common stock of $16.9 million, (4) a contribution from noncontrolling interest of $7.0 million, (5) proceeds from financing obligations of $5.0 million, and (6) proceeds from issuance of non-recourse debt of $4.6 million. This was partially offset by (1) a settlement of the 3.04% Senior Secured Notes due June 30, 2031 of $127.4 million, (2) repayment of 10.25% Senior Secured Notes due March 2027 of $64.0 million, (3) purchases of Capped Calls of $54.5 million, (4) repayment of financing obligations of $18.4 million, and (5) the acquisition of all interest in the PPA V for $6.9 million net of distributions to Intel’s noncontrolling interest of $2.3 million.
We believe we have sufficient capital to operate our business over the next 12 months. Our working capital was strengthened with the supplemented liquidity through financing activities with SK ecoplant in the first quarter of 2023 and issuing the 3% Green Notes in the second quarter of 2023. In addition, we may still enter the equity or debt market as needed to support the expansion of our business. Please refer to Part II, Item 8, Note 7 — Outstanding Loans and Security Agreements, and Part I, Item 1A, Risk Factors — Risks Related to Our Liquidity — Our indebtedness, and restrictions imposed by the agreements governing our outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, for more information regarding the terms of and risks associated with our debt.
Purchase and Financing Options
Overview
In order to appeal to the largest variety of customers, we make available several options to them. Both in the U.S. and abroad, we sell the Energy Servers directly to customers. In the U.S., we also enable customers’ use of the Energy Servers through a power purchase arrangement or a managed services financing (whereby we sell and lease back the Energy Servers in order to supply energy to our customers), both made possible through third-party financing arrangements.
Often our offerings take advantage of local incentives. In the U.S., 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 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 in the U.S. to generate transactions.
Whichever option is selected by a customer in the Unites StatesU.S. or internationally, the contract structure will include obligations (“O&M Obligations”) on our part to operate and maintain the Energy Server (“O&M Obligations”Agreement”). The O&M ObligationsAgreement 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,year-over-year, or (ii) for a fixed term. In the United States,U.S., 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 the Energy Servers and electricity, performance of the O&M Obligations, and performance of the Installation Obligations.
In addition to customary workmanship and materials warranties as partoffered with the sale of the O&M ObligationsEnergy Servers, we provide warranties and guaranties regarding the efficiency and output of our Energy Servers to the customer and, in certain financing structures, to
the financing parties too.as well. We refer to a “performance warranty” as an obligation to repair or replace the Energy Servers as necessary to return performance of anthe Energy ServerServers 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 ServerServers to meet the guaranteed performance level. Our obligation to make payments under thea performance guaranty is always contractually capped.
Energy Server Sales
There are customers who purchase our Energy Servers directly from us pursuant to customary equipment sales contracts. In connection with the purchase of the Energy Servers, the customers also enter into a contract with us for the O&M Obligations. The customer may elect to engage us to provide the Installation Obligations or engage a third-party provider. Internationally, sales often occur through distribution arrangements pursuant to which local construction servicesservice providers perform the Installation Obligations, as is the case in the Republic of Korea;Korea, and we contract directly with the customer to provide the O&M Obligations.
A customer may enter into a contract for the sale of our Energy Servers 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 the third-party financing options in the United States,U.S., a customer may choose ato contract for the 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”), or the use of our Energy Servers owned by a financing party in exchange for a capacity-based payment and, in some cases, an output-based payment based on kw/hour (each, a “Managed Services Agreement”).
PPAs are typically financed on a portfolio basis. In the past, we have financed portfolios through tax equity partnerships, acquisition financings and direct sales to investors (each, a “Portfolio Financing”). Capacity-based 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.Server. 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 portfolio basis. We have financed portfolios through tax equity partnerships, acquisition financings and direct sales to investors (each, a “Portfolio Financing”).
In the United States,U.S., our capacity to offer our Energy Servers through either of these financed arrangements depends in large part on the ability of financing parties to optimize the tax benefits associated with a fuel cell,the Energy Servers, such as the ITC or accelerated depreciation. Interest rate fluctuations, and internationally, currency exchangesexchange rate fluctuations, may also impact the attractiveness of any financing offerings for our customers. Our ability to finance a PPA or a Managed Services Agreement or a PPA is also related to, and may be limited by, the creditworthiness of the customer. Additionally, thea Managed Services Financing option is limited by a customer’s willingness to commit to making paymentsthe capacity-based payment to a financing party regardless of the level of performance of the Energy Server.performance.
In each of our financing 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. Increasingly, however, we are making sales to third-party developers.
Each of our financing transaction structures is described in further detail below.
Managed Services Financing
Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer for a certain term. 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 customer to the financier, as lessor.
Once we enter into a Managed Services Agreement with the customer, and a financier is identified, we sell the Energy Server to the financier, as lessor, who then leases it back to us, as lessee, pursuant to a sale-leaseback transaction. Certain 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 transaction are recognized as a financing obligation within our consolidated balance sheet. For successful sale-and-leaseback transactions, the financier of a Managed Services Agreement typically pays the purchase price for an Energy Server at or around acceptance, and we recognize the fair value of the Energy Servers 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 fair value of the Energy Servers are recognized as a financing obligation.
The duration of our current Managed Services Agreement offerings is between five and ten years.
Our Managed Services Agreements typically provide for performance warranties of both the efficiency and output of the Energy Server and may include other warranties depending on the type of deployment. We often structure payments from the
customer as a dollars per kilowatt-hour payment and our pricing assumes revenue at the 95% output level. This means that our revenue may be lower than expected if output is less than 95% and higher if output exceeds 95%. As of December 31, 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 Financings was performing at a lifetime average output of approximately 85%.
Portfolio Financings
In the past, we financed 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 the Energy Servers to a limited liability project company (such portfolio owner, a “Portfolio Company”) of which the PPA Entity was the sole member (such portfolio owner, a “Portfolio Company”).member. Whether an investor, a tax equity partnership, or a single member limited liability company, the Portfolio Company iswas the entity that directly ownsowned the portfolio. The Portfolio Company sellssold the electricity generated by the Energy Servers contemplated by the PPAs to the customers. We recognizerecognized revenue as the electricity iswas produced. Our current practices no longer contemplate these types of transactions. In fiscal 2023 we completed the process of restructuring our PPA Entities by (i) acquiring the outstanding equity interests of our previous investors and tax equity partners, (ii) selling 100% of the equity interests in the PPA Entities or the Portfolio Companies to new investors or tax equity partnerships in which we do not have an equity interest, and (iii) entering into new equipment supply and installation agreements and related agreements to upgrade and/or replace the Energy Servers. In August 2023, we sold our last consolidated PPA Entity, 2015 ESA Project Company, LLC (“PPA V”), in connection with the repowering of its portfolio of Energy Servers. For further discussion, see Part II, Item 8, Note 10 — Portfolio Financings.
We alsoMoving forward, we plan to finance PPAs through a second type of Portfolio Financing pursuant to which we (i) directly sellby selling a portfolio of PPAs and the Energy Servers or (ii) sell a Portfolio Company in each case to an investor or tax equity partnership (in either case, an “Equity Investor”) in which we do not have an equity interest (a “Third-Party PPA”). Like the other Portfolio Financing structure, the investor or tax equity partnershipThe Equity Investor owns the Portfolio Company or the Energy Servers directly, and in each case, sells the electricity generated by the Energy Servers 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 the Energy Servers and the PPAs through a Portfolio Financing, we typically enter into, with the Portfolio Company or directly with the Equity Investor, as the case may be, a sale, engineering, and procurement, and construction agreement (“EPC Agreement”) and an O&M Agreement, withincluding the Portfolio Company.provision of performance warranties and guaranties. As owner of the portfolio of the PPAs and related Energy Servers, the Portfolio Companyportfolio owner receives all customer payments generated under the PPAs, the benefits of the ITC and accelerated tax depreciation, and any other available state or local benefits arising out of the ownership or operation of the Energy Servers, to the extent not already allocated to the customer under the PPA.
The sales of our Energy Servers in connection with a 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, ofwhen the Energy Server,Servers are physically ready for startup and commissioning (i.e., “Mechanical Completion”), and upon acceptancesubstantial completion (i.e., “Commencement of the Energy Server.
Under an O&M Agreement, a one-year service package is provided with the initial sale that includes performance warranties and performance guaranties. After the expiration of the initial standard one-year package, the Portfolio Company has the option to extend our services under the O&M Agreement on an annual basis at a price determined at the time of purchase of our Energy Server. After the standard one-year service package, the Portfolio Company has almost always exercised the option to renew our services under the O&M Agreement.
As of December 31, 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 was capped at an aggregate total of approximately $114.6 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately $104.4 million.Operations”, “COO”).
Obligations to Portfolio Companies
Our Portfolio Financings involve many obligations on our part to the Portfolio Company.Company or Equity Investor, as applicable. These obligations are set forth in the applicable EPC AgreementAgreements and O&M Agreement,Agreements, and may include some or all of the following obligations:
•designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Portfolio Company;Company or Equity Investor;
•obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Energy Servers, and maintaining such permits and approvals throughout the term of the EPC Agreements and O&M Agreements;
•operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations;
•satisfying the performance warranties and guaranties set forth in the applicable O&M Agreements; and
•complying with any other specific requirements contained in the PPAs with customers.
In some cases, the EPC Agreement 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 Agreement grants a Portfolio Companythe Equity Investor 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 O&M Agreement and we do not cure such failure in the applicable timewarranty cure period, or that a PPA terminates as a result of any failure by us to perform the obligations in the O&M Agreement. In some of our Portfolio Financings, our obligation to repurchase Energy Servers under the O&M extends to the entire fleet of Energy Servers sold in the event a systemic failure that affects more than a specified number of Energy Servers.
In some Portfolio Financings, we have also agreed to pay liquidated damages to the applicable Portfolio Company or Equity Investor, as the case may be, in the event of delays in the manufacture, installation, and installationcommissioning of our Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Servers.
Administration of Portfolio Companies
In each ofAugust 2023, we sold our Portfolio Financings in which we hold an equity interest in thelast consolidated PPA Entity, PPA V. Before the sale, as we perform certain administrative services as managing member, including invoicing the end customers for amounts owed under the PPAs, administering the cash receipts of the Portfolio 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 basis.
For those Portfolio Financings with project debt, the Portfolio Company owned by each of our PPA Entities (with the exception of one PPA Entity) incurred debt in order to finance the acquisition of the Energy Servers. The lenders for these transactions are a combination of banks and/or institutional investors. In each case, the debt is secured by all of the assets of the applicable Portfolio Company, such assets being primarily comprised of the Energy Servers and a collateral assignment of each of the contracts to which the Portfolio Company is a party, including the O&M Agreement and the PPAs. As further collateral, the lenders receive a security interest in 100% of the membership interest of the Portfolio Company. The lenders have no
recourse to us or to any of the other equity investors (the "Equity Investors") in the Portfolio Company for liabilities arising out of the portfolio.
We havehad determined that we arewere the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions. Accordingly,this VIE, we consolidateconsolidated 100% of the assets, liabilities, and operating results of these PPA Entities,V, including the Energy Servers and lease income, in our consolidated financial statements. We recognizerecognized the Equity Investors’ share of the net assets of the investment entitiesentity as noncontrolling interests in subsidiariesthe subsidiary in our consolidated balance sheet.sheets. We recognizerecognized the amounts that are contractually payable to these investors in each period as distributions to noncontrolling interests in our consolidated statements of redeemable convertible preferred stock, redeemable noncontrolling interest, stockholders'changes in stockholders’ equity (deficit) equity and noncontrolling interest.. PPA V contained debt that was non-recourse to us.
Our consolidated statements of cash flows reflect cash received from the Equity Investors in PPA V as proceeds from investments by noncontrolling interests in subsidiaries.the subsidiary. Our consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling interests in subsidiaries.the subsidiary. We reflect any unpaid distributions to these Equity Investors in PPA V as distributions payable to noncontrolling interests in subsidiariesthe subsidiary 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 rates of return to the Equity Investors, or otherwise.
For further information about our Portfolio Financings, see Note 11 - Portfolio Financings in Part II, Item 8, Note 11 — Portfolio Financings.
Managed Services Financing
Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer for a certain term. We sell the Energy Servers to the financier who then leases it back to us pursuant to a sale-leaseback transaction. In the past, certain sale-leaseback transactions failed to achieve all of the criteria for sale accounting and Supplementary Data.consequently the proceeds from the transaction were recognized as financing obligations within our consolidated balance sheets. For successful sale-and-leaseback transactions, the financier of the Managed Services Agreement typically pays the purchase price for the Energy Servers at or around acceptance, and we recognize the fair market value of the Energy Servers sold and respective installation services provided to the financier within product and install revenue, respectively, and recognize an operating lease right-of-use (“ROU”) asset and an operating lease liability on our consolidated balance sheets. Any proceeds in excess of the fair value of the Energy Servers are recognized as financing obligations.
The duration of our current Managed Services Agreement offerings is between five and ten years. Under some Managed Services Agreements, we agree to provide remarketing assistance in the event a customer does not renew its agreement. Our Managed Services Agreements typically provide for performance warranties of both the efficiency and output of the Energy Servers and may include other warranties depending on the type of deployment. We often structure payments from the
customer as a dollar per kilowatt flat payment. In some cases, the structure may also include a variable payment based on the Energy Servers’ performance or a performance-related set-off. As of December 31, 2023, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties.
Delivery and Installation
The transfer of control ofInstallation is required in order for our productEnergy Servers to our customerreach full power. Our role in the installation process varies based on the deliveryterms of the contract and/or the country of installation which can include, but is not limited to, design, engineering, permitting, procurement, construction, installation, start-up, performance testing, and installationscommissioning of our products has a significant impactthe systems. Bloom may contract with subcontractors to provide all or any part of the work. Depending on the timingacceptance milestones, we recognize installation revenue once the project has reached full power, or mechanical completion or on a percentage of completion basis.
Performance Guarantees
As of December 31, 2023, we had incurred no liabilities due to failure to repair or replace the recognitionEnergy Servers pursuant to any performance warranties made under the O&M Agreements.
For the O&M Agreements that are subject to renewal, our future service revenue from such agreements are subject to our obligations to make payments for underperformance against the performance guaranties, which are capped at an aggregate total of productapproximately $564.0 million (including $438.3 million related to portfolio financing entities and installation revenue. Many factors can cause a lag between the time that a customer signs a contract$125.7 million related to all other transactions, and include payments for both low output and low efficiency) and our recognitionaggregate remaining potential payment related to these underperformance obligations was approximately $491.9 million as of product revenue. These factors includeDecember 31, 2023. For the numberyear ended December 31, 2023, we made performance guarantee payments of Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, customer facility construction 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, such 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.$25.9 million.
International Channel Partners
India. In India, sales activities are currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly-ownedwholly owned subsidiary; however, we continue 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 were previouslyactivities are currently conducted pursuant to a Japanese joint venture established between us and subsidiaries of SoftBank Corp., calledby Bloom Energy Japan Limited, ("Bloom Energy Japan"). Under this arrangement, we sold Energy Servers to Bloom Energy Japan and we recognized revenue once the Energy Servers left the port in the United States. Bloom Energy Japan then entered into the contract with the end customer and performed 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.our wholly owned subsidiary.
The 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 (“PDA”) in November 2018 with SK ecoplant for the marketing and sale of Bloom Energy Servers for the 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 of at least 500 megawatts of power for the next three years (onour Energy Servers between 2022 and 2024 on a take or pay basis) for Bloom Energy Servers;take-or-pay basis; (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 Hydrogen Portfolio Standard. For additional details about the transactionIn December 2023, we further expanded our business partnership with SK ecoplant through the increase of SK ecoplant’s purchase commitments for Bloom Energy products of 250 megawatts through 2027 and extended the timing of delivery of the remaining take-or-pay commitment under the original agreement. For additional information, please see Part II, Item 8, Note 18 -17 — SK ecoplant Strategic Investment.Investment.
Under the terms of the 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.
SK ecoplant Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK ecoplant to establish a light-assembly facility in the Republic of Korea for sales of certain portions of our Energy Server for the stationary utility and commercial and industrial market in the Republic of Korea. The joint venture is majority controlleda variable interest entity (“VIE”) of Bloom, and managed by us, withwe consolidate it in our financial statements as we are the primary beneficiary and therefore have the power to direct activities which are most significant to the joint venture. The joint venture facility which became operational in July 2020. Other than a nominal initial capital contribution by Bloom Energy, the joint venture will beis funded by SK ecoplant. SK ecoplant who currently acts as a distributor for our Energy Servers for the stationary utility and commercial and industrial market in the Republic of Korea, is 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 increasesjoint venture agreement (“JVA”) to increase the scope of the assembly work done in the joint venture facility. The joint venture was further developed in 2022 and 2023.
Community Distributed Generation Programs
In July 2015,On September 15, 2023, we entered into the stateAmended and Restated JVA and the Share Purchase Agreement (together, the “Amended JV Agreements”) with SK ecoplant which changed the share 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 wellour voting rights in the future. In June 2020,Korean joint venture to 40% and increased the New York Public Service Commission issued an Order that limitedscope of assembly done by 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 challengingjoint venture facility in the future. However, projects already under contract were grandfatheredRepublic of Korea to full assembly. Neither the Amended JV Agreements, nor the fact that SK ecoplant is considered to be our related party after the conversion of Series B RCPS into the program under the previous compensation structure.
We have entered into sales, installation, operations and maintenance agreements with three developers for the deploymentshares of our Energy Servers pursuantClass A common stock (for additional information, please see Part II, Item 8, Note 11 — Related Party Transactions) changed our status as the primary beneficiary of the Korean joint venture. Therefore, we continue to the New York CDG program for a total of 441 systems. Asconsolidate this VIE in our financial statements 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.2023.
Comparison of the Years Ended December 31, 20212023 and 20202022
A discussion regarding our results of operations for 20212023 compared to 20202022 is presented in this section. A discussion of 2020our results of operations for 2022 compared to 20192021 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020, which is available free of charge on the SEC’s website at www.sec.gov and the Investor section of our website at www.bloomenergy.com.2022.
Key Operating Metrics
In addition to the measures presented in the consolidated financial statements, we use certain 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.
•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 related expenses not included in product costs -— the manufacturing and related operating costs that are incurred to procure parts and manufacture the 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 statementstatements of operations in the period that they are incurred.
•Installation costs on product accepted in the period (per kilowatt) -— the average unit installation cost for the Energy Servers that are accepted in a given period. This metric is used to provide insight into the trajectory of installinstallation costs and, in particular, to evaluate whether our installation costs are in line with our installation billings.
We 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 contract 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 thus it is no longer a meaningful metric for us.
Product Acceptances
We use acceptances as a key operating metric to measure the volume of our completed Energy Server installation activity from period to period. Acceptance 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 customer, when the system is shipped and delivered and is physically ready for startup and commissioning (i.e., “Mechanical Completion”), or when the system is shipped and delivered and is turned on and producing power.power (i.e., “Commencement of Operations”, “COO”).
The product acceptances in the years ended December 31, 20212023 and 20202022 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 | % |
Product accepted for the year ended December 31, 2021 compared to the same period in 2020 increased by 553 systems, or 41.7%, as demand increased for our Energy Servers in the Republic of Korea and the 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, 2021 and 2020 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, | | Change | | | | |
| | | 2023 | | 2022 | | Amount | | % | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Product accepted | | 2,682 | | | 2,281 | | | 401 | | | 17.6 | % | | | | | | | | |
| Megawatts accepted, net | | 268 | | | 228 | | | 40 | | | 17.6 | % | | | | | | | | |
Product accepted increased approximately by 401 systems, or 17.6%, for the year ended December 31, 2023, as compared to the prior year period, which is the equivalent of 40 megawatts. Acceptance volume increased as demand increased for the Energy Servers.
The increase in acceptances of 268 megawatts achieved for the year ended December 31, 2023 was added to our installed base and, therefore, increased our total megawatts accepted, net, from 973 megawatts to 1,241 megawatts.
Purchase Alternatives
Our customers have several purchase alternatives for our Energy Servers. The portion of acceptances attributable to each purchase alternative in the years ended December 31, 2023 and 2022 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended December 31, | | |
| | | | | | | 2023 | | 2022 | | |
| | | | | | | | | | | |
| Direct purchase (including third-party PPAs and international channels) | | | | | | 98 | % | | 98 | % | | |
| | | | | | | | | | |
| Managed services | | | | | | 2 | % | | 2 | % | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | 100 | % | | 100 | % | | |
The portion of total revenue attributable to each purchase option in the years ended December 31, 20212023 and 20202022 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, |
| | | | | | | 2023 | | 2022 |
| | | | | | | | | |
| Direct purchase (including third-party PPAs and international channels) | | | | | | 90 | % | | 91 | % |
| Traditional lease | | | | | | 1 | % | | 1 | % |
| Managed services | | | | | | 7 | % | | 5 | % |
| | | | | | | | |
| Portfolio financings | | | | | | 2 | % | | 3 | % |
| | | | | | 100 | % | | 100 | % |
Costs Related to Our Products
Total product related costs for the years ended December 31, 20212023 and 20202022 was as follows:
| | | | | | Years Ended
December 31, | | Change |
| | | 2021 | | 2020 | | Amount | | % |
| | | | | | | | | | | | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | 2023 | | | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
| | | | | | | | | | | | | |
| Product costs of product accepted in the period | Product costs of product accepted in the period | | | $2,319/kW | | $2,368 /kW | | $(49)/kW | | (2.1) | % | Product costs of product accepted in the period | | | | | | | | | | $2,108/kW | | $2,453/kW | | $(345)/kW | | (14.1) | % |
| Period costs of manufacturing related expenses not included in product costs (in thousands) | Period costs of manufacturing related expenses not included in product costs (in thousands) | | | $ | 22,794 | | | $ | 19,573 | | | $ | 3,221 | | | 16.5 | % | Period costs of manufacturing related expenses not included in product costs (in thousands) | | | | | | | | | | $ | 64,892 | | | $ | | $ | 56,630 | | | $ | | $ | 8,262 | | | 14.6 | | 14.6 | % |
| Installation costs on product accepted in the period | Installation costs on product accepted in the period | | | $561/kW | | $900/kW | | $(339)/kW | | (37.7) | % | Installation costs on product accepted in the period | | | | | | | | | | $394/kW | | $456/kW | | ($62/kW) | | (13.6) | % |
Product costs of product accepted decreased by $345 per kilowatt, or 14.1%, for the year ended December 31, 20212023, as compared to the same periodprior year period. The decrease in 2020 decreased by approximately $49 per kilowattcosts was primarily driven generally by our ongoing cost reductioncontinued efforts to reduce material costs, in conjunctionimplement cost reduction programs with our suppliersvendors, and reduce our reduction in labor and overhead costs through increased volume, improved processes, and automation at our manufacturing facilities. This decrease was partially offset by increases in freight and other supply chain-related pricing pressures.
Period costs of manufacturing related expenses increased by $8.3 million, or 14.6%, for the year ended December 31, 20212023, as compared to the sameprior year period. Our period in 2020costs of manufacturing related expenses increased by approximately $3.2 million primarily driven by increases in 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 $339 per kilowatt. For the year ended December 31, 2021, the decrease in install cost 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.result
of costs incurred to support capacity expansion efforts, which are expected to be brought online in future periods, partially offset by a $5.3 million release from one-time benefit related to a grant from the Delaware Economic Development Authority.
Installation costs on product accepted decreased by $62 per kilowatt, or 13.6%, for the year ended December 31, 2023, as compared to the prior year period. Each customer site is unique and installation costs can vary due to a number of factors, including site complexity, size, and location of gas, among other factors. As such, installation on a per kilowatt basis can vary significantly from period to period. For the year ended December 31, 2023, this decrease in cost was primarily driven by the change in the mix of sites requiring Bloom installation.
Results of Operations
A discussion regarding the comparison of our financial condition and results of operations for the years ended December 31, 20212023 and 20202022 is presented below.
Revenue
| | | | | | Years Ended
December 31, | | Change |
| | | | | 2021 | | 2020 | | Amount | | % |
| | | (dollars in thousands) | | | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
| | | | (dollars in thousands) | |
| Product | |
| Product | |
| Product | Product | | | $ | 663,512 | | $ | 518,633 | | $ | 144,879 | | 27.9 | % | | | | | | | | | | $ | 975,245 | | $ | 880,664 | | $ | 94,581 | | 10.7 | % |
| Installation | Installation | | | 96,059 | | 101,887 | | (5,828) | | (5.7) | % | Installation | | | | | | | | | | 92,796 | | 92,120 | | 676 | | 0.7 | % |
| Service | Service | | | 144,184 | | 109,633 | | 34,551 | | 31.5 | % | Service | | | | | | | | | | 183,065 | | 150,954 | | 32,111 | | 21.3 | % |
| Electricity | Electricity | | | 68,421 | | 64,094 | | 4,327 | | 6.8 | % | Electricity | | | | | | | | | | 82,364 | | 75,387 | | 6,977 | | 9.3 | % |
| Total revenue | Total revenue | | | $ | 972,176 | | $ | 794,247 | | $ | 177,929 | | 22.4 | % | Total revenue | | | | | | | | | | $ | 1,333,470 | | $ | 1,199,125 | | $ | 134,345 | | 11.2 | % |
|
Total Revenue
Total revenue increased by $177.9$134.3 million, or 22.4%11.2%, for the year ended December 31, 20212023, as compared to the prior year period. This increase was primarily driven by a $144.9$94.6 million increase in product revenue, and a $34.6$32.1 million increase in service revenue, partially offset by price reductions to expand our addressable marketa $7.0 million increase in electricity revenue, and $14.2a $0.7 million of previously deferred revenue related to a specific contract that changed scope and was recognizedincrease in the year ended December 31, 2020.installation revenue.
Product Revenue
Product revenue increased by $144.9$94.6 million, or 27.9%10.7%, 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, 20212023, as compared to the prior year period. This increase was primarily duedriven by higher product acceptances of 17.6%, offset by the lower average selling price. Upgrades of our PPA portfolios contributed $20.7 million net increase in revenue recognized compared 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.prior year.
ElectricityInstallation Revenue
ElectricityInstallation revenue increased by $4.3$0.7 million, or 6.8%0.7%, for the year ended December 31, 20212023, as compared to the prior year period. This increase was primarily driven by the timing of key project milestones on sites requiring installations by us in the year ended December 31, 2023.
Service Revenue
Service revenue increased by $32.1 million, or 21.3%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by 223 megawatts of the Energy Servers reaching full power in fiscal 2023, which contributed to a $42.5 million increase in revenue from maintenance contracts associated with our fleet of the Energy Servers, partially offset by the impact of product performance guarantees of $8.5 million and a $0.7 million decrease in state incentives.
Electricity Revenue
Electricity revenue includes both revenue from contracts with customers and revenue from contracts that contain leases.
Electricity revenue increased by $7.0 million, or 9.3%, for the year ended December 31, 2023, as compared to the prior year period, primarily due to an accelerated amortization of incentive related deferred revenue of $5.0 million resulting from the increase in Managed Services Financings.PPA V Upgrade.
Cost of Revenue
| | | | | | Years Ended
December 31, | | Change |
| | | | | 2021 | | 2020 | | Amount | | % |
| | | | | (dollars in thousands) | | | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
| | |
| Product | |
| Product | |
| Product | Product | | | $ | 471,654 | | | $ | 332,724 | | | $ | 138,930 | | | 41.8 | % | | | | | | | | | | $ | 630,105 | | | $ | | $ | 616,178 | | | $ | | $ | 13,927 | | | 2.3 | | 2.3 | % |
| Installation | Installation | | | 110,214 | | | 116,542 | | | (6,328) | | | (5.4) | % | Installation | | | | | | | | | | 105,735 | | | 104,111 | | 104,111 | | | 1,624 | | 1,624 | | | 1.6 | | 1.6 | % |
| Service | Service | | | 148,286 | | | 132,329 | | | 15,957 | | | 12.1 | % | Service | | | | | | | | | | 220,927 | | | 168,491 | | 168,491 | | | 52,436 | | 52,436 | | | 31.1 | | 31.1 | % |
| Electricity | Electricity | | | 44,441 | | | 46,859 | | | (2,418) | | | (5.2) | % | Electricity | | | | | | | | | | 178,909 | | | 162,057 | | 162,057 | | | 16,852 | | 16,852 | | | 10.4 | | 10.4 | % |
| Total cost of revenue | Total cost of revenue | | | $ | 774,595 | | | $ | 628,454 | | | $ | 146,141 | | | 23.3 | % | Total cost of revenue | | | | | | | | | | $ | 1,135,676 | | | $ | | $ | 1,050,837 | | | $ | | $ | 84,839 | | | 8.1 | | 8.1 | % |
|
Total Cost of Revenue
Total cost of revenue increased by $146.1$84.8 million, or 23.3%8.1%, for the year ended December 31, 20212023, as compared to the prior year period primarilyperiod. The increase was driven by a $138.9$52.4 million increase in cost of service revenue, a $16.9 million increase in cost of electricity revenue, a $13.9 million increase in cost of product revenue, $16.0and a $1.6 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.revenue.
Cost of Product Revenue
Cost of product revenue increased by $138.9$13.9 million, or 41.8%2.3%, for the year ended December 31, 20212023, as compared to the prior year period. The increase in cost of product revenue increase was primarily driven primarily by a 41.7%17.6% increase in product acceptances, increased freight charges and other supply chain-related pricing pressures.including the net effect of $16.2 million from the upgrades of our PPA portfolios. This increase was partially offset by (1) a lower cost per unit attributable to our ongoing cost reduction efforts to reduce material costs, in conjunction(2) cost reduction programs with our suppliersvendors and oura reduction in labor and overhead costs throughdue to increased volume, (3) improved processes and automation at our manufacturing facilities.facilities, and (4) one-time benefit of $5.3 million related to a grant from the Delaware Economic Development Authority recognized against payroll related costs in the third quarter of fiscal 2023.
Cost of Installation Revenue
Cost of installation revenue decreasedincreased by $6.3$1.6 million, or (5.4)%1.6%, for the year ended December 31, 20212023, as compared to the prior year period. This decrease, similar to the $5.8 million decrease in installation revenue,increase was primarily driven by site mix as manythe timing of the acceptances did not have installationkey project milestones on sites requiring installations by us in the year ended December 31, 2021.2023.
Cost of Service Revenue
Cost of service revenue increased by $16.0$52.4 million, or 12.1%31.1%, for the year ended December 31, 20212023, as compared to the prior year period. This increase was primarily due to the 41.7%deployment of field replacement units, contributing an increase of $43.6 million, and an increase in acceptances plus the maintenance contract renewals associated with thematerial costs of $6.6 million. This increase in our fleet of Energy Servers,was partially offset by the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.optimizations and a portion of released grant liability of $2.9 million recognized against payroll related costs incurred in the third quarter of fiscal 2023.
Cost of Electricity Revenue
Cost of electricity revenue decreasedincludes both cost of revenue from contracts with customers and cost of revenue from contracts that contain leases.
Cost of electricity revenue increased by $2.4$16.9 million, or (5.2)%10.4%, for the year ended December 31, 20212023, as compared to the prior year period,period. This increase was primarily due to the $1.2driven by a $14.9 million changenet increase in the fair valueimpairment of the natural gas fixed price forward contract and lower property tax expenses partially offset byEnergy Servers as a result of the increase in Managed Services Financings.upgrades of our PPA portfolios.
Gross Profit (Loss) and Gross Margin
| | | | | | Years Ended
December 31, | | Change |
| | | | | 2021 | | 2020 | |
| | | | (dollars in thousands) | | | | | | Years Ended
December 31, | | Change |
| Gross profit: | | |
| | |
| | |
| | |
| | | | | | | | | (dollars in thousands) |
| Gross profit (loss): | |
| Product | |
| Product | |
| Product | Product | | | $ | 191,858 | | $ | 185,909 | | $ | 5,949 | | | | | | | | $ | 345,140 | | $ | 264,486 | | $ | 80,654 |
| Installation | Installation | | | (14,155) | | (14,655) | | 500 | Installation | | | | | | | | (12,939) | | (11,991) | | $ | (948) |
| Service | Service | | | (4,102) | | (22,696) | | 18,594 | Service | | | | | | | | (37,862) | | (17,537) | | $ | (20,325) |
| Electricity | Electricity | | | 23,980 | | 17,235 | | 6,745 | Electricity | | | | | | | | (96,545) | | (86,670) | | $ | (9,875) |
| Total gross profit | Total gross profit | | | $ | 197,581 | | $ | 165,793 | | $ | 31,788 | Total gross profit | | | | | | | | $ | 197,794 | | $ | 148,288 | | $ | 49,506 |
| | Gross margin: | Gross margin: | | |
| Gross margin: | |
| Gross margin: | |
| Product | |
| Product | |
| Product | Product | | | 29 | % | | 36 | % | |
| Installation | Installation | | | (15) | % | | (14) | % | |
| Installation | |
| Installation | |
| Service | |
| Service | |
| Service | Service | | | (3) | % | | (21) | % | |
| Electricity | Electricity | | | 35 | % | | 27 | % | |
| Electricity | |
| Electricity | |
| Total gross margin | Total gross margin | | | 20 | % | | 21 | % | |
| Total gross margin | |
| Total gross margin | |
Total Gross Profit
Gross profit increased by $31.8$49.5 million in the year ended December 31, 20212023, as compared to the prior year periodperiod. This change was mostly due to an $80.7 million increase in product gross profit, primarily driven by the 41.7%a 17.6% increase in product acceptances andresulting from higher demand, lower cost per unit attributable to 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.product costs. This increase was partially offset by price reductions to expand our addressable market and $14.2a $20.3 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 freightservice gross loss, primarily due to the deployment of field replacement units, and a $9.9 million increase in electricity gross loss, predominantly driven by a $14.9 million net increase in impairment charges and other supply chain-related pricing pressures.of the old Energy Servers resulting from the upgrades of our PPA portfolios.
Product Gross Profit
Product gross profit increased by $5.9$80.7 million in the year ended December 31, 20212023, as compared to the prior year period. The improvement isincrease was primarily driven by a 41.7%17.6% increase in product acceptances due to higher demand for our products, one-time benefit of $5.3 million related to a grant from the Delaware Economic Development Authority recognized against payroll related costs in the third quarter of fiscal 2023, and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs throughunit cost due to 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 decreasedworsened by $0.5$0.9 million in the year ended December 31, 20212023, as compared to the prior year periodperiod. This change was primarily driven by the site mix, as manytiming of the acceptances did not have installationkey project milestones on sites requiring installations by us in the current time period,year ended December 31, 2023 and other site related factors such as site complexity, size, local ordinance requirements, and location of the utility interconnect.
Service Gross Profit (Loss)Loss
Service gross loss improvedworsened by $18.6$20.3 million in the year ended December 31, 20212023, as compared to the prior year period. This was primarily due to deployments of field replacement units contributing to an increase in service gross loss of $43.6 million, an increase in maintenance material costs of $6.6 million, and the significant improvementsimpact of product performance guarantees of $8.5 million, partially offset by 223 megawatts of the Energy Servers reaching full power in power module life,fiscal 2023, which contributed to a $42.5 million increase in revenue from maintenance contracts associated with our fleet of the Energy Servers, the release of $2.9 million of grant liability recognized against payroll related costs incurred in the third quarter of fiscal 2023, and cost reductions and our actions to proactively manage fleet optimizations.
Electricity Gross ProfitLoss
Electricity gross profit increasedloss worsened by $6.7$9.9 million in the year ended December 31, 20212023, as compared to the prior year period mainly due to the $1.2period. The change was primarily driven by a $14.9 million changeincrease in the fair valueimpairment charges of the natural gas fixed price forward contract and lower property tax expenses.old Energy Servers resulting from the upgrades of our PPA portfolios, partially offset by a $5.0 million accelerated amortization of incentive related deferred revenue as a result of PPA V Upgrade.
Operating Expenses
| | | | | | Years Ended
December 31, | | Change |
| | | | | 2021 | | 2020 | | Amount | | % |
| | | | | (dollars in thousands) | | | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
| | |
| Research and development | |
| Research and development | |
| Research and development | Research and development | | | $ | 103,396 | | | $ | 83,577 | | | $ | 19,819 | | | 23.7 | % | | | | | | | | | | $ | 155,865 | | | $ | | $ | 150,606 | | | $ | | $ | 5,259 | | | 3.5 | | 3.5 | % |
| Sales and marketing | Sales and marketing | | | 86,499 | | | 55,916 | | | 30,583 | | | 54.7 | % | Sales and marketing | | | | | | | | | | 89,961 | | | 90,934 | | 90,934 | | | (973) | | (973) | | | (1.1) | | (1.1) | % |
| General and administrative | General and administrative | | | 122,188 | | | 107,085 | | | 15,103 | | | 14.1 | % | General and administrative | | | | | | | | | | 160,875 | | | 167,740 | | 167,740 | | | (6,865) | | (6,865) | | | (4.1) | | (4.1) | % |
| Total operating expenses | Total operating expenses | | | $ | 312,083 | | | $ | 246,578 | | | $ | 65,505 | | | 26.6 | % | Total operating expenses | | | | | | | | | | $ | 406,701 | | | $ | | $ | 409,280 | | | $ | | $ | (2,579) | | | (0.6) | | (0.6) | % |
|
Total Operating Expenses
Total operating expenses increaseddecreased by $65.5$2.6 million in the year ended December 31, 20212023, as compared to the prior year period. This decrease was primarily attributable to (1) a decrease in employee compensation and benefits expenses of $17.5 million, predominantly related to a decrease in stock-based compensation expenses, (2) a decrease in professional services and consulting and advisory costs of $2.3 million, and (3) a decrease in other operating expenses of $4.3 million. The decrease was partially offset by (i) our continued investment in R&D capabilities to support our technology roadmap, (ii) our investment in business development, as well as (iii) increases in facility costs, depreciation costs, office expenses, and travel expenses of $10.7 million, $5.1 million, $3.4 million, and $1.7 million, respectively.
Research and Development
Research and development expenses increased by $5.3 million in the year ended December 31, 2023, as compared to the prior year period. This increase was primarily attributable to our investmentdriven by (1) an increase in business developmentemployee compensation and front-end sales bothbenefits of $2.0 million, (2) an increase in the United Statestravel expenses of $0.5 million, (3) an increase in professional services costs of $0.6 million, (4) an increase in depreciation expenses of $0.5 million, and internationally, investment(5) an increase in brand and product management, and our continued investment in our R&D capabilities to support our technology roadmap.
Research and Development
Researchother research and development expenses increasedcosts of $3.7 million, partially offset by $19.8 milliona decrease 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 developmentconsumable laboratory supplies and other laboratory related costs of the next generation platform and to support our technology roadmap, including our hydrogen, electrolyzer, carbon capture, marine and biogas solutions.$2.2 million.
Sales and Marketing
Sales and marketing expenses increaseddecreased by $30.6$1.0 million in the year ended December 31, 20212023, as compared to the prior year period. This increasedecrease was primarily driven by the efforts to expand our U.S.a decrease in employee compensation and international sales force, as well as increased investmentbenefits of $5.6 million, partially offset by an increase in brandconsulting, advisory, and product management.outside professional services expenses of $4.5 million, and an increase in travel expenses of $0.3 million.
General and Administrative
General and administrative expenses increaseddecreased by $15.1$6.9 million in the year ended December 31, 20212023, as compared to the prior year period. This increasedecrease was primarily driven by increases(1) a decrease in outsideemployee compensation and benefits of $13.9 million, predominantly related to a decrease in stock-based compensation expenses, (2) a decrease in professional services costs of $7.4 million, and consulting expense, payroll expense(3) a decrease in other general and facilities expense to ensure our infrastructure and control environment is ready to scale for growth,administrative expenses of $7.8 million. The increase was partially offset by lower legal expense.(i) an increase in facility costs of $10.7 million, primarily due to rent expenses and utility costs, (ii) an increase in office and other expenses of $3.5 million, primarily driven by the impairment of non-recoverable production insurance of $6.4 million as a result of the PPA V Upgrade, offset by $4.5 million of prepaid insurance impairment per the PPA IV Upgrade in fiscal 2022, and factoring and financing fees of $2.1 million, (iii) an increase in depreciation expenses of $4.6 million, (iv) an increase in computer equipment expenses of $2.3 million, and (v) an increase in travel expenses of $1.0 million.
Stock-Based Compensation
| | | | | | Years Ended
December 31, | | Change |
| | | | | 2021 | | 2020 | | Amount | | % |
| | | | | (dollars in thousands) | | | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
| | |
| Cost of revenue | |
| Cost of revenue | |
| Cost of revenue | Cost of revenue | | | $ | 13,811 | | | $ | 17,475 | | | $ | (3,664) | | | (21.0) | % | | | | | | | | | | $ | 17,504 | | | $ | | $ | 18,955 | | | $ | | $ | (1,451) | | | (7.7) | | (7.7) | % |
| Research and development | Research and development | | | 20,274 | | | 19,037 | | | 1,237 | | | 6.5 | % | Research and development | | | | | | | | | | 27,620 | | | 33,956 | | 33,956 | | | $ | | $ | (6,336) | | | (18.7) | | (18.7) | % |
| Sales and marketing | Sales and marketing | | | 17,085 | | | 10,997 | | | 6,088 | | | 55.4 | % | Sales and marketing | | | | | | | | | | 16,415 | | | 18,651 | | 18,651 | | | $ | | $ | (2,236) | | | (12.0) | | (12.0) | % |
| General and administrative | General and administrative | | | 24,962 | | | 26,384 | | | (1,422) | | | (5.4) | % | General and administrative | | | | | | | | | | 25,556 | | | 42,404 | | 42,404 | | | $ | | $ | (16,848) | | | (39.7) | | (39.7) | % |
| Total stock-based compensation | Total stock-based compensation | | | $ | 76,132 | | | $ | 73,893 | | | $ | 2,239 | | | 3.0 | % | Total stock-based compensation | | | | | | | | | | $ | 87,095 | | | $ | | $ | 113,966 | | | $ | | $ | (26,871) | | | (23.6) | | (23.6) | % |
|
Total stock-based compensation for the year ended December 31, 20212023 compared to the prior year period increaseddecreased by $2.2 million$26.9 million. The decrease was primarily driven by (1) a decrease in compensation expense for stock awards of $18.2 million, (2) a decrease in option expense of $6.7 million compared to the efforts to expandyear ended December 31, 2023, as existing options were either exercised, expired, or cancelled, (3) the separation of full-time employees holding equity awards as a result of the restructuring, (4) the voluntary resignation of our U.S.Executive Vice President and international sales force, as well as investment to build our brandChief Business Development and product management teams.Marketing Officer on September 1, 2023, and (5) a decrease in ESPP expense of $0.7 million.
Other Income and Expense
| | | |
| | |
| | | | | | | | Years Ended
December 31, | | Change |
| | | | | | Years Ended
December 31, | | Change |
| | | | | 2021 | | 2020 | |
| | | | | (in thousands) | | | | | | | | (dollars in thousands) |
| Interest income | Interest income | | | $ | 262 | | | $ | 1,475 | | | $ | (1,213) | |
| Interest expense | 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 | |
| Other (expense) income, net | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | | | — | | | (12,878) | | | 12,878 | |
| Gain (loss) on revaluation of embedded derivatives | | | (919) | | | 464 | | | (1,383) | |
| (Loss) gain on revaluation of embedded derivatives | |
| Total | 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 The increase in interest income of $16.0 million was due to a $309.2 million increase in cash balance in our money market funds for the year ended December 31, 20212023, 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.period.
Interest Expense
Interest expense is fromprimarily due to our debt held by third parties.
Interest expense for the year ended December 31, 20212023, as compared to the prior year period, decreasedincreased by $7.3$54.8 million. This decreaseThe increase was primarily driven by the expensing of loan commitment assets of $52.8 million immediately upon the automatic conversion on September 23, 2023, of Series B RCPS to Class A common stock as a result of the Second Tranche Closing with SK ecoplant, and an increase in interest expense related to the 3% Green Convertible Senior Notes due to lowerJune 2028, issued on May 16, 2023. The increase was offset by a decrease in interest expense as a result of refinancing our notes at a lower interest rate,the redemption on June 1, 2023 of 10.25% Senior Secured Notes due March 2027, and the eliminationrepayment of the amortization of7.5% Term Loan due September 2028, 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 for6.07% Senior Secured Notes due March 2030, and the year ended December 31, 2021 as compared to the prior year period decreased by $2.5 million3.04% Senior Secured Notes due to the conversion of all of our notes held by related parties during 2020.June 2031 on June 14, 2022, November 22, 2022, and August 24, 2023, respectively.
Other Expense,(Expense) Income, net
Other expense,(expense) income, net is primarily derived from investments in joint ventures, plus the impact of foreign currency translation. transactions, and adjustments to fair value for derivatives.
Other expense,income, net for the year ended December 31, 20212023, as compared to the prior year period, decreased by $0.2$7.8 million dueprimarily as a result of the gain on the revaluation of the Option to a $2.0purchase Class A common stock of $9.0 million gain recordedupon receipt of the notice of exercise from SK ecoplant on fair valueAugust 10, 2022 for the year ended December 31, 2022, and an increase in unrealized and realized foreign exchange loss of $1.3 million. The decrease was partially offset by the loss on remeasurement of our equity investment ininvestments of $3.5 million recorded for 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.year ended December 31, 2022.
Loss on ExtinguishmentOperating Activities
Our operating activities consisted of Debt
Loss on extinguishment of debtnet loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. Net cash used in operating activities during the year ended December 31, 2021 as2023, was $372.5 million, an increase of $180.8 million compared to the prior year period improved by $12.9 million resulting from our debt restructuring and debt extinguishmentperiod. The increase in the prior year period. There were no comparable debt restructuringcash used in operating 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 forduring 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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, 20212023, as compared to the prior year period, was primarily a result of an increase in working capital of $379.4 million due to fluctuations(1) an increase in inventory levels of $231.7 million to support future demand, (2) an increase in accounts receivable of $89.8 million, which was primarily due to the effective tax rates on income earned by international entities.timing of revenue transactions and corresponding collections, and (3) the timing of payments to vendors.
Net Loss AttributableInvesting Activities
Our investing activities have consisted of capital expenditures, including investments to Noncontrolling Interests and Redeemable Noncontrolling Interests
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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 attributableincrease our production capacity. We expect 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,continue such investing activities as the flip structure of the PPA Entities.
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests forour business grows. Cash used in investing activities during the year ended December 31, 2021 as2023, was $83.7 million, a decrease of $33.1 million compared to the prior year period changed by $7.4 millionand was primarily due to increased lossesthe decrease in expenditures on tenant improvements for a newly leased engineering and manufacturing building in Fremont, California, which opened in July 2022. We expect to continue to make capital expenditures over the next few quarters to expand production capacity at our PPA Entities,new manufacturing facility in Fremont, California, which are allocatedincludes 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 consisted of borrowings and repayments of debt, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests.
Liquidityresult of SK ecoplant Second Tranche Closing, (3) proceeds from the issuance of common stock of $16.9 million, (4) a contribution from noncontrolling interest of $7.0 million, (5) proceeds from financing obligations of $5.0 million, and Capital Resources(6) proceeds from issuance of non-recourse debt of $4.6 million. This was partially offset by (1) a settlement of the 3.04% Senior Secured Notes due June 30, 2031 of $127.4 million, (2) repayment of 10.25% Senior Secured Notes due March 2027 of $64.0 million, (3) purchases of Capped Calls of $54.5 million, (4) repayment of financing obligations of $18.4 million, and (5) the acquisition of all interest in the PPA V for $6.9 million net of distributions to Intel’s noncontrolling interest of $2.3 million.
As of December 31, 2021,We believe we had cash and cash equivalents of $396.0 million.have sufficient capital to operate our business over the next 12 months. Our cash and cash equivalents consist of highly liquid investmentsworking capital was strengthened 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 Agreementsupplemented liquidity through financing activities with SK ecoplant Co., Ltd. in connection with a strategic partnership. On December 29, 2021,the first quarter of 2023 and issuing the 3% Green Notes in the second quarter of 2023. In addition, we consummatedmay still enter the transactions relatedequity or debt market as needed to support 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 descriptionexpansion of our outstanding debt, please seebusiness. Please refer to Part II, Item 8, Note 7 -— Outstanding Loans and Security Agreements, inand Part II,I, Item 8,1A, Financial StatementsRisk Factors — Risks Related to Our Liquidity — Our indebtedness, and Supplementary Data.The combination ofrestrictions imposed by the agreements governing 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, weoutstanding indebtedness, 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 onlimit 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,activities 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,may adversely affect our ability to secureincur additional debt to fund future needs, for more information regarding the terms of and risks associated with our debt.
Purchase and Financing Options
Overview
In order to appeal to the largest variety of customers, we make available several options to them. Both in the U.S. and abroad, we sell the Energy Servers directly to customers. In the U.S., we also enable customers’ use of the Energy Servers through a power purchase arrangement or a managed services financing (whereby we sell and lease back the Energy Servers in order to supply energy to our customers), both made possible through third-party financing arrangements.
Often our offerings take advantage of local incentives. In the U.S., 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 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 in the U.S. to generate transactions.
Whichever option is selected by a customer in the U.S. or internationally, the contract structure will include obligations (“O&M Obligations”) on our part to operate and maintain the Energy Server (“O&M Agreement”). The O&M Agreement 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 U.S., 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 the Energy Servers and electricity, performance of the O&M Obligations, and performance of the Installation Obligations.
In addition to customary workmanship and materials warranties offered with the sale of Energy Servers, we provide warranties and guaranties regarding the efficiency and output of our Energy Servers to the customer and, in certain financing structures, to the financing parties as well. We refer to a “performance warranty” as an obligation to repair or replace the Energy Servers as necessary to return performance of the Energy Servers 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 Servers to meet the guaranteed performance level. Our obligation to make payments under a performance guaranty is always contractually capped.
Energy Server Sales
There are customers who purchase our Energy Servers directly from us pursuant to customary equipment sales contracts. In connection with the purchase of the Energy Servers, the customers also enter into a contract with us for the O&M Obligations. The customer may elect to engage us to provide the Installation Obligations or engage a third-party provider. Internationally, sales often occur through distribution arrangements pursuant to which local construction service providers perform the Installation Obligations, as is the case in the Republic of Korea, and we contract directly with the customer to provide the O&M Obligations.
Customer Financing Options
With respect to the third-party financing options in the U.S., a customer may choose to contract 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”), or the use of our Energy Servers the timing of installations,owned by a financing party in exchange for a capacity-based payment and, overall economic conditions including the impact of COVID-19in some cases, an output-based payment based 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 expectkw/hour (each, 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):
| | | | | | | | | | | | | | | | | | | | |
| | | 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 | | | | | | | |
| | | | | | | | | | |
Net cash providedPPAs are typically financed on a portfolio basis. In the past, we have financed portfolios through tax equity partnerships, acquisition financings and direct sales to investors (each, a “Portfolio Financing”). Capacity-based payments in a Managed Services Agreement are required regardless of the level of performance of the Energy Server. Managed Services Agreements are then financed pursuant to a sale-leaseback with a financial institution (a “Managed Services Financing”).
In the U.S., our capacity to offer our Energy Servers through either of these financed arrangements depends in large part on the ability of financing parties to optimize the tax benefits associated with the Energy Servers, such as the ITC or accelerated depreciation. Interest rate fluctuations, and internationally, currency exchange rate fluctuations, may also impact the attractiveness of any financing offerings for our customers. Our ability to finance a PPA or a Managed Services Agreement is also related to, and may be limited by, (used in)the creditworthiness of the customer. Additionally, a Managed Services Financing option is limited by a customer’s willingness to commit to making the capacity-based payment to a financing party regardless of performance.
In each of our financing 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. Increasingly, however, we are making sales to third-party developers.
Each of our financing transaction structures is described in further detail below.
Portfolio Financings
In the past, we financed 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 the Energy Servers to a limited liability project company (such portfolio owner, a “Portfolio Company”) of which the PPA Entity was the sole member. Whether an investor, a tax equity partnership, or a single member limited liability company, the Portfolio Company was the entity that directly owned the portfolio. The Portfolio Company sold the electricity generated by the Energy Servers contemplated by the PPAs to the customers. We recognized revenue as the electricity was produced. Our current practices no longer contemplate these types of transactions. In fiscal 2023 we completed the process of restructuring our PPA Entities by (i) acquiring the outstanding equity interests of our previous investors and tax equity partners, (ii) selling 100% of the equity interests in the PPA Entities or the Portfolio Companies to new investors or tax equity partnerships in which we do not have an equity interest, and (iii) entering into new equipment supply and installation agreements and related agreements to upgrade and/or replace the Energy Servers. In August 2023, we sold our last consolidated PPA Entity, 2015 ESA Project Company, LLC (“PPA V”), in connection with the repowering of its portfolio of Energy Servers. For further discussion, see Part II, Item 8, Note 10 — Portfolio Financings.
Moving forward, we plan to finance PPAs by selling a portfolio of Energy Servers or a Portfolio Company to an investor or tax equity partnership (in either case, an “Equity Investor”) in which we do not have an equity interest (a “Third-Party PPA”). The Equity Investor owns the Portfolio Company or the Energy Servers directly, and in each case, sells the electricity generated by the Energy Servers contemplated by the PPAs to the customers.
When we finance a portfolio of the Energy Servers and the PPAs through a Portfolio Financing, we typically enter into, with the Portfolio Company or directly with the Equity Investor, as the case may be, a sale, engineering, procurement, and construction agreement (“EPC Agreement”) and an O&M Agreement, including the provision of performance warranties and guaranties. As owner of the portfolio of the PPAs and related Energy Servers, the portfolio owner receives all customer payments generated under the PPAs, the benefits of the ITC and accelerated tax depreciation, and any other available state or local benefits arising out of the ownership or operation of the Energy Servers, to the extent not already allocated to the customer under the PPA.
The sales of our Energy Servers in connection with a 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 delivery, when the Energy Servers are incorporated intophysically ready for startup and commissioning (i.e., “Mechanical Completion”), and upon substantial completion (i.e., “Commencement of Operations”, “COO”).
Obligations to Portfolio Companies
Our Portfolio Financings involve many obligations on our part to the Portfolio Company or Equity Investor, as applicable. These obligations are set forth in the applicable EPC Agreements and O&M Agreements, and may include some or all of the following obligations:
•designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Portfolio Company or Equity Investor;
•obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Energy Servers, and maintaining such permits and approvals throughout the term of the EPC Agreements and O&M Agreements;
•operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations;
•satisfying the performance warranties and guaranties set forth in the applicable O&M Agreements; and
•complying with any other specific requirements contained in the PPAs with customers.
The O&M Agreement grants the Equity Investor 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 O&M Agreement and we do not cure such failure in the applicable warranty cure period, or that a PPA terminates as a result of any failure by us to perform the obligations in the O&M Agreement.
In some Portfolio Financings, we have also agreed to pay liquidated damages to the applicable Portfolio Company or Equity Investor, as the case may be, in the event of delays in the manufacture, installation, and commissioning of our Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Servers.
Administration of Portfolio Companies
In August 2023, we sold our last consolidated PPA Entity, PPA V. Before the sale, as we had determined that we were the primary beneficiary of this VIE, we consolidated 100% of the assets, liabilities, and operating results of PPA V, including the Energy Servers and lease income, in our consolidated financial statements. We recognized the Equity Investors’ share of the net assets of the investment entity as noncontrolling interests in the subsidiary in our consolidated balance sheets. We recognized the amounts that are contractually payable to these investors in each period as distributions to noncontrolling interests in our consolidated statements of changes in stockholders’ equity (deficit). PPA V contained debt that was non-recourse to us.
Our consolidated statements of cash flows reflect cash received from the Equity Investors in PPA V as proceeds from investments by noncontrolling interests in the subsidiary. Our consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling interests in the subsidiary. We reflect any unpaid distributions to these Equity Investors in PPA V as distributions payable to noncontrolling interests in the subsidiary on our consolidated balance sheets.
For further information about our Portfolio Financings, see Part II, Item 8, Note 11 — Portfolio Financings.
Managed Services Financing
Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer for a certain term. We sell the Energy Servers to the financier who then leases it back to us pursuant to a sale-leaseback transaction. In the past, certain sale-leaseback transactions failed to achieve all of the criteria for sale accounting and consequently the proceeds from the transaction were recognized as financing obligations within our consolidated balance sheets. For successful sale-and-leaseback transactions, the financier of the Managed Services Agreement typically pays the purchase price for the Energy Servers at or around acceptance, and we recognize the fair market value of the Energy Servers sold and respective installation services provided to the financier within product and install revenue, respectively, and recognize an operating lease right-of-use (“ROU”) asset and an operating lease liability on our consolidated balance sheets. Any proceeds in excess of the fair value of the Energy Servers are recognized as financing obligations.
The duration of our current Managed Services Agreement offerings is between five and ten years. Under some Managed Services Agreements, we agree to provide remarketing assistance in the event a customer does not renew its agreement. Our Managed Services Agreements typically provide for performance warranties of both the efficiency and output of the Energy Servers and may include other warranties depending on the type of deployment. We often structure payments from the
customer as a dollar per kilowatt flat payment. In some cases, the structure may also include a variable payment based on the Energy Servers’ performance or a performance-related set-off. As of December 31, 2023, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties.
Delivery and Installation
Installation is required in order for our Energy Servers to reach full power. Our role in the installation process varies based on the terms of the contract and/or the country of installation which can include, but is not limited to, design, engineering, permitting, procurement, construction, installation, start-up, performance testing, and commissioning of the systems. Bloom may contract with subcontractors to provide all or any part of the work. Depending on the acceptance milestones, we recognize installation revenue once the project has reached full power, or mechanical completion or on a percentage of completion basis.
Performance Guarantees
As of December 31, 2023, we had incurred no liabilities due to failure to repair or replace the Energy Servers pursuant to any performance warranties made under the O&M Agreements.
For the O&M Agreements that are subject to renewal, our future service revenue from such agreements are subject to our obligations to make payments for underperformance against the performance guaranties, which are capped at an aggregate total of approximately $564.0 million (including $438.3 million related to portfolio financing entities and $125.7 million related to all other transactions, and include payments for both low output and low efficiency) and our aggregate remaining potential payment related to these underperformance obligations was approximately $491.9 million as of December 31, 2023. For the year ended December 31, 2023, we made performance guarantee payments of $25.9 million.
International Channel Partners
India. In India, sales activities are currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly owned subsidiary; however, we continue 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 activities are currently conducted by Bloom Energy Japan Limited, our wholly owned subsidiary.
The 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 (“PDA”) in November 2018 with SK ecoplant for the marketing and sale of Bloom Energy Servers for the 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 of at least 500 megawatts of power for our Energy Servers between 2022 and 2024 on a take-or-pay basis; (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 Hydrogen Portfolio Standard. In December 2023, we further expanded our business partnership with SK ecoplant through the increase of SK ecoplant’s purchase commitments for Bloom Energy products of 250 megawatts through 2027 and extended the timing of delivery of the remaining take-or-pay commitment under the original agreement. For additional information, please see Part II, Item 8, Note 17 — SK ecoplant Strategic Investment.
Under the terms of the 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.
SK ecoplant Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK ecoplant to establish a light-assembly facility in the Republic of Korea for sales of certain portions of our Energy Server for the stationary utility and commercial and industrial market in the Republic of Korea. The joint venture is a variable interest entity (“VIE”) of Bloom, and we consolidate it in our financial statements as we are the primary beneficiary and therefore have the power to direct activities which are most significant to the joint venture. The joint venture facility became operational in July 2020. Other than a nominal initial capital contribution by Bloom Energy, the joint venture is funded by SK ecoplant. SK ecoplant is 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 joint venture agreement (“JVA”) to increase the scope of assembly work done in the joint venture facility. The joint venture was further developed in 2022 and 2023.
On September 15, 2023, we entered into the Amended and Restated JVA and the Share Purchase Agreement (together, the “Amended JV Agreements”) with SK ecoplant which changed the share of our voting rights in the Korean joint venture to 40% and increased the scope of assembly done by the joint venture facility in the Republic of Korea to full assembly. Neither the Amended JV Agreements, nor the fact that SK ecoplant is considered to be our related party after the conversion of Series B RCPS into shares of our Class A common stock (for additional information, please see Part II, Item 8, Note 11 — Related Party Transactions) changed our status as the primary beneficiary of the Korean joint venture. Therefore, we continue to consolidate this VIE in our financial statements as of December 31, 2023.
Comparison of the Years Ended December 31, 2023 and 2022
A discussion regarding our results of operations for 2023 compared to 2022 is presented in this section. A discussion of our results of operations for 2022 compared to 2021 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022.
Key Operating Metrics
In addition to the measures presented in the consolidated financial statements, we use certain 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.
•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 related expenses not included in product costs — the manufacturing and related operating costs that are incurred to procure parts and manufacture the 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 into inventory and therefore, expensed to our consolidated statements of operations in the period that they are incurred.
•Installation costs on product accepted in the period (per kilowatt) — the average unit installation cost for the Energy Servers that are accepted in a given period. This metric is used to provide insight into the trajectory of installation costs and, in particular, to evaluate whether our installation costs are in line with our installation billings.
Product Acceptances
We use acceptances as a key operating metric to measure the volume of our completed Energy Server installation activity from period to period. Acceptance 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 customer, when the system is shipped and delivered and is physically ready for startup and commissioning (i.e., “Mechanical Completion”), or when the system is shipped and delivered and is turned on and producing power (i.e., “Commencement of Operations”, “COO”).
The product acceptances in the years ended December 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | Change | | | | |
| | | 2023 | | 2022 | | Amount | | % | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Product accepted | | 2,682 | | | 2,281 | | | 401 | | | 17.6 | % | | | | | | | | |
| Megawatts accepted, net | | 268 | | | 228 | | | 40 | | | 17.6 | % | | | | | | | | |
Product accepted increased approximately by 401 systems, or 17.6%, for the year ended December 31, 2023, as compared to the prior year period, which is the equivalent of 40 megawatts. Acceptance volume increased as demand increased for the Energy Servers.
The increase in acceptances of 268 megawatts achieved for the year ended December 31, 2023 was added to our installed base and, therefore, increased our total megawatts accepted, net, from 973 megawatts to 1,241 megawatts.
Purchase Alternatives
Our customers have several purchase alternatives for our Energy Servers. The portion of acceptances attributable to each purchase alternative in the years ended December 31, 2023 and 2022 was as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | | | | |
| | | 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, | | |
| | | | | | | 2023 | | 2022 | | |
| | | | | | | | | | | |
| Direct purchase (including third-party PPAs and international channels) | | | | | | 98 | % | | 98 | % | | |
| | | | | | | | | | |
| Managed services | | | | | | 2 | % | | 2 | % | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | 100 | % | | 100 | % | | |
The portion of total revenue attributable to each purchase option in the years ended December 31, 2023 and 2022 was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | Years Ended December 31, |
| | | | | | | 2023 | | 2022 |
| | | | | | | | | |
| Direct purchase (including third-party PPAs and international channels) | | | | | | 90 | % | | 91 | % |
| Traditional lease | | | | | | 1 | % | | 1 | % |
| Managed services | | | | | | 7 | % | | 5 | % |
| | | | | | | | |
| Portfolio financings | | | | | | 2 | % | | 3 | % |
| | | | | | 100 | % | | 100 | % |
Costs Related to Our Products
Total product related costs for the years ended December 31, 2023 and 2022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | 2023 | | 2022 | | Amount | | % |
| | | | | | | | | | | |
| Product costs of product accepted in the period | | | | | | | | | | $2,108/kW | | $2,453/kW | | $(345)/kW | | (14.1) | % |
| Period costs of manufacturing related expenses not included in product costs (in thousands) | | | | | | | | | | $ | 64,892 | | | $ | 56,630 | | | $ | 8,262 | | | 14.6 | % |
| Installation costs on product accepted in the period | | | | | | | | | | $394/kW | | $456/kW | | ($62/kW) | | (13.6) | % |
Product costs of product accepted decreased by $345 per kilowatt, or 14.1%, for the year ended December 31, 2023, as compared to the prior year period. The decrease in costs was primarily driven by our continued efforts to reduce material costs, implement cost reduction programs with our vendors, and reduce our labor and overhead costs through increased volume, improved processes, and automation at our manufacturing facilities.
Period costs of manufacturing related expenses increased by $8.3 million, or 14.6%, for the year ended December 31, 2023, as compared to the prior year period. Our period costs of manufacturing related expenses increased primarily as a result
of costs incurred to support capacity expansion efforts, which are expected to be brought online in future periods, partially offset by a $5.3 million release from one-time benefit related to a grant from the Delaware Economic Development Authority.
Installation costs on product accepted decreased by $62 per kilowatt, or 13.6%, for the year ended December 31, 2023, as compared to the prior year period. Each customer site is unique and installation costs can vary due to a number of factors, including site complexity, size, and location of gas, among other factors. As such, installation on a per kilowatt basis can vary significantly from period to period. For the year ended December 31, 2023, this decrease in cost was primarily driven by the change in the mix of sites requiring Bloom installation.
Results of Operations
1 The PPA Entities' operating and financing cash flows are a subsetA discussion regarding the comparison of our consolidated cash flowsfinancial condition and representresults of operations for the stand-alone cash flows preparedyears ended December 31, 2023 and 2022is presented below.
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
| | | | (dollars in thousands) | | |
| Product | | | | | | | | | | $ | 975,245 | | $ | 880,664 | | $ | 94,581 | | 10.7 | % |
| Installation | | | | | | | | | | 92,796 | | 92,120 | | 676 | | 0.7 | % |
| Service | | | | | | | | | | 183,065 | | 150,954 | | 32,111 | | 21.3 | % |
| Electricity | | | | | | | | | | 82,364 | | 75,387 | | 6,977 | | 9.3 | % |
| Total revenue | | | | | | | | | | $ | 1,333,470 | | $ | 1,199,125 | | $ | 134,345 | | 11.2 | % |
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Total Revenue
Total revenue increased by $134.3 million, or 11.2%, for the year ended December 31, 2023, as compared to the prior year period. This increase was driven by a $94.6 million increase in accordanceproduct revenue, a $32.1 million increase in service revenue, a $7.0 million increase in electricity revenue, and a $0.7 million increase in installation revenue.
Product Revenue
Product revenue increased by $94.6 million, or 10.7%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by higher product acceptances of 17.6%, offset by the lower average selling price. Upgrades of our PPA portfolios contributed $20.7 million net increase in revenue recognized compared to the prior year.
Installation Revenue
Installation revenue increased by $0.7 million, or 0.7%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by the timing of key project milestones on sites requiring installations by us in the year ended December 31, 2023.
Service Revenue
Service revenue increased by $32.1 million, or 21.3%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by 223 megawatts of the Energy Servers reaching full power in fiscal 2023, which contributed to a $42.5 million increase in revenue from maintenance contracts associated with U.S. GAAP. our fleet of the Energy Servers, partially offset by the impact of product performance guarantees of $8.5 million and a $0.7 million decrease in state incentives.
Electricity Revenue
Electricity revenue includes both revenue from contracts with customers and revenue from contracts that contain leases.
Electricity revenue increased by $7.0 million, or 9.3%, for the year ended December 31, 2023, as compared to the prior year period, primarily due to an accelerated amortization of incentive related deferred revenue of $5.0 million resulting from the PPA V Upgrade.
Cost of Revenue
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
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| Product | | | | | | | | | | $ | 630,105 | | | $ | 616,178 | | | $ | 13,927 | | | 2.3 | % |
| Installation | | | | | | | | | | 105,735 | | | 104,111 | | | 1,624 | | | 1.6 | % |
| Service | | | | | | | | | | 220,927 | | | 168,491 | | | 52,436 | | | 31.1 | % |
| Electricity | | | | | | | | | | 178,909 | | | 162,057 | | | 16,852 | | | 10.4 | % |
| Total cost of revenue | | | | | | | | | | $ | 1,135,676 | | | $ | 1,050,837 | | | $ | 84,839 | | | 8.1 | % |
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Total Cost of Revenue
Total cost of revenue increased by $84.8 million, or 8.1%, for the year ended December 31, 2023, as compared to the prior year period. The increase was driven by a $52.4 million increase in cost of service revenue, a $16.9 million increase in cost of electricity revenue, a $13.9 million increase in cost of product revenue, and a $1.6 million increase in cost of installation revenue.
Cost of Product Revenue
Cost of product revenue increased by $13.9 million, or 2.3%, for the year ended December 31, 2023, as compared to the prior year period. The increase in cost of product revenue was primarily driven by a 17.6% increase in product acceptances, including the net effect of $16.2 million from the upgrades of our PPA portfolios. This increase was partially offset by (1) a lower cost per unit attributable to our ongoing efforts to reduce material costs, (2) cost reduction programs with our vendors and a reduction in labor and overhead costs due to increased volume, (3) improved processes and automation at our manufacturing facilities, and (4) one-time benefit of $5.3 million related to a grant from the Delaware Economic Development Authority recognized against payroll related costs in the third quarter of fiscal 2023.
Cost of Installation Revenue
Cost of installation revenue increased by $1.6 million, or 1.6%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by the timing of key project milestones on sites requiring installations by us in the year ended December 31, 2023.
Cost of Service Revenue
Cost of service revenue increased by $52.4 million, or 31.1%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily due to the deployment of field replacement units, contributing an increase of $43.6 million, and an increase in maintenance material costs of $6.6 million. This increase was partially offset by cost reductions and our actions to proactively manage fleet optimizations and a portion of released grant liability of $2.9 million recognized against payroll related costs incurred in the third quarter of fiscal 2023.
Cost of Electricity Revenue
Cost of electricity revenue includes both cost of revenue from contracts with customers and cost of revenue from contracts that contain leases.
Cost of electricity revenue increased by $16.9 million, or 10.4%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by a $14.9 million net increase in the impairment of the Energy Servers as a result of the upgrades of our PPA portfolios.
Gross Profit (Loss) and Gross Margin
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December 31, | | Change |
| | | | | | | | 2023 | | 2022 | |
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| Gross profit (loss): | | | | | | | | | | | | |
| Product | | | | | | | | $ | 345,140 | | $ | 264,486 | | $ | 80,654 |
| Installation | | | | | | | | (12,939) | | (11,991) | | $ | (948) |
| Service | | | | | | | | (37,862) | | (17,537) | | $ | (20,325) |
| Electricity | | | | | | | | (96,545) | | (86,670) | | $ | (9,875) |
| Total gross profit | | | | | | | | $ | 197,794 | | $ | 148,288 | | $ | 49,506 |
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| Gross margin: | | | | | | | | | | | | |
| Product | | | | | | | | 35 | % | | 30 | % | | |
| Installation | | | | | | | | (14) | % | | (13) | % | | |
| Service | | | | | | | | (21) | % | | (12) | % | | |
| Electricity | | | | | | | | (117) | % | | (115) | % | | |
| Total gross margin | | | | | | | | 15 | % | | 12% | | |
Total Gross Profit
Gross profit increased by $49.5 million in the year ended December 31, 2023, as compared to the prior year period. This change was mostly due to an $80.7 million increase in product gross profit, primarily driven by a 17.6% increase in product acceptances resulting from higher demand, lower cost per unit attributable to our ongoing efforts to reduce product costs. This increase was offset by a $20.3 million increase in service gross loss, primarily due to the deployment of field replacement units, and a $9.9 million increase in electricity gross loss, predominantly driven by a $14.9 million net increase in impairment charges of the old Energy Servers resulting from the upgrades of our PPA portfolios.
Product Gross Profit
Product gross profit increased by $80.7 million in the year ended December 31, 2023, as compared to the prior year period. The increase was primarily driven by a 17.6% increase in product acceptances due to higher demand for our products, one-time benefit of $5.3 million related to a grant from the Delaware Economic Development Authority recognized against payroll related costs in the third quarter of fiscal 2023, and our ongoing cost reduction efforts to reduce material costs and our reduction in labor and overhead unit cost due to increased volume, improved processes and automation at our manufacturing facilities.
Installation Gross Loss
Installation gross loss worsened by $0.9 million in the year ended December 31, 2023, as compared to the prior year period. This change was primarily driven by the timing of key project milestones on sites requiring installations by us in the year ended December 31, 2023 and other site related factors such as site complexity, size, local ordinance requirements, and location of the utility interconnect.
Service Gross Loss
Service gross loss worsened by $20.3 million in the year ended December 31, 2023, as compared to the prior year period. This was primarily due to deployments of field replacement units contributing to an increase in service gross loss of $43.6 million, an increase in maintenance material costs of $6.6 million, and the impact of product performance guarantees of $8.5 million, partially offset by 223 megawatts of the Energy Servers reaching full power in fiscal 2023, which contributed to a $42.5 million increase in revenue from maintenance contracts associated with our fleet of the Energy Servers, the release of $2.9 million of grant liability recognized against payroll related costs incurred in the third quarter of fiscal 2023, and cost reductions and our actions to proactively manage fleet optimizations.
Electricity Gross Loss
Electricity gross loss worsened by $9.9 million in the year ended December 31, 2023, as compared to the prior year period. The change was primarily driven by a $14.9 million increase in the impairment charges of the old Energy Servers resulting from the upgrades of our PPA portfolios, partially offset by a $5.0 million accelerated amortization of incentive related deferred revenue as a result of PPA V Upgrade.
Operating activities consist principallyExpenses
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December 31, | | Change |
| | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
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| Research and development | | | | | | | | | | $ | 155,865 | | | $ | 150,606 | | | $ | 5,259 | | | 3.5 | % |
| Sales and marketing | | | | | | | | | | 89,961 | | | 90,934 | | | (973) | | | (1.1) | % |
| General and administrative | | | | | | | | | | 160,875 | | | 167,740 | | | (6,865) | | | (4.1) | % |
| Total operating expenses | | | | | | | | | | $ | 406,701 | | | $ | 409,280 | | | $ | (2,579) | | | (0.6) | % |
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Total Operating Expenses
Total operating expenses decreased by $2.6 million in the year ended December 31, 2023, as compared to the prior year period. This decrease was primarily attributable to (1) a decrease in employee compensation and benefits expenses of cash used$17.5 million, predominantly related to runa decrease in stock-based compensation expenses, (2) a decrease in professional services and consulting and advisory costs of $2.3 million, and (3) a decrease in other operating expenses of $4.3 million. The decrease was partially offset by (i) our continued investment in R&D capabilities to support our technology roadmap, (ii) our investment in business development, as well as (iii) increases in facility costs, depreciation costs, office expenses, and travel expenses of $10.7 million, $5.1 million, $3.4 million, and $1.7 million, respectively.
Research and Development
Research and development expenses increased by $5.3 million in the operationsyear ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by (1) an increase in employee compensation and benefits of $2.0 million, (2) an increase in travel expenses of $0.5 million, (3) an increase in professional services costs of $0.6 million, (4) an increase in depreciation expenses of $0.5 million, and (5) an increase in other research and development costs of $3.7 million, partially offset by a decrease in consumable laboratory supplies and other laboratory related costs of $2.2 million.
Sales and Marketing
Sales and marketing expenses decreased by $1.0 million in the year ended December 31, 2023, as compared to the prior year period. This decrease was primarily driven by a decrease in employee compensation and benefits of $5.6 million, partially offset by an increase in consulting, advisory, and outside professional services expenses of $4.5 million, and an increase in travel expenses of $0.3 million.
General and Administrative
General and administrative expenses decreased by $6.9 million in the year ended December 31, 2023, as compared to the prior year period. This decrease was primarily driven by (1) a decrease in employee compensation and benefits of $13.9 million, predominantly related to a decrease in stock-based compensation expenses, (2) a decrease in professional services costs of $7.4 million, and (3) a decrease in other general and administrative expenses of $7.8 million. The increase was partially offset by (i) an increase in facility costs of $10.7 million, primarily due to rent expenses and utility costs, (ii) an increase in office and other expenses of $3.5 million, primarily driven by the impairment of non-recoverable production insurance of $6.4 million as a result of the PPA Entities,V Upgrade, offset by $4.5 million of prepaid insurance impairment per the purchasePPA IV Upgrade in fiscal 2022, and factoring and financing fees of Energy Servers$2.1 million, (iii) an increase in depreciation expenses of $4.6 million, (iv) an increase in computer equipment expenses of $2.3 million, and (v) an increase in travel expenses of $1.0 million.
Stock-Based Compensation
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
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| Cost of revenue | | | | | | | | | | $ | 17,504 | | | $ | 18,955 | | | $ | (1,451) | | | (7.7) | % |
| Research and development | | | | | | | | | | 27,620 | | | 33,956 | | | $ | (6,336) | | | (18.7) | % |
| Sales and marketing | | | | | | | | | | 16,415 | | | 18,651 | | | $ | (2,236) | | | (12.0) | % |
| General and administrative | | | | | | | | | | 25,556 | | | 42,404 | | | $ | (16,848) | | | (39.7) | % |
| Total stock-based compensation | | | | | | | | | | $ | 87,095 | | | $ | 113,966 | | | $ | (26,871) | | | (23.6) | % |
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Total stock-based compensation for the year ended December 31, 2023 compared to the prior year period decreased by $26.9 million. The decrease was primarily driven by (1) a decrease in compensation expense for stock awards of $18.2 million, (2) a decrease in option expense of $6.7 million compared to the year ended December 31, 2023, as existing options were either exercised, expired, or cancelled, (3) the separation of full-time employees holding equity awards as a result of the restructuring, (4) the voluntary resignation of our Executive Vice President and Chief Business Development and Marketing Officer on September 1, 2023, and (5) a decrease in ESPP expense of $0.7 million.
Other Income and Expense
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| | | | | | | Years Ended
December 31, | | Change |
| | | | | | | | 2023 | | 2022 | |
| | | | | | | | | (dollars in thousands) |
| Interest income | | | | | | | | $ | 19,885 | | | $ | 3,887 | | | $ | 15,998 | |
| Interest expense | | | | | | | | (108,299) | | | (53,493) | | | (54,806) | |
| Other (expense) income, net | | | | | | | | (2,793) | | | 4,998 | | | (7,791) | |
| Loss on extinguishment of debt | | | | | | | | (4,288) | | | (8,955) | | | 4,667 | |
| (Loss) gain on revaluation of embedded derivatives | | | | | | | | (1,641) | | | 566 | | | (2,207) | |
| Total | | | | | | | | $ | (97,136) | | | $ | (52,997) | | | $ | (44,139) | |
Interest Income
Interest income is derived from usinvestment earnings on our cash balances primarily from money market funds. The increase in interest income of $16.0 million was due to a $309.2 million increase in cash balance in our money market funds for the year ended December 31, 2023, as compared to the prior year period.
Interest Expense
Interest expense is primarily due to our debt held by third parties.
Interest expense for the year ended December 31, 2023, as compared to the prior year period, increased by $54.8 million. The increase was primarily driven by the expensing of loan commitment assets of $52.8 million immediately upon the automatic conversion on September 23, 2023, of Series B RCPS to Class A common stock as a result of the Second Tranche Closing with SK ecoplant, and principal reductionsan increase in loan balances. Financing activities consistinterest expense related to the 3% Green Convertible Senior Notes due June 2028, issued on May 16, 2023. The increase was offset by a decrease in interest expense as a result of the redemption on June 1, 2023 of 10.25% Senior Secured Notes due March 2027, and the repayment of the 7.5% Term Loan due September 2028, the 6.07% Senior Secured Notes due March 2030, and the 3.04% Senior Secured Notes due June 2031 on June 14, 2022, November 22, 2022, and August 24, 2023, respectively.
Other (Expense) Income, net
Other (expense) income, net is primarily of changesderived from investments 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 withjoint ventures, the impact of foreign currency transactions, and adjustments to consolidated cash flowsfair value for derivatives.
Other income, net for the year ended December 31, 2023, as compared to the prior year period, decreased by $7.8 million primarily as a result of the PPA Entitiesgain on the revaluation of the Option to purchase Class A common stock of $9.0 million upon receipt of the notice of exercise from SK ecoplant on August 10, 2022 for the year ended December 31, 2022, and an increase in which we have only a minority interest.unrealized and realized foreign exchange loss of $1.3 million. The decrease was partially offset by the loss on remeasurement of our equity investments of $3.5 million recorded for the year ended December 31, 2022.
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. Net cash used in operating activities during the year ended December 31, 2023, was $372.5 million, an increase of $180.8 million compared to the prior year period. The increase in cash used in operating activities during the year ended December 31, 20212023, as compared to the prior year period, was primarily thea result of an increase in our net working capital of $18.8$379.4 million due to (1) an increase in the year ended December 31, 2021inventory levels of $231.7 million to support future demand, (2) an increase in accounts receivable of $89.8 million, which was primarily due to the timing of revenue transactions and corresponding collections, and (3) the increase in inventory levelstiming of payments to support future demand.vendors.
Investing Activities
Our investing activities have consisted of capital expenditures, that include investmentincluding investments to increase our production capacity. We expect to continue such investing activities as our business grows. Cash used in investing activities of $46.7 million during the year ended December 31, 20212023, was $83.7 million, a decrease of $33.1 million compared to the prior year period and was primarily due to the result ofdecrease in expenditures on tenant improvements for a newly leased engineering and manufacturing building in Fremont, California.California, which opened in July 2022. We expect to continue to make capital expenditures over the next few quarters to prepareexpand production capacity at 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 redeemablecontributions from noncontrolling interests, and the proceeds from the issuanceissuances of our common stock. Net cash provided by financing activities during the year ended December 31, 20212023, was $306.4$683.3 million, an increase of $130.3$472.0 million compared to the prior year period. The increase was primarily due to (1) proceeds from the issuance of the 3% Green Notes of $612.8 million, net of paid issuance costs of $19.7 million, (2) proceeds from the issuance of redeemable convertible preferred stock of $310.6 million, net of paid issuance costs of $0.4 million, as a
result of SK ecoplant Second Tranche Closing, (3) proceeds from the issuance of common stock of $16.9 million, (4) a contribution from noncontrolling interest of $7.0 million, (5) proceeds from financing obligations of $5.0 million, and (6) proceeds from issuance of non-recourse debt of $4.6 million. This was partially offset by (1) a settlement of the 3.04% Senior Secured Notes due June 30, 2031 of $127.4 million, (2) repayment of 10.25% Senior Secured Notes due March 2027 of $64.0 million, (3) purchases of Capped Calls of $54.5 million, (4) repayment of financing obligations of $18.4 million, and (5) the acquisition of all interest in the PPA V for $6.9 million net of distributions to Intel’s noncontrolling interest of $2.3 million.
We believe we have sufficient capital to operate our business over the next 12 months. Our working capital was strengthened with the supplemented liquidity through financing activities with SK ecoplant in the first quarter of 2023 and issuing the 3% Green Notes in the second quarter of 2023. In addition, we may still enter the equity or debt market as needed to support the expansion of our business. Please refer to Part II, Item 8, Note 7 — Outstanding Loans and Security Agreements, and Part I, Item 1A, Risk Factors — Risks Related to Our Liquidity — Our indebtedness, and restrictions imposed by the agreements governing our outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, for more information regarding the terms of and risks associated with our debt.
Purchase and Financing Options
Overview
In order to appeal to the largest variety of customers, we make available several options to them. Both in the U.S. and abroad, we sell the Energy Servers directly to customers. In the U.S., we also enable customers’ use of the Energy Servers through a power purchase arrangement or a managed services financing (whereby we sell and lease back the Energy Servers in order to supply energy to our customers), both made possible through third-party financing arrangements.
Often our offerings take advantage of local incentives. In the U.S., 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 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 in the U.S. to generate transactions.
Whichever option is selected by a customer in the U.S. or internationally, the contract structure will include obligations (“O&M Obligations”) on our part to operate and maintain the Energy Server (“O&M Agreement”). The O&M Agreement 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 U.S., 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 the Energy Servers and electricity, performance of the O&M Obligations, and performance of the Installation Obligations.
In addition to customary workmanship and materials warranties offered with the sale of Energy Servers, we provide warranties and guaranties regarding the efficiency and output of our Energy Servers to the customer and, in certain financing structures, to the financing parties as well. We refer to a “performance warranty” as an obligation to repair or replace the Energy Servers as necessary to return performance of the Energy Servers 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 Servers to meet the guaranteed performance level. Our obligation to make payments under a performance guaranty is always contractually capped.
Energy Server Sales
There are customers who purchase our Energy Servers directly from us pursuant to customary equipment sales contracts. In connection with the purchase of the Energy Servers, the customers also enter into a contract with us for the O&M Obligations. The customer may elect to engage us to provide the Installation Obligations or engage a third-party provider. Internationally, sales often occur through distribution arrangements pursuant to which local construction service providers perform the Installation Obligations, as is the case in the Republic of Korea, and we contract directly with the customer to provide the O&M Obligations.
Customer Financing Options
With respect to the third-party financing options in the U.S., a customer may choose to contract 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”), or the use of our Energy Servers owned by a financing party in exchange for a capacity-based payment and, in some cases, an output-based payment based on kw/hour (each, a “Managed Services Agreement”).
PPAs are typically financed on a portfolio basis. In the past, we have financed portfolios through tax equity partnerships, acquisition financings and direct sales to investors (each, a “Portfolio Financing”). Capacity-based payments in a Managed Services Agreement are required regardless of the level of performance of the Energy Server. Managed Services Agreements are then financed pursuant to a sale-leaseback with a financial institution (a “Managed Services Financing”).
In the U.S., our capacity to offer our Energy Servers through either of these financed arrangements depends in large part on the ability of financing parties to optimize the tax benefits associated with the Energy Servers, such as the ITC or accelerated depreciation. Interest rate fluctuations, and internationally, currency exchange rate fluctuations, may also impact the attractiveness of any financing offerings for our customers. Our ability to finance a PPA or a Managed Services Agreement is also related to, and may be limited by, the creditworthiness of the customer. Additionally, a Managed Services Financing option is limited by a customer’s willingness to commit to making the capacity-based payment to a financing party regardless of performance.
In each of our financing 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. Increasingly, however, we are making sales to third-party developers.
Each of our financing transaction structures is described in further detail below.
Portfolio Financings
In the past, we financed 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 the Energy Servers to a limited liability project company (such portfolio owner, a “Portfolio Company”) of which the PPA Entity was the sole member. Whether an investor, a tax equity partnership, or a single member limited liability company, the Portfolio Company was the entity that directly owned the portfolio. The Portfolio Company sold the electricity generated by the Energy Servers contemplated by the PPAs to the customers. We recognized revenue as the electricity was produced. Our current practices no longer contemplate these types of transactions. In fiscal 2023 we completed the process of restructuring our PPA Entities by (i) acquiring the outstanding equity interests of our previous investors and tax equity partners, (ii) selling 100% of the equity interests in the PPA Entities or the Portfolio Companies to new investors or tax equity partnerships in which we do not have an equity interest, and (iii) entering into new equipment supply and installation agreements and related agreements to upgrade and/or replace the Energy Servers. In August 2023, we sold our last consolidated PPA Entity, 2015 ESA Project Company, LLC (“PPA V”), in connection with the repowering of its portfolio of Energy Servers. For further discussion, see Part II, Item 8, Note 10 — Portfolio Financings.
Moving forward, we plan to finance PPAs by selling a portfolio of Energy Servers or a Portfolio Company to an investor or tax equity partnership (in either case, an “Equity Investor”) in which we do not have an equity interest (a “Third-Party PPA”). The Equity Investor owns the Portfolio Company or the Energy Servers directly, and in each case, sells the electricity generated by the Energy Servers contemplated by the PPAs to the customers.
When we finance a portfolio of the Energy Servers and the PPAs through a Portfolio Financing, we typically enter into, with the Portfolio Company or directly with the Equity Investor, as the case may be, a sale, engineering, procurement, and construction agreement (“EPC Agreement”) and an O&M Agreement, including the provision of performance warranties and guaranties. As owner of the portfolio of the PPAs and related Energy Servers, the portfolio owner receives all customer payments generated under the PPAs, the benefits of the ITC and accelerated tax depreciation, and any other available state or local benefits arising out of the ownership or operation of the Energy Servers, to the extent not already allocated to the customer under the PPA.
The sales of our Energy Servers in connection with a 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 delivery, when the Energy Servers are physically ready for startup and commissioning (i.e., “Mechanical Completion”), and upon substantial completion (i.e., “Commencement of Operations”, “COO”).
Obligations to Portfolio Companies
Our Portfolio Financings involve many obligations on our part to the Portfolio Company or Equity Investor, as applicable. These obligations are set forth in the applicable EPC Agreements and O&M Agreements, and may include some or all of the following obligations:
•designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Portfolio Company or Equity Investor;
•obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Energy Servers, and maintaining such permits and approvals throughout the term of the EPC Agreements and O&M Agreements;
•operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations;
•satisfying the performance warranties and guaranties set forth in the applicable O&M Agreements; and
•complying with any other specific requirements contained in the PPAs with customers.
The O&M Agreement grants the Equity Investor 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 O&M Agreement and we do not cure such failure in the applicable warranty cure period, or that a PPA terminates as a result of any failure by us to perform the obligations in the O&M Agreement.
In some Portfolio Financings, we have also agreed to pay liquidated damages to the applicable Portfolio Company or Equity Investor, as the case may be, in the event of delays in the manufacture, installation, and commissioning of our Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Servers.
Administration of Portfolio Companies
In August 2023, we sold our last consolidated PPA Entity, PPA V. Before the sale, as we had determined that we were the primary beneficiary of this VIE, we consolidated 100% of the assets, liabilities, and operating results of PPA V, including the Energy Servers and lease income, in our consolidated financial statements. We recognized the Equity Investors’ share of the net assets of the investment entity as noncontrolling interests in the subsidiary in our consolidated balance sheets. We recognized the amounts that are contractually payable to these investors in each period as distributions to noncontrolling interests in our consolidated statements of changes in stockholders’ equity (deficit). PPA V contained debt that was non-recourse to us.
Our consolidated statements of cash flows reflect cash received from the Equity Investors in PPA V as proceeds from investments by noncontrolling interests in the subsidiary. Our consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling interests in the subsidiary. We reflect any unpaid distributions to these Equity Investors in PPA V as distributions payable to noncontrolling interests in the subsidiary on our consolidated balance sheets.
For further information about our Portfolio Financings, see Part II, Item 8, Note 11 — Portfolio Financings.
Managed Services Financing
Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer for a certain term. We sell the Energy Servers to the financier who then leases it back to us pursuant to a sale-leaseback transaction. In the past, certain sale-leaseback transactions failed to achieve all of the criteria for sale accounting and consequently the proceeds from the transaction were recognized as financing obligations within our consolidated balance sheets. For successful sale-and-leaseback transactions, the financier of the Managed Services Agreement typically pays the purchase price for the Energy Servers at or around acceptance, and we recognize the fair market value of the Energy Servers sold and respective installation services provided to the financier within product and install revenue, respectively, and recognize an operating lease right-of-use (“ROU”) asset and an operating lease liability on our consolidated balance sheets. Any proceeds in excess of the fair value of the Energy Servers are recognized as financing obligations.
The duration of our current Managed Services Agreement offerings is between five and ten years. Under some Managed Services Agreements, we agree to provide remarketing assistance in the event a customer does not renew its agreement. Our Managed Services Agreements typically provide for performance warranties of both the efficiency and output of the Energy Servers and may include other warranties depending on the type of deployment. We often structure payments from the
customer as a dollar per kilowatt flat payment. In some cases, the structure may also include a variable payment based on the Energy Servers’ performance or a performance-related set-off. As of December 31, 2023, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties.
Delivery and Installation
Installation is required in order for our Energy Servers to reach full power. Our role in the installation process varies based on the terms of the contract and/or the country of installation which can include, but is not limited to, design, engineering, permitting, procurement, construction, installation, start-up, performance testing, and commissioning of the systems. Bloom may contract with subcontractors to provide all or any part of the work. Depending on the acceptance milestones, we recognize installation revenue once the project has reached full power, or mechanical completion or on a percentage of completion basis.
Performance Guarantees
As of December 31, 2023, we had incurred no liabilities due to failure to repair or replace the Energy Servers pursuant to any performance warranties made under the O&M Agreements.
For the O&M Agreements that are subject to renewal, our future service revenue from such agreements are subject to our obligations to make payments for underperformance against the performance guaranties, which are capped at an aggregate total of approximately $564.0 million (including $438.3 million related to portfolio financing entities and $125.7 million related to all other transactions, and include payments for both low output and low efficiency) and our aggregate remaining potential payment related to these underperformance obligations was approximately $491.9 million as of December 31, 2023. For the year ended December 31, 2023, we made performance guarantee payments of $25.9 million.
International Channel Partners
India. In India, sales activities are currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly owned subsidiary; however, we continue 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 activities are currently conducted by Bloom Energy Japan Limited, our wholly owned subsidiary.
The 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 (“PDA”) in November 2018 with SK ecoplant for the marketing and sale of Bloom Energy Servers for the 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 of at least 500 megawatts of power for our Energy Servers between 2022 and 2024 on a take-or-pay basis; (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 Hydrogen Portfolio Standard. In December 2023, we further expanded our business partnership with SK ecoplant through the increase of SK ecoplant’s purchase commitments for Bloom Energy products of 250 megawatts through 2027 and extended the timing of delivery of the remaining take-or-pay commitment under the original agreement. For additional information, please see Part II, Item 8, Note 17 — SK ecoplant Strategic Investment.
Under the terms of the 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.
SK ecoplant Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK ecoplant to establish a light-assembly facility in the Republic of Korea for sales of certain portions of our Energy Server for the stationary utility and commercial and industrial market in the Republic of Korea. The joint venture is a variable interest entity (“VIE”) of Bloom, and we consolidate it in our financial statements as we are the primary beneficiary and therefore have the power to direct activities which are most significant to the joint venture. The joint venture facility became operational in July 2020. Other than a nominal initial capital contribution by Bloom Energy, the joint venture is funded by SK ecoplant. SK ecoplant is 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 joint venture agreement (“JVA”) to increase the scope of assembly work done in the joint venture facility. The joint venture was further developed in 2022 and 2023.
On September 15, 2023, we entered into the Amended and Restated JVA and the Share Purchase Agreement (together, the “Amended JV Agreements”) with SK ecoplant which changed the share of our voting rights in the Korean joint venture to 40% and increased the scope of assembly done by the joint venture facility in the Republic of Korea to full assembly. Neither the Amended JV Agreements, nor the fact that SK ecoplant is considered to be our related party after the conversion of Series B RCPS into shares of our Class A common stock (for additional information, please see Part II, Item 8, Note 11 — Related Party Transactions) changed our status as the primary beneficiary of the Korean joint venture. Therefore, we continue to consolidate this VIE in our financial statements as of December 31, 2023.
Comparison of the Years Ended December 31, 2023 and 2022
A discussion regarding our results of operations for 2023 compared to 2022 is presented in this section. A discussion of our results of operations for 2022 compared to 2021 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022.
Key Operating Metrics
In addition to the measures presented in the consolidated financial statements, we use certain 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.
•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 related expenses not included in product costs — the manufacturing and related operating costs that are incurred to procure parts and manufacture the 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 into inventory and therefore, expensed to our consolidated statements of operations in the period that they are incurred.
•Installation costs on product accepted in the period (per kilowatt) — the average unit installation cost for the Energy Servers that are accepted in a given period. This metric is used to provide insight into the trajectory of installation costs and, in particular, to evaluate whether our installation costs are in line with our installation billings.
Product Acceptances
We use acceptances as a key operating metric to measure the volume of our completed Energy Server installation activity from period to period. Acceptance 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 customer, when the system is shipped and delivered and is physically ready for startup and commissioning (i.e., “Mechanical Completion”), or when the system is shipped and delivered and is turned on and producing power (i.e., “Commencement of Operations”, “COO”).
The product acceptances in the years ended December 31, 2023 and 2022 were as follows:
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| Product accepted | | 2,682 | | | 2,281 | | | 401 | | | 17.6 | % | | | | | | | | |
| Megawatts accepted, net | | 268 | | | 228 | | | 40 | | | 17.6 | % | | | | | | | | |
Product accepted increased approximately by 401 systems, or 17.6%, for the year ended December 31, 2023, as compared to the prior year period, which is the equivalent of 40 megawatts. Acceptance volume increased as demand increased for the Energy Servers.
The increase in acceptances of 268 megawatts achieved for the year ended December 31, 2023 was added to our installed base and, therefore, increased our total megawatts accepted, net, from 973 megawatts to 1,241 megawatts.
Purchase Alternatives
Our customers have several purchase alternatives for our Energy Servers. The portion of acceptances attributable to each purchase alternative in the years ended December 31, 2023 and 2022 was as follows:
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| Direct purchase (including third-party PPAs and international channels) | | | | | | 98 | % | | 98 | % | | |
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| Managed services | | | | | | 2 | % | | 2 | % | | |
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| | | | | | 100 | % | | 100 | % | | |
The portion of total revenue attributable to each purchase option in the years ended December 31, 2023 and 2022 was as follows:
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| Direct purchase (including third-party PPAs and international channels) | | | | | | 90 | % | | 91 | % |
| Traditional lease | | | | | | 1 | % | | 1 | % |
| Managed services | | | | | | 7 | % | | 5 | % |
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| Portfolio financings | | | | | | 2 | % | | 3 | % |
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Costs Related to Our Products
Total product related costs for the years ended December 31, 2023 and 2022 was as follows:
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December 31, | | Change |
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| Product costs of product accepted in the period | | | | | | | | | | $2,108/kW | | $2,453/kW | | $(345)/kW | | (14.1) | % |
| Period costs of manufacturing related expenses not included in product costs (in thousands) | | | | | | | | | | $ | 64,892 | | | $ | 56,630 | | | $ | 8,262 | | | 14.6 | % |
| Installation costs on product accepted in the period | | | | | | | | | | $394/kW | | $456/kW | | ($62/kW) | | (13.6) | % |
Product costs of product accepted decreased by $345 per kilowatt, or 14.1%, for the year ended December 31, 2023, as compared to the prior year period. The decrease in costs was primarily driven by our continued efforts to reduce material costs, implement cost reduction programs with our vendors, and reduce our labor and overhead costs through increased volume, improved processes, and automation at our manufacturing facilities.
Period costs of manufacturing related expenses increased by $8.3 million, or 14.6%, for the year ended December 31, 2023, as compared to the prior year period. Our period costs of manufacturing related expenses increased primarily as a result
of costs incurred to support capacity expansion efforts, which are expected to be brought online in future periods, partially offset by a $5.3 million release from one-time benefit related to a grant from the Delaware Economic Development Authority.
Installation costs on product accepted decreased by $62 per kilowatt, or 13.6%, for the year ended December 31, 2023, as compared to the prior year period. Each customer site is unique and installation costs can vary due to a number of factors, including site complexity, size, and location of gas, among other factors. As such, installation on a per kilowatt basis can vary significantly from period to period. For the year ended December 31, 2023, this decrease in cost was primarily driven by the change in the mix of sites requiring Bloom installation.
Results of Operations
A discussion regarding the comparison of our financial condition and results of operations for the years ended December 31, 2023 and 2022is presented below.
Revenue
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December 31, | | Change |
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| Product | | | | | | | | | | $ | 975,245 | | $ | 880,664 | | $ | 94,581 | | 10.7 | % |
| Installation | | | | | | | | | | 92,796 | | 92,120 | | 676 | | 0.7 | % |
| Service | | | | | | | | | | 183,065 | | 150,954 | | 32,111 | | 21.3 | % |
| Electricity | | | | | | | | | | 82,364 | | 75,387 | | 6,977 | | 9.3 | % |
| Total revenue | | | | | | | | | | $ | 1,333,470 | | $ | 1,199,125 | | $ | 134,345 | | 11.2 | % |
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Total Revenue
Total revenue increased by $134.3 million, or 11.2%, for the year ended December 31, 2023, as compared to the prior year period. This increase was driven by a $94.6 million increase in product revenue, a $32.1 million increase in service revenue, a $7.0 million increase in electricity revenue, and a $0.7 million increase in installation revenue.
Product Revenue
Product revenue increased by $94.6 million, or 10.7%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by higher product acceptances of 17.6%, offset by the lower average selling price. Upgrades of our PPA portfolios contributed $20.7 million net increase in revenue recognized compared to the prior year.
Installation Revenue
Installation revenue increased by $0.7 million, or 0.7%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by the timing of key project milestones on sites requiring installations by us in the year ended December 31, 2023.
Service Revenue
Service revenue increased by $32.1 million, or 21.3%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by 223 megawatts of the Energy Servers reaching full power in fiscal 2023, which contributed to a $42.5 million increase in revenue from maintenance contracts associated with our fleet of the Energy Servers, partially offset by the impact of product performance guarantees of $8.5 million and a $0.7 million decrease in state incentives.
Electricity Revenue
Electricity revenue includes both revenue from contracts with customers and revenue from contracts that contain leases.
Electricity revenue increased by $7.0 million, or 9.3%, for the year ended December 31, 2023, as compared to the prior year period, primarily due to an accelerated amortization of incentive related deferred revenue of $5.0 million resulting from the issuancePPA V Upgrade.
Cost of RCPSRevenue
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December 31, | | Change |
| | | | | | | | | | | 2023 | | 2022 | | Amount | | % |
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| Product | | | | | | | | | | $ | 630,105 | | | $ | 616,178 | | | $ | 13,927 | | | 2.3 | % |
| Installation | | | | | | | | | | 105,735 | | | 104,111 | | | 1,624 | | | 1.6 | % |
| Service | | | | | | | | | | 220,927 | | | 168,491 | | | 52,436 | | | 31.1 | % |
| Electricity | | | | | | | | | | 178,909 | | | 162,057 | | | 16,852 | | | 10.4 | % |
| Total cost of revenue | | | | | | | | | | $ | 1,135,676 | | | $ | 1,050,837 | | | $ | 84,839 | | | 8.1 | % |
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Total Cost of Revenue
Total cost of revenue increased by $84.8 million, or 8.1%, for the year ended December 31, 2023, as compared to SK ecoplantthe prior year period. The increase was driven by a $52.4 million increase in cost of service revenue, a $16.9 million increase in cost of electricity revenue, a $13.9 million increase in cost of product revenue, and a $1.6 million increase in cost of installation revenue.
Cost of Product Revenue
Cost of product revenue increased by $13.9 million, or 2.3%, for the year ended December 2021, combined with proceeds31, 2023, as compared to the prior year period. The increase in 2021cost of product revenue was primarily driven by a 17.6% increase in product acceptances, including the net effect of $16.2 million 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 operationsupgrades of our PPA Entities that we have entered intoportfolios. This increase was partially offset by (1) a lower cost per unit attributable to our ongoing efforts to reduce material costs, (2) cost reduction programs with our vendors and over which we have substantial control. For additional information, see Note 13 -Portfolio Financingsa reduction in Part II, Item 8, Financial Statementslabor and Supplementary Data.overhead costs due to increased volume, (3) improved processes and automation at our manufacturing facilities, and (4) one-time benefit of $5.3 million related to a grant from the Delaware Economic Development Authority recognized against payroll related costs in the third quarter of fiscal 2023.We have not entered into any other transactions that have generated relationships with unconsolidated entitiesCost of Installation Revenue
Cost of installation revenue increased by $1.6 million, or financial partnerships or special purpose entities. Accordingly, as of1.6%, for the year ended 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 principles2023, as appliedcompared to the prior year period. This increase was primarily driven by the timing of key project milestones on sites requiring installations by us in the United States ("U.S. GAAP") The preparationyear ended December 31, 2023.
Cost of Service Revenue
Cost of service revenue increased by $52.4 million, or 31.1%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily due to the deployment of field replacement units, contributing an increase of $43.6 million, and an increase in maintenance material costs of $6.6 million. This increase was partially offset by cost reductions and our actions to proactively manage fleet optimizations and a portion of released grant liability of $2.9 million recognized against payroll related costs incurred in the third quarter of fiscal 2023.
Cost of Electricity Revenue
Cost of electricity revenue includes both cost of revenue from contracts with customers and cost of revenue from contracts that contain leases.
Cost of electricity revenue increased by $16.9 million, or 10.4%, for the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by a $14.9 million net increase in the impairment of the consolidated financial statements requiresEnergy Servers as a result of the upgrades of our PPA portfolios.
Gross Profit (Loss) and Gross Margin
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December 31, | | Change |
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| Product | | | | | | | | $ | 345,140 | | $ | 264,486 | | $ | 80,654 |
| Installation | | | | | | | | (12,939) | | (11,991) | | $ | (948) |
| Service | | | | | | | | (37,862) | | (17,537) | | $ | (20,325) |
| Electricity | | | | | | | | (96,545) | | (86,670) | | $ | (9,875) |
| Total gross profit | | | | | | | | $ | 197,794 | | $ | 148,288 | | $ | 49,506 |
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| Product | | | | | | | | 35 | % | | 30 | % | | |
| Installation | | | | | | | | (14) | % | | (13) | % | | |
| Service | | | | | | | | (21) | % | | (12) | % | | |
| Electricity | | | | | | | | (117) | % | | (115) | % | | |
| Total gross margin | | | | | | | | 15 | % | | 12% | | |
Total Gross Profit
Gross profit increased by $49.5 million in the year ended December 31, 2023, as compared to the prior year period. This change was mostly due to an $80.7 million increase in product gross profit, primarily driven by a 17.6% increase in product acceptances resulting from higher demand, lower cost per unit attributable to our ongoing efforts to reduce product costs. This increase was offset by a $20.3 million increase in service gross loss, primarily due to the deployment of field replacement units, and a $9.9 million increase in electricity gross loss, predominantly driven by a $14.9 million net increase in impairment charges of the old Energy Servers resulting from the upgrades of our PPA portfolios.
Product Gross Profit
Product gross profit increased by $80.7 million in the year ended December 31, 2023, as compared to the prior year period. The increase was primarily driven by a 17.6% increase in product acceptances due to higher demand for our products, one-time benefit of $5.3 million related to a grant from the Delaware Economic Development Authority recognized against payroll related costs in the third quarter of fiscal 2023, and our ongoing cost reduction efforts to reduce material costs and our reduction in labor and overhead unit cost due to increased volume, improved processes and automation at our manufacturing facilities.
Installation Gross Loss
Installation gross loss worsened by $0.9 million in the year ended December 31, 2023, as compared to the prior year period. This change was primarily driven by the timing of key project milestones on sites requiring installations by us in the year ended December 31, 2023 and other site related factors such as site complexity, size, local ordinance requirements, and location of the utility interconnect.
Service Gross Loss
Service gross loss worsened by $20.3 million in the year ended December 31, 2023, as compared to makethe prior year period. This was primarily due to deployments of field replacement units contributing to an increase in service gross loss of $43.6 million, an increase in maintenance material costs of $6.6 million, and the impact of product performance guarantees of $8.5 million, partially offset by 223 megawatts of the Energy Servers reaching full power in fiscal 2023, which contributed to a $42.5 million increase in revenue from maintenance contracts associated with our fleet of the Energy Servers, the release of $2.9 million of grant liability recognized against payroll related costs incurred in the third quarter of fiscal 2023, and cost reductions and our actions to proactively manage fleet optimizations.
Electricity Gross Loss
Electricity gross loss worsened by $9.9 million in the year ended December 31, 2023, as compared to the prior year period. The change was primarily driven by a $14.9 million increase in the impairment charges of the old Energy Servers resulting from the upgrades of our PPA portfolios, partially offset by a $5.0 million accelerated amortization of incentive related deferred revenue as a result of PPA V Upgrade.
Operating Expenses
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December 31, | | Change |
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| Research and development | | | | | | | | | | $ | 155,865 | | | $ | 150,606 | | | $ | 5,259 | | | 3.5 | % |
| Sales and marketing | | | | | | | | | | 89,961 | | | 90,934 | | | (973) | | | (1.1) | % |
| General and administrative | | | | | | | | | | 160,875 | | | 167,740 | | | (6,865) | | | (4.1) | % |
| Total operating expenses | | | | | | | | | | $ | 406,701 | | | $ | 409,280 | | | $ | (2,579) | | | (0.6) | % |
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Total Operating Expenses
Total operating expenses decreased by $2.6 million in the year ended December 31, 2023, as compared to the prior year period. This decrease was primarily attributable to (1) a decrease in employee compensation and benefits expenses of $17.5 million, predominantly related to a decrease in stock-based compensation expenses, (2) a decrease in professional services and consulting and advisory costs of $2.3 million, and (3) a decrease in other operating expenses of $4.3 million. The decrease was partially offset by (i) our continued investment in R&D capabilities to support our technology roadmap, (ii) our investment in business development, as well as (iii) increases in facility costs, depreciation costs, office expenses, and travel expenses of $10.7 million, $5.1 million, $3.4 million, and $1.7 million, respectively.
Research and Development
Research and development expenses increased by $5.3 million in the year ended December 31, 2023, as compared to the prior year period. This increase was primarily driven by (1) an increase in employee compensation and benefits of $2.0 million, (2) an increase in travel expenses of $0.5 million, (3) an increase in professional services costs of $0.6 million, (4) an increase in depreciation expenses of $0.5 million, and (5) an increase in other research and development costs of $3.7 million, partially offset by a decrease in consumable laboratory supplies and other laboratory related costs of $2.2 million.
Sales and Marketing
Sales and marketing expenses decreased by $1.0 million in the year ended December 31, 2023, as compared to the prior year period. This decrease was primarily driven by a decrease in employee compensation and benefits of $5.6 million, partially offset by an increase in consulting, advisory, and outside professional services expenses of $4.5 million, and an increase in travel expenses of $0.3 million.
General and Administrative
General and administrative expenses decreased by $6.9 million in the year ended December 31, 2023, as compared to the prior year period. This decrease was primarily driven by (1) a decrease in employee compensation and benefits of $13.9 million, predominantly related to a decrease in stock-based compensation expenses, (2) a decrease in professional services costs of $7.4 million, and (3) a decrease in other general and administrative expenses of $7.8 million. The increase was partially offset by (i) an increase in facility costs of $10.7 million, primarily due to rent expenses and utility costs, (ii) an increase in office and other expenses of $3.5 million, primarily driven by the impairment of non-recoverable production insurance of $6.4 million as a result of the PPA V Upgrade, offset by $4.5 million of prepaid insurance impairment per the PPA IV Upgrade in fiscal 2022, and factoring and financing fees of $2.1 million, (iii) an increase in depreciation expenses of $4.6 million, (iv) an increase in computer equipment expenses of $2.3 million, and (v) an increase in travel expenses of $1.0 million.
Stock-Based Compensation
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December 31, | | Change |
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| Cost of revenue | | | | | | | | | | $ | 17,504 | | | $ | 18,955 | | | $ | (1,451) | | | (7.7) | % |
| Research and development | | | | | | | | | | 27,620 | | | 33,956 | | | $ | (6,336) | | | (18.7) | % |
| Sales and marketing | | | | | | | | | | 16,415 | | | 18,651 | | | $ | (2,236) | | | (12.0) | % |
| General and administrative | | | | | | | | | | 25,556 | | | 42,404 | | | $ | (16,848) | | | (39.7) | % |
| Total stock-based compensation | | | | | | | | | | $ | 87,095 | | | $ | 113,966 | | | $ | (26,871) | | | (23.6) | % |
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Total stock-based compensation for the year ended December 31, 2023 compared to the prior year period decreased by $26.9 million. The decrease was primarily driven by (1) a decrease in compensation expense for stock awards of $18.2 million, (2) a decrease in option expense of $6.7 million compared to the year ended December 31, 2023, as existing options were either exercised, expired, or cancelled, (3) the separation of full-time employees holding equity awards as a result of the restructuring, (4) the voluntary resignation of our Executive Vice President and Chief Business Development and Marketing Officer on September 1, 2023, and (5) a decrease in ESPP expense of $0.7 million.
Other Income and Expense
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December 31, | | Change |
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| Interest income | | | | | | | | $ | 19,885 | | | $ | 3,887 | | | $ | 15,998 | |
| Interest expense | | | | | | | | (108,299) | | | (53,493) | | | (54,806) | |
| Other (expense) income, net | | | | | | | | (2,793) | | | 4,998 | | | (7,791) | |
| Loss on extinguishment of debt | | | | | | | | (4,288) | | | (8,955) | | | 4,667 | |
| (Loss) gain on revaluation of embedded derivatives | | | | | | | | (1,641) | | | 566 | | | (2,207) | |
| Total | | | | | | | | $ | (97,136) | | | $ | (52,997) | | | $ | (44,139) | |
Interest Income
Interest income is derived from investment earnings on our cash balances primarily from money market funds. The increase in interest income of $16.0 million was due to a $309.2 million increase in cash balance in our money market funds for the year ended December 31, 2023, as compared to the prior year period.
Interest Expense
Interest expense is primarily due to our debt held by third parties.
Interest expense for the year ended December 31, 2023, as compared to the prior year period, increased by $54.8 million. The increase was primarily driven by the expensing of loan commitment assets of $52.8 million immediately upon the automatic conversion on September 23, 2023, of Series B RCPS to Class A common stock as a result of the Second Tranche Closing with SK ecoplant, and an increase in interest expense related to the 3% Green Convertible Senior Notes due June 2028, issued on May 16, 2023. The increase was offset by a decrease in interest expense as a result of the redemption on June 1, 2023 of 10.25% Senior Secured Notes due March 2027, and the repayment of the 7.5% Term Loan due September 2028, the 6.07% Senior Secured Notes due March 2030, and the 3.04% Senior Secured Notes due June 2031 on June 14, 2022, November 22, 2022, and August 24, 2023, respectively.
Other (Expense) Income, net
Other (expense) income, net is primarily derived from investments in joint ventures, the impact of foreign currency transactions, and adjustments to fair value for derivatives.
Other income, net for the year ended December 31, 2023, as compared to the prior year period, decreased by $7.8 million primarily as a result of the gain on the revaluation of the Option to purchase Class A common stock of $9.0 million upon receipt of the notice of exercise from SK ecoplant on August 10, 2022 for the year ended December 31, 2022, and an increase in unrealized and realized foreign exchange loss of $1.3 million. The decrease was partially offset by the loss on remeasurement of our equity investments of $3.5 million recorded for the year ended December 31, 2022.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the year ended December 31, 2023 was $4.3 million, which was recognized as a result of the redemption on June 1, 2023 of the 10.25% Senior Secured Notes due March 2027, and the repayment on August 24, 2023 of the 3.04% Senior Secured Notes due June 2031 as part of the PPA V Upgrade, and included the repayment of the 4% premium upon redemption of the 10.25% Senior Secured Notes due March 2027 of $2.3 million and derecognition of debt issuance costs of $2.0 million.
(Loss) Gain on Revaluation of Embedded Derivatives
(Loss) gain 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 on revaluation of embedded derivatives for the year ended December 31, 2023, as compared to the prior year period, decreased by $2.2 million due to an increase in the fair value of our embedded EPP derivatives in our sales contracts, offset by a payment of $3.2 million to one of our customers in the second quarter of fiscal 2023.
Provision for Income Taxes
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December 31, | | Change |
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| Income tax provision | | | | | | | | | | $ | 1,894 | | | $ | 1,097 | | | $ | 797 | | | 72.7 | % |
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. The income tax provision increased for the year ended December 31, 2023 as compared to the prior year period. The increase 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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| Net loss attributable to noncontrolling interests | | | | | | | | | | $ | (5,821) | | | $ | (13,378) | | | $ | 7,557 | | | (56.5) | % |
| Net loss attributable to redeemable noncontrolling interests | | | | | | | | | | — | | | (300) | | | 300 | | | (100.0) | % |
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 for the year ended December 31, 2023, as compared to the prior year period, improved by $7.9 million primarily due to changes in loss in PPA V, PPA IV and PPA IIIa of $4.9 million, $2.5 million, and $0.3 million, respectively, partly offset by a decrease in gain in the joint venture in the Republic of Korea of $0.1 million.
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in the U.S. (“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"(“ASC”) Topic 606, Revenue from Contracts with Customers(“ASC 606”). We identify our contracts with Customers,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.price using a cost-plus margin approach.
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 whichand 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 upstartup and commissioning (“Mechanical Completion”), or when the system is shipped and delivered and is turned on and producing power.power (“COO”).
For certain installations, 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 installationduring each reporting period when such revenue whenis recognized over time, based on the system has been installed and is running at full power.costs incurred to satisfy the performance obligation.
Service revenue is recognized ratably over the term of the first or renewed one-year service period. Given our customers'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.Servers. 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 anthe Energy ServerServers with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of anthe Energy Server,Servers, standalone selling prices are estimated using a cost-plus approach. Costs relating to the 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 ServerServers 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
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 ServerServers 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 ServerServers is transferred to the financier, and we determine the leaseback qualifies as an operating lease in accordance with ASC 842, Leases ("“ASC 842"842”), we record aan operating lease ROU asset and aan operating 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")Assets and Liabilities of the SK ecoplant Strategic Investment
We haveOn March 20, 2023, the Company amended its SPA (the “Amended SPA”) with SK ecoplant and simultaneously entered into agreementsthe Loan Agreement (collectively “the Agreements.”) On March 23, 2023, pursuant to the Amended SPA, we issued and sold to SK ecoplant shares of non-voting Series B RCPS. The Amended SPA triggered the modification of the equity-classified forward contract on Class A common stock, which resulted in the derecognition of the pre-modified fair value of the forward contract given to SK ecoplant. The Series B RCPS was accounted for as a stock award with certain customers which requireliability and equity components. The liability component of the Series B RCPS was recognized at the redemption value net of issuance costs, and the equity component was recognized at its fair value on March 20, 2023 and represented the option of SK ecoplant to convert the Series B RCPS to Class A common stock (the “Conversion Option”). Pursuant to the Loan Agreement we had the option to draw on a loan from SK ecoplant, should SK ecoplant have sent a redemption notice to us to recognizeunder the Amended SPA. The Agreements provided us with a loan commitment asset from SK ecoplant.
The liability in compliance withcomponent of the financial accountingSeries B RCPS, the Conversion Option, and reporting requirementsthe loan commitment asset were accounted for under the guidance of Topic 718, Compensation – Stock Compensation (“ASC 718”), and applicable subsections of ASC Topic 820,480, Fair Value MeasurementDistinguishing Liabilities from Equity ("(“ASC 820"480”). We use third partyused third-party valuation experts to provide us with (i) the initial Level 3pre-modified fair value measurement that estimatesof the forward contract given to SK ecoplant, (ii) the fair value of the subject liabilities using inputs of forecasted avoided costsissued Series B RCPS equity component, 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(iii) the fair value of the assets or liabilitiesloan commitment asset from SK ecoplant.
Pre-modified forward contract. We valued the forward contract as the difference between (i) our Class A common stock trading price adjusted by a discount for financial reporting purposes under ASC 820,lack of marketability (“DLOM”) as of the date of Amended SPA (the “Valuation Date”) and (ii) the present value of the strike price, with further reduction associated with the expected outcome of the Second Tranche Closing.
Series B RCPS equity component (the Conversion Option). We valued the conversion feature of the Series B RCPS as applicable,a European-type call option under the guidance of ASC Topic 840,718 by applying the Black-Scholes valuation model using inputs of the strike price, maturity, risk-free rate, and volatility. In addition, DLOM was applied to the Class A common stock price.
Loan commitment asset from SK ecoplant. LeasesWe concluded that the loan commitment was a freestanding financial instrument as of the Valuation Date. We valued the loan commitment asset based on the difference between the present value of cash flows associated with a loan with a market-participant based interest rate (i.e., 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 estimatesrate for which the fair value of the subject assets or liabilities using inputshypothetical loan agreement equals the face value of principalthe Loan Agreement) and the cash flows associated with the loan committed to be received or paid, maturity dates, coupon rates, selected discount rate based on implied ratingby SK ecoplant, and comparable yield curves in Energy and Non-Financial markets. applied a redemption probability to the difference. The Series B RCPS redemption probability was obtained from a lattice model used to value the Series B preferred stock. As of December 31, 2023, the loan
commitment asset from SK ecoplant was derecognized as a result of automatic conversion of all shares of the Series B RCPS into shares of our Class A common stock.
We determinedetermined our final estimateestimates of fair valuevalues 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 iswas 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 determinedetermined the reasonableness of our valuation methodology and underlying assumptions on the timing and probability of a redemption event, and the expected number of shares to be exercised with the Option, and reviewreviewed the mathematical accuracy of the calculations before recording in our consolidated statementstatements of operations and consolidated balance sheets. See
For additional details about the transaction with SK ecoplant, please refer to Part II, Item 8, Note 18 -17 — 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(“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. 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'smanagement’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").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.VIEs. The considerationsconsideration 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.VIEs.
ITEM 7A -— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks as part of our ongoing business operations, primarily byfrom exposure to changes in interest rates, in commodity fuel prices and in foreign currency.
Interest Rate Risk
Our cash is maintainedand cash equivalents are primarily invested in interest-bearing accounts and our cash equivalents are invested in money market funds. LowerThe risk associated with fluctuating interest rates would have an adverse impactis primarily limited to the yield we make on our interest income or potentially incur other expenses if a negative interest rate environment was to exist.these investments. 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 tocan liquidate substantially all of thisour short-term investment 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 our income statement and in investment fair values, assuming a 1% decline in yield. Based on theour investment positions inon both December 31, 20212023 and 2020,2022, a hypothetical 1% decrease in interest rates across all maturities would result in $5.8$7.3 million and $4.1$4.4 million declines in interest income and/or an 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 all of our debt is fixed-rate convertible debt, interest rate changes do not affect our earnings or cash flows.flows, but it does lead to refinancing risk. In case we end up issuing new debt or refinancing our current debt, the overall interest expense can materially increase.
Commodity Price Risk
We are subject to commodity price risk arising from price movements for natural gas that we supply to our 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 meetsmet the definition of a derivative under U.S. GAAP and accordingly, any changes in its fair value iswere recorded within cost of revenue in theour 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 There were no natural gas we performed a sensitivity analysis to determine the impact a change in natural gas commodity pricing would have on our consolidated statementsfixed price forward contracts as of operations assuming a 10% change in the commodity contracts held. Based on monthly commodity positions for the years ended December 31, 20212023 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.2022.
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.U.S. However, we conduct some internationally domiciledinternational 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%10% decline in the value of the U.S. dollar. Based on our foreign currency holdings as of December 31, 20212023 and 2020,2022, a hypothetical 20%10% 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,U.S., 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, 20212023 and 20202022 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 sheetsConsolidated Balance Sheets of Bloom Energy Corporation and subsidiaries (the "Company"“Company”) as of December 31, 20212023 and 2020,2022, the related consolidated statementsConsolidated Statements of operations, comprehensive loss, redeemable convertible preferred stock, redeemable noncontrolling interest, stockholders' equity (deficit)Operations, Comprehensive Loss, Changes in Stockholders’ Equity (Deficit) and noncontrolling interest, and cash flows,Cash Flows, for each of the twothree years in the period ended December 31, 2021,2023, and the related notes (collectively referred to as the "financial statements"“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 2021,2023, 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'sCompany’s internal control over financial reporting as of December 31, 2021,2023, 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, 2022,15, 2024, expressed an unqualified opinion on the Company'sCompany’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’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 MattersREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The critical audit matters communicated below are matters arising fromTo the current-period audit of the financial statements that were communicated or required to be communicated to the audit committeestockholders 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 flowsaccompanying Consolidated Balance Sheets of Bloom Energy Corporation and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Loss, Changes in Stockholders’ Equity (Deficit) and Cash Flows, for each of the yearthree years in the period ended December 31, 2019, including2023, and the related notes (collectively referred to as the “consolidatedfinancial“financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flowsfinancial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the yearthree years in the period ended December 31, 20192023, in conformity with accounting principles generally accepted in the United States of America.
ChangeWe have also audited, in accordance with the standards of the Public Company Accounting Principle
As discussedOversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Note 2 toInternal Control — Integrated Framework (2013) issued by the consolidatedCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2024, expressed an unqualified opinion on the Company’s internal control over financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2019.reporting.
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.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)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 statementsaudits 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 auditaudits 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 auditaudits 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 providesaudits provide 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 the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Bloom Energy Corporation and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Loss, Changes in Stockholders’ Equity (Deficit) and Cash Flows, for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 15, 2024, 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 was 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.
Product Revenue Recognition – Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
Product revenue for the sale of energy servers is recognized upon transfer of control to customers which typically occurs at customer acceptance, which, depending on the contract terms, is when the product is shipped and delivered to a customer, is physically ready for startup and commissioning, or when the product is shipped, delivered, turned on, and producing power.
We identified the timing of product revenue recognition (i.e., customer acceptance), as a critical audit matter because of the degree of auditor judgment and increased extent of effort when performing audit procedures to evaluate the appropriateness of the timing of product revenue recognized during the year.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the timing of product revenue recognition included the following:
•We obtained an understanding of the nature of the revenue recognition process through inquiry with Company personnel and inspection of executed contracts with customers
•We tested the design and operating effectiveness of internal controls over the Company’s timing of product revenue recognition
•For a sample of product revenue acceptances during the year ended December 31, 2023, we performed the following:
a.We inspected the executed contracts to identify the relevant terms and conditions which would impact the Company’s accounting conclusions, including the timing of the transfer of control of products to customers
b.We inspected source documents to test the timing of revenue recognition, or customer acceptance, such as agreed-upon sales orders, shipping records, mechanical completion certifications, commencement of operation certifications, as well as the related invoices generated and evaluated any differences. We corroborated our inspection of source documents by sending written confirmations to customers confirming the period of customer acceptance
Amendment to Securities Purchase Agreement and Second Tranche Closing – Refer to Note 17 to the financial statements
Critical Audit Matter Description
The Company amended its Securities Purchase Agreement (“Amended SPA”) with SK ecoplant Co., Ltd. (“SK ecoplant,”) and simultaneously entered into a loan commitment agreement (collectively “the Agreements”). The Agreements resulted in the Company receiving cash proceeds and a loan commitment asset from SK ecoplant. In return, SK ecoplant received consideration consisting of the release from the obligation to close on the original forward contract on Class A common stock (“the Pre-modified Forward Contract”), shares of Series B redeemable convertible preferred stock (“Series B RCPS”), and the option for SK ecoplant to convert the Series B RCPS to Class A common stock (the “Conversion Option”).
We identified the accounting and the valuation of the Agreements 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 the Pre-modified Forward Contract, the Series B RCPS, the Conversion Option, and the loan commitment asset (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 Agreements, and the Company’s determination of the fair values of the Financial Instruments, included the following:
•We tested the design and operating effectiveness of internal controls over the Company’s accounting for the Agreements and over the determination of the fair values of the Financial Instruments
•With the assistance of our accounting specialists, we evaluated the Company’s conclusions regarding the accounting for the Agreements including the Company’s application of the contract modification and the identification and classification of financial instruments
•With the assistance of our fair value specialists, we evaluated the reasonableness of the following:
a.Valuation methodologies applied to determine the fair values of the Financial Instruments
b.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 Series B RCPS and the Conversion Option, the note yield related to the loan commitment, and stock volatility
c.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 15, 2024
We have served as the Company’s auditor since 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, 2021,2023, 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, 2021,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.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, 2021,2023, of the Company and our report dated February 25, 2022,15, 2024, 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'sManagement’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, 202215, 2024
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands, except share data and par values)data)
| | | | | | | | | | | | | | |
| | 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, | |
| | 2023 | | 2022 | |
| Assets | | | | | |
| Current assets: | | | | | |
Cash and cash equivalents1 | | $ | 664,593 | | | $ | 348,498 | | |
Restricted cash1 | | 46,821 | | | 51,515 | | |
Accounts receivable less allowance for credit losses of $119 as of December 31, 2023 and $119 as of December 31, 20221, 2 | | 340,740 | | | 250,995 | | |
Contract assets3 | | 41,366 | | | 46,727 | | |
Inventories1 | | 502,515 | | | 268,394 | | |
Deferred cost of revenue4 | | 45,984 | | | 46,191 | | |
Prepaid expenses and other current assets1, 5 | | 51,148 | | | 43,643 | | |
| Total current assets | | 1,693,167 | | | 1,055,963 | | |
Property, plant and equipment, net1 | | 493,352 | | | 600,414 | | |
Operating lease right-of-use assets1, 6 | | 139,732 | | | 126,955 | | |
Restricted cash1 | | 33,764 | | | 118,353 | | |
| Deferred cost of revenue | | 3,454 | | | 4,737 | | |
Other long-term assets1, 7 | | 50,208 | | | 40,205 | | |
| Total assets | | $ | 2,413,677 | | | $ | 1,946,627 | | |
| Liabilities and stockholders’ equity | | | | | |
| Current liabilities: | | | | | |
Accounts payable1, 8 | | $ | 132,078 | | | $ | 161,770 | | |
| Accrued warranty | | 19,326 | | | 17,332 | | |
Accrued expenses and other current liabilities1, 9 | | 130,879 | | | 144,183 | | |
Deferred revenue and customer deposits1, 10 | | 128,922 | | | 159,048 | | |
Operating lease liabilities1, 11 | | 20,245 | | | 16,227 | | |
| Financing obligations | | 38,972 | | | 17,363 | | |
| Recourse debt | | — | | | 12,716 | | |
Non-recourse debt1 | | — | | | 13,307 | | |
| Total current liabilities | | 470,422 | | | 541,946 | | |
Deferred revenue and customer deposits1, 12 | | 19,140 | | | 56,392 | | |
Operating lease liabilities1, 13 | | 141,939 | | | 132,363 | | |
| Financing obligations | | 405,824 | | | 442,063 | | |
| Recourse debt | | 842,006 | | | 273,076 | | |
Non-recourse debt1, 14 | | 4,627 | | | 112,480 | | |
| Other long-term liabilities | | 9,049 | | | 9,491 | | |
| Total liabilities | | $ | 1,893,007 | | | $ | 1,567,811 | | |
| Commitments and contingencies (Note 13) | | | | | |
| Stockholders’ equity: | | | | | |
Common stock: $0.0001 par value; Class A shares — 600,000,000 shares authorized, and 224,717,533 shares and 189,864,722 shares issued and outstanding and Class B shares — 600,000,000 shares authorized, and no shares and 15,799,968 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively. | | 21 | | | 20 | | |
| Additional paid-in capital | | 4,370,343 | | | 3,906,491 | | |
| Accumulated other comprehensive loss | | (1,687) | | | (1,251) | | |
| Accumulated deficit | | (3,866,599) | | | (3,564,483) | | |
| Total stockholders’ equity attributable to common stockholders | | 502,078 | | | 340,777 | | |
| Noncontrolling interest | | 18,592 | | | 38,039 | | |
| Total stockholders’ equity | | $ | 520,670 | | | $ | 378,816 | | |
| Total liabilities and stockholders’ equity | | $ | 2,413,677 | | | $ | 1,946,627 | | |
1We have variable interest entities related to the PPA* V (see Note 10 — Portfolio Financings) and a joint venture in the Republic of Korea (see Note 17 — SK ecoplant Strategic Investment), which represent a portion of the consolidated balances recorded within these financial statement line items initems.
In August 2023, we sold the PPA V as a result of the PPA V Repowering of the Energy Servers (see Note 10 — Portfolio Financings), as such the consolidated balance sheets (see Note 11 balances recorded within these financial statement line items as of December 31, 2023 exclude the PPA V balances.
2- Portfolio F Including amounts from related parties of $262.0 million and $4.3 million as of December 31, 2023 and December 31, 2022, respectively.
3inancing Including amounts from related parties of $6.9 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
4s Including amounts from related parties of $0.9 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
5). Including amounts from related parties of $2.3 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
6 Including amounts from related parties of $2.0 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
7 Including amounts from related parties of $9.1 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
8 Including amounts from related parties of $0.1 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
9 Including amounts from related parties of $3.4 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
10 Including amounts from related parties of $1.7 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
11 Including amounts from related parties of $0.4 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
12 Including amounts from related parties of $6.7 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
13 Including amounts from related parties of $1.6 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
14 Including amounts from related parties of $4.6 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
*Power Purchase Agreement
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: | Revenue: | | |
| Revenue: | |
| Revenue: | |
| Product | |
| Product | |
| Product | Product | | | $ | 663,512 | | | $ | 518,633 | | | $ | 557,336 | |
| Installation | Installation | | | 96,059 | | | 101,887 | | | 60,826 | |
| Installation | |
| Installation | |
| Service | |
| Service | |
| Service | Service | | | 144,184 | | | 109,633 | | | 95,786 | |
| Electricity | Electricity | | | 68,421 | | | 64,094 | | | 71,229 | |
| Total revenue | | | 972,176 | | | 794,247 | | | 785,177 | |
| Electricity | |
| Electricity | |
Total revenue1 | |
Total revenue1 | |
Total revenue1 | |
| Cost of revenue: | |
| Cost of revenue: | |
| Cost of revenue: | Cost of revenue: | | | | | | | |
| Product | Product | | | 471,654 | | | 332,724 | | | 435,479 | |
| Product | |
| Product | |
| Installation | |
| Installation | |
| Installation | Installation | | | 110,214 | | | 116,542 | | | 76,487 | |
| Service | Service | | | 148,286 | | | 132,329 | | | 100,238 | |
| Service | |
| Service | |
| Electricity | Electricity | | | 44,441 | | | 46,859 | | | 75,386 | |
| Total cost of revenue | | | 774,595 | | | 628,454 | | | 687,590 | |
| Electricity | |
| Electricity | |
Total cost of revenue2 | |
Total cost of revenue2 | |
Total cost of revenue2 | |
| Gross profit | |
| Gross profit | |
| Gross profit | Gross profit | | | 197,581 | | | 165,793 | | | 97,587 | |
| Operating expenses: | Operating expenses: | | | | | | | |
| Operating expenses: | |
| Operating expenses: | |
| Research and development | |
| Research and development | |
| Research and development | Research and development | | | 103,396 | | | 83,577 | | | 104,168 | |
| Sales and marketing | Sales and marketing | | | 86,499 | | | 55,916 | | | 73,573 | |
| General and administrative | | | 122,188 | | | 107,085 | | | 152,650 | |
| Sales and marketing | |
| Sales and marketing | |
General and administrative3 | |
General and administrative3 | |
General and administrative3 | |
| Total operating expenses | |
| Total operating expenses | |
| Total operating expenses | Total operating expenses | | | 312,083 | | | 246,578 | | | 330,391 | |
| Loss from operations | Loss from operations | | | (114,502) | | | (80,785) | | | (232,804) | |
| Loss from operations | |
| Loss from operations | |
| Interest income | 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) | | | — | |
| Interest income | |
| Interest income | |
Interest expense4 | |
Interest expense4 | |
Interest expense4 | |
| Other (expense) income, net | |
| Other (expense) income, net | |
| Other (expense) income, net | |
| Loss on extinguishment of debt | |
| Loss on extinguishment of debt | |
| Loss on extinguishment of debt | |
| (Loss) gain on revaluation of embedded derivatives | |
| (Loss) gain on revaluation of embedded derivatives | |
| (Loss) gain on revaluation of embedded derivatives | (Loss) gain on revaluation of embedded derivatives | | | (919) | | | 464 | | | (2,160) | |
| Loss before income taxes | Loss before income taxes | | | (192,323) | | | (178,831) | | | (322,833) | |
| Loss before income taxes | |
| Loss before income taxes | |
| Income tax provision | |
| Income tax provision | |
| Income tax provision | Income tax provision | | | 1,046 | | | 256 | | | 633 | |
| Net loss | 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 | |
| Net loss | |
| Net loss | |
| Less: Net loss attributable to noncontrolling interest | |
| Less: Net loss attributable to noncontrolling interest | |
| Less: Net loss attributable to noncontrolling interest | |
| Net loss attributable to common stockholders | |
| Net loss attributable to common stockholders | |
| Net loss attributable to common stockholders | |
| Less: Net loss attributable to redeemable noncontrolling interest | |
| Less: Net loss attributable to redeemable noncontrolling interest | |
| Less: Net loss attributable to redeemable noncontrolling interest | |
| Net loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | |
| Net loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | |
| Net loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | |
| Net loss per share available to common stockholders, basic and diluted | |
| Net loss per share available to common stockholders, basic and diluted | |
| Net loss per share available to common stockholders, basic and diluted | |
| Weighted average shares used to compute net loss per share available to common stockholders, basic and diluted | |
| Weighted average shares used to compute net loss per share available to common stockholders, basic and diluted | |
| Weighted average shares used to compute net loss per share available to common stockholders, basic and diluted | |
1 Including related party revenue of $487.2 million, $36.3 million and $16.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.
2 Including related party cost of revenue of $0.1 million for the year ended December 31, 2023. There was no related party cost of revenue for the years ended December 31, 2022 and 2021.
3 Including related party general and administrative expenses of $0.8 million for the year ended December 31, 2023. There were no related party general and administrative expenses for the years ended December 31, 2022 and 2021.
4 Including related party interest expense of $0.1 million for the year ended December 31, 2023. There was no related party interest expense for the years ended December 31, 2022 and 2021.
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, |
| | | | Years Ended December 31, | |
| | | | Years Ended December 31, | |
| | | | Years Ended December 31, | |
| | | | | 2021 | | 2020 | | 2019 | | | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | |
| Net loss | Net loss | | | $ | (193,369) | | | $ | (179,087) | | | $ | (323,466) | |
| Net loss | |
| Net loss | |
| Other comprehensive loss, net of taxes: | 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 | |
| Change in derivative instruments designated and qualifying as cash flow hedges | |
| Change in derivative instruments designated and qualifying as cash flow hedges | Change in derivative instruments designated and qualifying as cash flow hedges | | | 15,243 | | | (6,896) | | | (6,085) | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | | | (595) | | | — | | | 0 |
| Other comprehensive (loss) income, net of taxes | Other comprehensive (loss) income, net of taxes | | | 14,648 | | | (6,919) | | | (6,071) | |
| Comprehensive loss | 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) | |
| Less: Comprehensive loss attributable to noncontrolling interest | |
| Comprehensive loss attributable to common stockholders | |
| Less: Comprehensive loss attributable to redeemable noncontrolling interest | |
| Comprehensive loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | |
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'Stockholders’ Equity (Deficit) and Noncontrolling Interest
(in thousands, except shares)share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
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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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| | | | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Equity Attributable to Common Stockholders | | Noncontrolling Interest | | Total Stockholders’ Equity |
| | | | | | | | Shares | | Amount | | | | | | |
| Balances at December 31, 2022 | | | | | | | | 205,664,690 | | | $ | 20 | | | $ | 3,906,491 | | | $ | (1,251) | | | $ | (3,564,483) | | | $ | 340,777 | | | $ | 38,039 | | | $ | 378,816 | |
| Issuance of restricted stock awards | | | | | | | | 4,160,416 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | | | | | | | 875,695 | | | — | | | 13,363 | | | — | | | — | | | 13,363 | | | — | | | 13,363 | |
| Exercise of stock options | | | | | | | | 525,031 | | | — | | | 3,582 | | | — | | | — | | | 3,582 | | | — | | | 3,582 | |
| Stock-based compensation | | | | | | | | — | | | — | | | 87,076 | | | — | | | — | | | 87,076 | | | — | | | 87,076 | |
| Contributions from noncontrolling interest | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,979 | | | 6,979 | |
| Distributions and payments to noncontrolling interest | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,265) | | | (2,265) | |
| Buyout of noncontrolling interest | | | | | | | | — | | | — | | | 11,482 | | | — | | | — | | | 11,482 | | | (18,346) | | | (6,864) | |
| Derecognition of the pre-modified forward contract fair value | | | | | | | | — | | | — | | | 76,242 | | | — | | | — | | | 76,242 | | | — | | | 76,242 | |
| Equity component of redeemable convertible preferred stock | | | | | | | | — | | | — | | | 16,145 | | | — | | | — | | | 16,145 | | | — | | | 16,145 | |
| Purchase of capped call options related to convertible notes | | | | | | | | — | | | — | | | (54,522) | | | — | | | — | | | (54,522) | | | — | | | (54,522) | |
| Conversion of redeemable convertible preferred stock | | | | | | | | 13,491,701 | | | 1 | | | 310,484 | | | — | | | — | | | 310,485 | | | — | | | 310,485 | |
| Foreign currency translation adjustment | | | | | | | | — | | | — | | | — | | | (436) | | | — | | | (436) | | | 6 | | | (430) | |
| Net loss | | | | | | | | — | | | — | | | — | | | — | | | (302,116) | | | (302,116) | | | (5,821) | | | (307,937) | |
| Balances at December 31, 2023 | | | | | | | | 224,717,533 | | | $ | 21 | | | $ | 4,370,343 | | | $ | (1,687) | | | $ | (3,866,599) | | | $ | 502,078 | | | $ | 18,592 | | | $ | 520,670 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated
Deficit | | Total Equity (Deficit) Attributable to Common Stockholders | | Noncontrolling
Interest | | Total Stockholders’ Equity (Deficit) |
| | Shares | | Amount | | | | | | |
| Balances at December 31, 2021 | | 176,460,407 | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | | | $ | (1,827) | |
| Issuance of restricted stock awards | | 2,957,215 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | 759,744 | | | — | | | 11,600 | | | — | | | — | | | 11,600 | | | — | | | 11,600 | |
| Exercise of stock options | | 537,324 | | | — | | | 3,679 | | | — | | | — | | | 3,679 | | | — | | | 3,679 | |
| Stock-based compensation | | — | | | — | | | 112,722 | | | — | | | — | | | 112,722 | | | — | | | 112,722 | |
| Contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 2,815 | | | 2,815 | |
| Distributions and payments to noncontrolling interest | | — | | | — | | | (500) | | | — | | | — | | | (500) | | | (6,354) | | | (6,854) | |
| Buyout of noncontrolling interest | | — | | | — | | | (24,350) | | | — | | | — | | | (24,350) | | | 12,350 | | | (12,000) | |
| Public share offering | | 14,950,000 | | | 1 | | | 371,526 | | | — | | | — | | | 371,527 | | | — | | | 371,527 | |
| Forward contract to purchase Class A common stock | | — | | | — | | | 4,183 | | | — | | | — | | | 4,183 | | | — | | | 4,183 | |
| Conversion of redeemable convertible preferred stock | | 10,000,000 | | | 1 | | | 208,550 | | | — | | | — | | | 208,551 | | | — | | | 208,551 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | (901) | | | — | | | (901) | | | 107 | | | (794) | |
Net loss1 | | — | | | — | | | — | | | — | | | (301,408) | | | (301,408) | | | (13,378) | | | (314,786) | |
| Balances at December 31, 2022 | | 205,664,690 | | | $ | 20 | | | $ | 3,906,491 | | | $ | (1,251) | | | $ | (3,564,483) | | | $ | 340,777 | | | $ | 38,039 | | | $ | 378,816 | |
1 Excludes $300 attributable to redeemable noncontrolling interest.
Note: Beginning redeemable NCI of $300 — Net loss attributable to redeemable NCI of $300 = Ending redeemable NCI of Nil.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated
Deficit | | Total (Deficit) Equity attributable to Common Stockholders | | Noncontrolling
Interest | | Total Stockholders’ (Deficit) Equity |
| | | Shares | | Amount | | | | | | |
| Balances at December 31, 2020 | | | 168,002,726 | | $ | 17 | | | $ | 3,182,753 | | | $ | (9) | | | $ | (3,103,937) | | | $ | 78,824 | | | $ | 62,195 | | | $ | 141,019 | |
| Cumulative effect upon adoption of new accounting standard | | | — | | | — | | | (126,799) | | | — | | | 5,308 | | | (121,491) | | | — | | | (121,491) | |
| Issuance of restricted stock awards | | | 3,052,012 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | | 1,945,305 | | | — | | | 10,045 | | | — | | | — | | | 10,045 | | | — | | | 10,045 | |
| Exercise of stock options | | | 3,460,364 | | | 1 | | | 79,744 | | | — | | | — | | | 79,745 | | | — | | | 79,745 | |
| Stock-based compensation | | | — | | | — | | | 73,338 | | | — | | | — | | | 73,338 | | | — | | | 73,338 | |
| Distributions and payments to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,789) | | | (5,789) | |
| Change in effective portion of interest rate swap agreement | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,243 | | | 15,243 | |
| Foreign currency translation adjustment | | | — | | | — | | | — | | | (341) | | | (1) | | | (342) | | | (254) | | | (596) | |
Net loss2 | | | — | | | — | | | — | | | — | | | (164,445) | | | (164,445) | | | (28,896) | | | (193,341) | |
| Balances at December 31, 2021 | | | 176,460,407 | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | | | $ | (1,827) | |
2 Excludes $28 attributable to redeemable noncontrolling interest.
Note: Beginning redeemable NCI of $377 — distributions to redeemable noncontrolling interests of $49 — Net loss attributable to redeemable NCI of $28 = Ending redeemable NCI of $300.
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 | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2023 | | 2022 | | 2021 | |
| Cash flows from operating activities: | | | | | | | |
| Net loss | | $ | (307,937) | | | $ | (315,086) | | | $ | (193,369) | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
| Depreciation and amortization | | 62,609 | | | 61,608 | | | 53,454 | | |
| Non-cash lease expense | | 33,619 | | | 20,155 | | | 9,708 | | |
| Loss on disposal of property, plant and equipment | | 411 | | | — | | | — | | |
| Revaluation of derivative contracts | | 1,641 | | | (9,583) | | | 17,532 | | |
| Impairment of assets related to PPAs | | 130,088 | | | 113,514 | | | — | | |
| Derecognition of loan commitment asset related to SK ecoplant Second Tranche Closing | | 52,792 | | | — | | | — | | |
| Stock-based compensation expense | | 84,480 | | | 112,259 | | | 73,274 | | |
| Amortization of warrants and debt issuance costs | | 4,772 | | | 3,032 | | | 3,797 | | |
| Loss on extinguishment of debt | | 4,288 | | | 8,955 | | | — | | |
| Gain on remeasurement of investment | | — | | | — | | | (1,966) | | |
| Contingent consideration remeasurement | | — | | | — | | | (3,623) | | |
| Interest expense on interest rate swap settlement | | — | | | — | | | (641) | | |
| Unrealized foreign currency exchange loss (gain) | | 618 | | | (3,267) | | | 77 | | |
| Other | | 450 | | | 3,532 | | | — | | |
| Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable1 | | (89,888) | | | (162,864) | | | 8,608 | | |
Contract assets2 | | 5,361 | | | (21,525) | | | (21,874) | | |
| Inventories | | (231,689) | | | (124,878) | | | (885) | | |
Deferred cost of revenue3 | | 1,655 | | | (24,282) | | | 17,567 | | |
| Customer financing receivable | | — | | | 2,510 | | | 5,428 | | |
Prepaid expenses and other assets4 | | (5,754) | | | (17,590) | | | 1,520 | | |
Other long-term assets5 | | (3,366) | | | (2,617) | | | (2,854) | | |
| Operating lease right-of-use assets and operating lease liabilities | | (32,801) | | | 3,016 | | | (12,953) | | |
| Financing lease liabilities | | 1,011 | | | 896 | | | 1,142 | | |
Accounts payable6 | | (29,080) | | | 86,498 | | | 13,017 | | |
| Accrued warranty | | 1,994 | | | 5,586 | | | 1,481 | | |
Accrued expenses and other liabilities7 | | (13,785) | | | 43,243 | | | (2,144) | | |
Deferred revenue and customer deposits8 | | (42,635) | | | 35,156 | | | (22,677) | | |
| Other long-term liabilities | | (1,385) | | | (9,991) | | | (4,300) | | |
| Net cash used in operating activities | | (372,531) | | | (191,723) | | | (60,681) | | |
| Cash flows from investing activities: | | | | | | | |
| Purchase of property, plant and equipment | | (83,739) | | | (116,823) | | | (49,810) | | |
| Proceeds from sale of property, plant and equipment | | 14 | | | — | | | — | | |
| Net cash acquired from step acquisition | | — | | | — | | | 3,114 | | |
| Net cash used in investing activities | | (83,725) | | | (116,823) | | | (46,696) | | |
| Cash flows from financing activities: | | | | | | | |
Proceeds from issuance of debt9 | | 637,127 | | | — | | | 135,989 | | |
| Payment of debt issuance costs | | (19,736) | | | — | | | (1,950) | | |
| Repayment of debt | | (191,390) | | | (120,586) | | | (123,374) | | |
| Make-whole payment related to PPA IIIa and PPA IV debt | | — | | | (6,553) | | | — | | |
| Purchase of capped call options related to convertible notes | | (54,522) | | | — | | | — | | |
| Proceeds from financing obligations | | 4,993 | | | 3,261 | | | 16,849 | | |
| Repayment of financing obligations | | (18,445) | | | (35,543) | | | (13,642) | | |
| Distributions and payments to noncontrolling interest | | (2,265) | | | (6,854) | | | (5,789) | | |
| Distributions to redeemable noncontrolling interest | | — | | | — | | | (49) | | |
| Proceeds from issuance of common stock | | 16,945 | | | 15,279 | | | 89,790 | | |
| Proceeds from public share offering | | — | | | 385,396 | | | — | | |
| Payment of public share offering costs | | (35) | | | (13,775) | | | — | | |
| Buyout of noncontrolling interest | | (6,864) | | | (12,000) | | | — | | |
| Proceeds from issuance of redeemable convertible preferred stock | | 310,957 | | | — | | | 217,861 | | |
| Payment of issuance costs related to redeemable convertible preferred stock | | (395) | | | — | | | (9,310) | | |
| Contributions from noncontrolling interest | | 6,979 | | | 2,815 | | | — | | |
| Other | | — | | | (76) | | | — | | |
| Net cash provided by financing activities | | 683,349 | | | 211,364 | | | 306,375 | | |
| Effect of exchange rate changes on cash, cash equivalent and restricted cash | | (281) | | | 434 | | | (594) | | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | 226,812 | | | (96,748) | | | 198,404 | | |
| Cash, cash equivalents, and restricted cash: | | | | | | | |
| Beginning of period | | 518,366 | | | 615,114 | | | 416,710 | | |
| End of period | | $ | 745,178 | | | $ | 518,366 | | | $ | 615,114 | | |
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | |
| Cash paid during the period for interest | | $ | 49,929 | | | $ | 48,980 | | | $ | 68,739 | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
| Operating cash flows from operating leases | | 32,538 | | | 14,001 | | | 17,416 | | |
| Operating cash flows from finance leases | | 1,097 | | | 1,085 | | | 878 | | |
| Cash paid during the period for income taxes | | 1,455 | | | 1,439 | | | 576 | | |
| Non-cash investing and financing activities: | | | | | | | |
| Increase in recourse debt, non-current upon adoption of ASU 2020-06, net | | $ | — | | | $ | — | | | $ | 121,491 | | |
| | | | | | | |
| Transfer from customer financing receivable to property, plant and equipment, net | | — | | | 42,758 | | | — | | |
| Forward to purchase Class A common stock | | — | | | 4,183 | | | — | | |
| Liabilities recorded for property, plant and equipment, net | | 9,297 | | | 10,988 | | | 6,095 | | |
| Recognition of operating lease right-of-use asset during the year-to-date period | | 29,823 | | | 36,402 | | | 82,802 | | |
| Recognition of finance lease right-of-use asset during the year-to-date period | | 1,011 | | | 896 | | | 2,210 | | |
| Conversion of redeemable convertible preferred stock | | 310,484 | | | 208,551 | | | — | | |
| Derecognition of the pre-modified forward contract fair value | | 76,242 | | | — | | | — | | |
| Equity component of redeemable convertible preferred stock | | 16,145 | | | — | | | — | | |
1 Including changes in related party balances of $257.8 million, $0.1 million and $2.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.
2 Including change in related party balances of $6.9 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
3 Including change in related party balances of $0.9 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
4 Including change in related party balances of $2.3 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
5 Including change in related party balances of $9.1 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
6 Including change in related party balances of $0.1 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
7 Including change in related party balances of $3.4 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
8 Including change in related party balances of $8.4 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
9 Including proceeds from issuance of debt from related party of $4.6 million for the year ended December 31, 2023. There were no proceeds from issuance of debt from related party for the years ended of December 31, 2022 and 2021.
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
NatureRevenue Recognition
We apply Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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 Businessour 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 using a cost-plus margin approach.
We design, manufacture,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 and 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 startup and commissioning (“Mechanical Completion”), or when the system is shipped and delivered and is turned on and producing power (“COO”).
For certain installations, 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.
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 Servers. 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 and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Ourthe Energy Servers utilize an innovative fuel cell technologywith a maintenance service agreement and provide efficient energy generation with reduced operatinghave not provided maintenance services to a customer who does not have use of the Energy Servers, standalone selling prices are estimated using a cost-plus approach. Costs relating to the Energy Servers include all direct and indirect manufacturing costs, applicable overhead 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 providingcosts for normal production inefficiencies (i.e., variances). We then apply a path to energy independence.
We continue to monitor and adjust as appropriate our operations in responsemargin to the COVID-19 pandemic. ThereEnergy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Servers 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 Servers 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 been a numbertransferred control to the customer (the Buyer-Lessor). When control of supply chain disruptions throughout the global supply chainEnergy Servers is transferred to the financier, and we determine the leaseback qualifies as countries arean operating lease in various stagesaccordance with ASC 842, Leases (“ASC 842”), we record an operating lease ROU asset and an operating lease liability, and recognize revenue based on the fair value of opening upthe Energy Servers with an allocation to product revenue and demand for certain components increases. Although we were ableinstallations revenue based on the relative standalone selling prices. We recognize as financing obligations any proceeds received to find alternatives for many component shortages, we experienced some delaysfinance our ongoing costs to operate the Energy Servers.
Valuation of Assets and cost increases with respect to container shortages, ocean shipping and air freight.Liabilities of the SK ecoplant Strategic Investment
Liquidity
We have generally incurred operating losses and negative cash flows from operations since our inception. WithOn March 20, 2023, 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 AgreementCompany amended its SPA (the “SPA”“Amended SPA”) with SK ecoplant Co., Ltd. (formerly knownand simultaneously entered into the Loan Agreement (collectively “the Agreements.”) On March 23, 2023, pursuant to the Amended SPA, we issued and sold to SK ecoplant shares of non-voting Series B RCPS. The Amended SPA triggered the modification of the equity-classified forward contract on Class A common stock, which resulted in the derecognition of the pre-modified fair value of the forward contract given to SK ecoplant. The Series B RCPS was accounted for as a stock award with liability and equity components. The liability component of the Series B RCPS was recognized at the redemption value net of issuance costs, and the equity component was recognized at its fair value on March 20, 2023 and represented the option of SK Engineering and Construction Co., Ltd.ecoplant to convert the Series B RCPS to Class A common stock (the “Conversion Option”) ("SK ecoplant") in connection with a strategic partnership.. Pursuant to the SPA,Loan Agreement we had the option to draw on December 29, 2021,a loan from SK ecoplant, purchased 10,000,000 sharesshould SK ecoplant have sent a redemption notice to us under the Amended SPA. The Agreements provided us with a loan commitment asset from SK ecoplant.
The liability component of zero coupon, non-votingthe Series A redeemable convertible preferred stock ("RCPS"B RCPS, the Conversion Option, and the loan commitment asset were accounted for under the guidance of Topic 718, Compensation – Stock Compensation (“ASC 718”) in Bloom Energy, par, and applicable subsections of ASC 480, Distinguishing Liabilities from Equity (“ASC 480”). We used third-party valuation experts to provide us with (i) the pre-modified fair value $0.0001 per share, at a purchase price of $25.50 per share for an aggregate purchase pricethe forward contract given to SK ecoplant, (ii) the fair value of $255.0 million, including an option to purchasethe issued Series B RCPS equity component, and (iii) the fair value of the loan commitment asset from SK ecoplant.
Pre-modified forward contract. We valued the forward contract as the difference between (i) our Class A common stock trading price adjusted by a discount for lack of marketability (“DLOM”) as of the date of Amended SPA (the “Valuation Date”) and (ii) the present value of the strike price, with further reduction associated with the expected outcome of the Second Tranche Closing.
Series B RCPS equity component (the Conversion Option). We valued the conversion feature of the Series B RCPS as a European-type call option under the guidance of ASC 718 by applying the Black-Scholes valuation model using inputs of the strike price, maturity, risk-free rate, and volatility. In addition, DLOM was applied to the Class A common stock price.
Loan commitment asset from SK ecoplant. We concluded that the loan commitment was a freestanding financial instrument as of the Valuation Date. We valued the loan commitment asset based on the difference between the present value of cash flows associated with a loan with a market-participant based interest rate (i.e., the rate for which the value of the hypothetical loan agreement equals the face value of the Loan Agreement) and the cash flows associated with the loan committed to by SK ecoplant, and applied a redemption probability to the difference. The Series B RCPS redemption probability was obtained from a lattice model used to value the Series B preferred stock. As of December 31, 2023, the loan
commitment asset from SK ecoplant was derecognized as a result of automatic conversion of all shares of the Series B RCPS into shares of our Class A common stock.
We determined our final estimates of fair values based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate was 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 determined the reasonableness of our valuation methodology and underlying assumptions and reviewed the mathematical accuracy of the calculations before recording in our consolidated statements of operations and consolidated balance sheets.
For more informationadditional details about the SPA,transaction with SK ecoplant, please seerefer to Part II, Item 8, Note 18 -17 — 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 replacesIncome Taxes
We account for income taxes using the LIBOR + 2.5% Term Loan due December 2021.
Our future capital requirements will dependliability method under ASC 740, Income Taxes (“ASC 740”). Under this method, deferred tax assets and liabilities are determined based on many factors, including our rate of revenue growth, the timing and extent of spending onnet operating loss carryforwards, research and development effortscredit carryforwards and other business initiatives,temporary differences resulting from the ratedifferent treatment of growth initems for tax and financial reporting purposes. Deferred items are measured using the volume of system buildsenacted tax rates 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 islaws that are expected to be sufficientin 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 meet our operational and capital cash flow requirements and other cash flow needs fordetermine whether the next 12 months from the date of issuance of this Annual Report on Form 10-K.
Basis of Presentation
more likely than not recognition threshold has been met. 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 inprovided a full valuation allowance on 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 weredomestic deferred tax assets because we believe it is more likely than not material. The consolidated statements of comprehensive loss for the year ended December 31, 2019 has been revised to correct the errors described above.that our deferred tax assets will not be realized.
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 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")).VIEs. 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 determinedVIEs. The consideration for VIE consolidation is a complex analysis that requires us to determine whether 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 nottherefore have the power to direct those activities which are most significant to the VIEs.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks as part of our ongoing business operations, primarily from exposure to changes in interest rates, in commodity fuel prices and in foreign currency.
Interest Rate Risk
Our cash and cash equivalents are primarily invested in interest-bearing accounts and money market funds. The risk associated with fluctuating interest rates is primarily limited to the Third-Party PPAsyield we make on these investments. Due to the short-term investment nature of our cash and cash equivalents, we believe that most significantly affect their economic performance. We alsowe do not have material financial statement exposure to changes in fair value as a result of changes in interest rates. Since we believe we can liquidate substantially all of our short-term investment 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 our income statement and in investment fair values, assuming a 1% decline in yield. Based on our investment positions on both December 31, 2023 and 2022, a hypothetical 1% decrease in interest rates across all maturities would result in $7.3 million and $4.4 million declines in interest income and/or an 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.
As all of our debt is fixed-rate convertible debt, interest rate changes do not affect our earnings or cash flows, but it does lead to refinancing risk. In case we end up issuing new debt or refinancing our current debt, the overall interest expense can materially increase.
Commodity Price Risk
We are subject to commodity price risk arising from price movements for natural gas that we supply to our 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 met the definition of a derivative under U.S. GAAP and accordingly, any changes in its fair value were recorded within cost of revenue in our 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. There were no natural gas fixed price forward contracts as of December 31, 2023 and 2022.
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. However, we conduct some international 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 10% decline in the value of the U.S. dollar. Based on our foreign currency holdings as of December 31, 2023 and 2022, a hypothetical 10% 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 U.S., 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, 2023 and 2022 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, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Loss, Changes in Stockholders’ Equity (Deficit) and Cash Flows, for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 15, 2024, 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 was 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.
Product Revenue Recognition – Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
Product revenue for the sale of energy servers is recognized upon transfer of control to customers which typically occurs at customer acceptance, which, depending on the contract terms, is when the product is shipped and delivered to a customer, is physically ready for startup and commissioning, or when the product is shipped, delivered, turned on, and producing power.
We identified the timing of product revenue recognition (i.e., customer acceptance), as a critical audit matter because of the degree of auditor judgment and increased extent of effort when performing audit procedures to evaluate the appropriateness of the timing of product revenue recognized during the year.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the timing of product revenue recognition included the following:
•We obtained an understanding of the nature of the revenue recognition process through inquiry with Company personnel and inspection of executed contracts with customers
•We tested the design and operating effectiveness of internal controls over the Company’s timing of product revenue recognition
•For a sample of product revenue acceptances during the year ended December 31, 2023, we performed the following:
a.We inspected the executed contracts to identify the relevant terms and conditions which would impact the Company’s accounting conclusions, including the timing of the transfer of control of products to customers
b.We inspected source documents to test the timing of revenue recognition, or customer acceptance, such as agreed-upon sales orders, shipping records, mechanical completion certifications, commencement of operation certifications, as well as the related invoices generated and evaluated any differences. We corroborated our inspection of source documents by sending written confirmations to customers confirming the period of customer acceptance
Amendment to Securities Purchase Agreement and Second Tranche Closing – Refer to Note 17 to the financial statements
Critical Audit Matter Description
The Company amended its Securities Purchase Agreement (“Amended SPA”) with SK ecoplant Co., Ltd. (“SK ecoplant,”) and simultaneously entered into a loan commitment agreement (collectively “the Agreements”). The Agreements resulted in the Company receiving cash proceeds and a loan commitment asset from SK ecoplant. In return, SK ecoplant received consideration consisting of the release from the obligation to absorb losses, orclose on the rightoriginal forward contract on Class A common stock (“the Pre-modified Forward Contract”), shares of Series B redeemable convertible preferred stock (“Series B RCPS”), and the option for SK ecoplant to receive benefits, that could potentially be significantconvert the Series B RCPS to Class A common stock (the “Conversion Option”).
We identified the Third-Party PPAs. Because we are notaccounting and the primary beneficiaryvaluation of these activities, we do not consolidate Third-Party PPAs.
Business Combinations
Acquisitionsthe Agreements as a critical audit matter because of a business are accounted by using the acquisition method of accounting. Assets acquiredcomplexity in applying the accounting framework 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 yearmade 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 statementsmanagement 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 valuefair values of the Energy Servers, product performance warrantiesPre-modified Forward Contract, the Series B RCPS, the Conversion Option, and guarantiesthe loan commitment asset (collectively, the “Financial Instruments”). This required a high degree of auditor judgment and extended maintenance, derivative valuations, estimates for recapturean increased extent of effort when performing audit procedures to evaluate the appropriateness of the U.S. Investment Tax Credit ("ITC")accounting framework 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 andthe reasonableness of the fair value of contingent considerationestimates and assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to business combinations,the accounting for the Agreements, and estimatesthe Company’s determination of the fair values of the Financial Instruments, included the following:
•We tested the design and operating effectiveness of internal controls over the Company’s accounting for the Agreements and over the determination of the fair values of the Financial Instruments
•With the assistance of our accounting specialists, we evaluated the Company’s conclusions regarding the accounting for the Agreements including the Company’s application of the contract modification and the identification and classification of financial instruments
•With the assistance of our fair value specialists, we evaluated the reasonableness of preferred stockthe following:
a.Valuation methodologies applied to determine the fair values of the Financial Instruments
b.Assumptions used by the Company in the valuation of the Financial Instruments, including the expected timing and equitythe probability of a redemption event for the Series B RCPS and non-equity items in relationthe Conversion Option, the note yield related to the SK ecoplant strategic investment. In addition, because the durationloan commitment, 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.stock volatility
Credit Risk - c.AtAccuracy, 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 15, 2024
We have served as the Company’s auditor since 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, 20212023, 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, 2023, 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 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, 2023, of the Company and our report dated February 15, 2024, 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 15, 2024
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands, except share data)
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| | December 31, | |
| | 2023 | | 2022 | |
| Assets | | | | | |
| Current assets: | | | | | |
Cash and cash equivalents1 | | $ | 664,593 | | | $ | 348,498 | | |
Restricted cash1 | | 46,821 | | | 51,515 | | |
Accounts receivable less allowance for credit losses of $119 as of December 31, 2023 and $119 as of December 31, 20221, 2 | | 340,740 | | | 250,995 | | |
Contract assets3 | | 41,366 | | | 46,727 | | |
Inventories1 | | 502,515 | | | 268,394 | | |
Deferred cost of revenue4 | | 45,984 | | | 46,191 | | |
Prepaid expenses and other current assets1, 5 | | 51,148 | | | 43,643 | | |
| Total current assets | | 1,693,167 | | | 1,055,963 | | |
Property, plant and equipment, net1 | | 493,352 | | | 600,414 | | |
Operating lease right-of-use assets1, 6 | | 139,732 | | | 126,955 | | |
Restricted cash1 | | 33,764 | | | 118,353 | | |
| Deferred cost of revenue | | 3,454 | | | 4,737 | | |
Other long-term assets1, 7 | | 50,208 | | | 40,205 | | |
| Total assets | | $ | 2,413,677 | | | $ | 1,946,627 | | |
| Liabilities and stockholders’ equity | | | | | |
| Current liabilities: | | | | | |
Accounts payable1, 8 | | $ | 132,078 | | | $ | 161,770 | | |
| Accrued warranty | | 19,326 | | | 17,332 | | |
Accrued expenses and other current liabilities1, 9 | | 130,879 | | | 144,183 | | |
Deferred revenue and customer deposits1, 10 | | 128,922 | | | 159,048 | | |
Operating lease liabilities1, 11 | | 20,245 | | | 16,227 | | |
| Financing obligations | | 38,972 | | | 17,363 | | |
| Recourse debt | | — | | | 12,716 | | |
Non-recourse debt1 | | — | | | 13,307 | | |
| Total current liabilities | | 470,422 | | | 541,946 | | |
Deferred revenue and customer deposits1, 12 | | 19,140 | | | 56,392 | | |
Operating lease liabilities1, 13 | | 141,939 | | | 132,363 | | |
| Financing obligations | | 405,824 | | | 442,063 | | |
| Recourse debt | | 842,006 | | | 273,076 | | |
Non-recourse debt1, 14 | | 4,627 | | | 112,480 | | |
| Other long-term liabilities | | 9,049 | | | 9,491 | | |
| Total liabilities | | $ | 1,893,007 | | | $ | 1,567,811 | | |
| Commitments and contingencies (Note 13) | | | | | |
| Stockholders’ equity: | | | | | |
Common stock: $0.0001 par value; Class A shares — 600,000,000 shares authorized, and 224,717,533 shares and 189,864,722 shares issued and outstanding and Class B shares — 600,000,000 shares authorized, and no shares and 15,799,968 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively. | | 21 | | | 20 | | |
| Additional paid-in capital | | 4,370,343 | | | 3,906,491 | | |
| Accumulated other comprehensive loss | | (1,687) | | | (1,251) | | |
| Accumulated deficit | | (3,866,599) | | | (3,564,483) | | |
| Total stockholders’ equity attributable to common stockholders | | 502,078 | | | 340,777 | | |
| Noncontrolling interest | | 18,592 | | | 38,039 | | |
| Total stockholders’ equity | | $ | 520,670 | | | $ | 378,816 | | |
| Total liabilities and stockholders’ equity | | $ | 2,413,677 | | | $ | 1,946,627 | | |
1 We have variable interest entities related to the PPA* V (see Note 10 — Portfolio Financings) and a joint venture in the Republic of Korea (see Note 17 — SK ecoplant Strategic Investment), which represent a portion of the consolidated balances recorded within these financial statement line items.
In August 2023, we sold the PPA V as a result of the PPA V Repowering of the Energy Servers (see Note 10 — Portfolio Financings), as such the consolidated balances recorded within these financial statement line items as of December 31, 2023 exclude the PPA V balances.
2 Including amounts from related parties of $262.0 million and RAD $4.3 million as of December 31, 2023 and December 31, 2022, respectively.
3 Including amounts from related parties of $6.9 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
4 Including amounts from related parties of $0.9 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
5 Including amounts from related parties of $2.3 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
6 Including amounts from related parties of $2.0 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
7 Including amounts from related parties of $9.1 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
8 Including amounts from related parties of $0.1 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
9 Including amounts from related parties of $3.4 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
10 Including amounts from related parties of $1.7 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
11 Including amounts from related parties of $0.4 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
12 Including amounts from related parties of $6.7 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
13 Including amounts from related parties of $1.6 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
14 Including amounts from related parties of $4.6 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
*Power Purchase Agreement
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Project Holdco LLC, accountedEnergy Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended December 31, | |
| | | | | | | 2023 | | 2022 | | 2021 | |
| | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | |
| Product | | | | | | $ | 975,245 | | | $ | 880,664 | | | $ | 663,512 | | |
| Installation | | | | | | 92,796 | | | 92,120 | | | 96,059 | | |
| Service | | | | | | 183,065 | | | 150,954 | | | 144,184 | | |
| Electricity | | | | | | 82,364 | | | 75,387 | | | 68,421 | | |
Total revenue1 | | | | | | 1,333,470 | | | 1,199,125 | | | 972,176 | | |
| Cost of revenue: | | | | | | | | | | | |
| Product | | | | | | 630,105 | | | 616,178 | | | 471,654 | | |
| Installation | | | | | | 105,735 | | | 104,111 | | | 110,214 | | |
| Service | | | | | | 220,927 | | | 168,491 | | | 148,286 | | |
| Electricity | | | | | | 178,909 | | | 162,057 | | | 44,441 | | |
Total cost of revenue2 | | | | | | 1,135,676 | | | 1,050,837 | | | 774,595 | | |
| Gross profit | | | | | | 197,794 | | | 148,288 | | | 197,581 | | |
| Operating expenses: | | | | | | | | | | | |
| Research and development | | | | | | 155,865 | | | 150,606 | | | 103,396 | | |
| Sales and marketing | | | | | | 89,961 | | | 90,934 | | | 86,499 | | |
General and administrative3 | | | | | | 160,875 | | | 167,740 | | | 122,188 | | |
| Total operating expenses | | | | | | 406,701 | | | 409,280 | | | 312,083 | | |
| Loss from operations | | | | | | (208,907) | | | (260,992) | | | (114,502) | | |
| Interest income | | | | | | 19,885 | | | 3,887 | | | 262 | | |
Interest expense4 | | | | | | (108,299) | | | (53,493) | | | (69,025) | | |
| Other (expense) income, net | | | | | | (2,793) | | | 4,998 | | | (8,139) | | |
| Loss on extinguishment of debt | | | | | | (4,288) | | | (8,955) | | | — | | |
| (Loss) gain on revaluation of embedded derivatives | | | | | | (1,641) | | | 566 | | | (919) | | |
| Loss before income taxes | | | | | | (306,043) | | | (313,989) | | | (192,323) | | |
| Income tax provision | | | | | | 1,894 | | | 1,097 | | | 1,046 | | |
| Net loss | | | | | | (307,937) | | | (315,086) | | | (193,369) | | |
| Less: Net loss attributable to noncontrolling interest | | | | | | (5,821) | | | (13,378) | | | (28,896) | | |
| Net loss attributable to common stockholders | | | | | | (302,116) | | | (301,708) | | | (164,473) | | |
| Less: Net loss attributable to redeemable noncontrolling interest | | | | | | — | | | (300) | | | (28) | | |
| Net loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | | | | | | $ | (302,116) | | | $ | (301,408) | | | $ | (164,445) | | |
| Net loss per share available to common stockholders, basic and diluted | | | | | | $ | (1.42) | | | $ | (1.62) | | | $ | (0.95) | | |
| Weighted average shares used to compute net loss per share available to common stockholders, basic and diluted | | | | | | 212,681 | | | 185,907 | | | 173,438 | | |
1 Including related party revenue of $487.2 million, $36.3 million and $16.0 million for approximately 43%the years ended December 31, 2023, 2022 and 11%2021, respectively.
2 Including related party cost of our total revenue respectively. Inof $0.1 million for the year ended December 31, 2020,2023. There was no related party cost of revenue from two customers, SK ecoplantfor the years ended December 31, 2022 and Duke2021.
3 Including related party general and administrative expenses of $0.8 million for the year ended December 31, 2023. There were no related party general and administrative expenses for the years ended December 31, 2022 and 2021.
4 Including related party interest expense of $0.1 million for the year ended December 31, 2023. There was no related party interest expense for the years ended December 31, 2022 and 2021.
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation accounted
Consolidated Statements of Comprehensive Loss
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended December 31, |
| | | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | | | |
| Net loss | | | | | | $ | (307,937) | | | $ | (315,086) | | | $ | (193,369) | |
| Other comprehensive loss, net of taxes: | | | | | | | | | | |
| Change in derivative instruments designated and qualifying as cash flow hedges | | | | | | — | | | — | | | 15,243 | |
| Foreign currency translation adjustment | | | | | | (430) | | | (794) | | | (595) | |
| Other comprehensive (loss) income, net of taxes | | | | | | (430) | | | (794) | | | 14,648 | |
| Comprehensive loss | | | | | | (308,367) | | | (315,880) | | | (178,721) | |
| Less: Comprehensive loss attributable to noncontrolling interest | | | | | | (5,815) | | | (13,271) | | | (13,907) | |
| Comprehensive loss attributable to common stockholders | | | | | | $ | (302,552) | | | $ | (302,609) | | | $ | (164,814) | |
| Less: Comprehensive loss attributable to redeemable noncontrolling interest | | | | | | $ | — | | | $ | (300) | | | $ | (28) | |
| Comprehensive loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | | | | | | $ | (302,552) | | | $ | (302,309) | | | $ | (164,786) | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Equity Attributable to Common Stockholders | | Noncontrolling Interest | | Total Stockholders’ Equity |
| | | | | | | | Shares | | Amount | | | | | | |
| Balances at December 31, 2022 | | | | | | | | 205,664,690 | | | $ | 20 | | | $ | 3,906,491 | | | $ | (1,251) | | | $ | (3,564,483) | | | $ | 340,777 | | | $ | 38,039 | | | $ | 378,816 | |
| Issuance of restricted stock awards | | | | | | | | 4,160,416 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | | | | | | | 875,695 | | | — | | | 13,363 | | | — | | | — | | | 13,363 | | | — | | | 13,363 | |
| Exercise of stock options | | | | | | | | 525,031 | | | — | | | 3,582 | | | — | | | — | | | 3,582 | | | — | | | 3,582 | |
| Stock-based compensation | | | | | | | | — | | | — | | | 87,076 | | | — | | | — | | | 87,076 | | | — | | | 87,076 | |
| Contributions from noncontrolling interest | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,979 | | | 6,979 | |
| Distributions and payments to noncontrolling interest | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,265) | | | (2,265) | |
| Buyout of noncontrolling interest | | | | | | | | — | | | — | | | 11,482 | | | — | | | — | | | 11,482 | | | (18,346) | | | (6,864) | |
| Derecognition of the pre-modified forward contract fair value | | | | | | | | — | | | — | | | 76,242 | | | — | | | — | | | 76,242 | | | — | | | 76,242 | |
| Equity component of redeemable convertible preferred stock | | | | | | | | — | | | — | | | 16,145 | | | — | | | — | | | 16,145 | | | — | | | 16,145 | |
| Purchase of capped call options related to convertible notes | | | | | | | | — | | | — | | | (54,522) | | | — | | | — | | | (54,522) | | | — | | | (54,522) | |
| Conversion of redeemable convertible preferred stock | | | | | | | | 13,491,701 | | | 1 | | | 310,484 | | | — | | | — | | | 310,485 | | | — | | | 310,485 | |
| Foreign currency translation adjustment | | | | | | | | — | | | — | | | — | | | (436) | | | — | | | (436) | | | 6 | | | (430) | |
| Net loss | | | | | | | | — | | | — | | | — | | | — | | | (302,116) | | | (302,116) | | | (5,821) | | | (307,937) | |
| Balances at December 31, 2023 | | | | | | | | 224,717,533 | | | $ | 21 | | | $ | 4,370,343 | | | $ | (1,687) | | | $ | (3,866,599) | | | $ | 502,078 | | | $ | 18,592 | | | $ | 520,670 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated
Deficit | | Total Equity (Deficit) Attributable to Common Stockholders | | Noncontrolling
Interest | | Total Stockholders’ Equity (Deficit) |
| | Shares | | Amount | | | | | | |
| Balances at December 31, 2021 | | 176,460,407 | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | | | $ | (1,827) | |
| Issuance of restricted stock awards | | 2,957,215 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | 759,744 | | | — | | | 11,600 | | | — | | | — | | | 11,600 | | | — | | | 11,600 | |
| Exercise of stock options | | 537,324 | | | — | | | 3,679 | | | — | | | — | | | 3,679 | | | — | | | 3,679 | |
| Stock-based compensation | | — | | | — | | | 112,722 | | | — | | | — | | | 112,722 | | | — | | | 112,722 | |
| Contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 2,815 | | | 2,815 | |
| Distributions and payments to noncontrolling interest | | — | | | — | | | (500) | | | — | | | — | | | (500) | | | (6,354) | | | (6,854) | |
| Buyout of noncontrolling interest | | — | | | — | | | (24,350) | | | — | | | — | | | (24,350) | | | 12,350 | | | (12,000) | |
| Public share offering | | 14,950,000 | | | 1 | | | 371,526 | | | — | | | — | | | 371,527 | | | — | | | 371,527 | |
| Forward contract to purchase Class A common stock | | — | | | — | | | 4,183 | | | — | | | — | | | 4,183 | | | — | | | 4,183 | |
| Conversion of redeemable convertible preferred stock | | 10,000,000 | | | 1 | | | 208,550 | | | — | | | — | | | 208,551 | | | — | | | 208,551 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | (901) | | | — | | | (901) | | | 107 | | | (794) | |
Net loss1 | | — | | | — | | | — | | | — | | | (301,408) | | | (301,408) | | | (13,378) | | | (314,786) | |
| Balances at December 31, 2022 | | 205,664,690 | | | $ | 20 | | | $ | 3,906,491 | | | $ | (1,251) | | | $ | (3,564,483) | | | $ | 340,777 | | | $ | 38,039 | | | $ | 378,816 | |
1 Excludes $300 attributable to redeemable noncontrolling interest.
Note: Beginning redeemable NCI of $300 — Net loss attributable to redeemable NCI of $300 = Ending redeemable NCI of Nil.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated
Deficit | | Total (Deficit) Equity attributable to Common Stockholders | | Noncontrolling
Interest | | Total Stockholders’ (Deficit) Equity |
| | | Shares | | Amount | | | | | | |
| Balances at December 31, 2020 | | | 168,002,726 | | $ | 17 | | | $ | 3,182,753 | | | $ | (9) | | | $ | (3,103,937) | | | $ | 78,824 | | | $ | 62,195 | | | $ | 141,019 | |
| Cumulative effect upon adoption of new accounting standard | | | — | | | — | | | (126,799) | | | — | | | 5,308 | | | (121,491) | | | — | | | (121,491) | |
| Issuance of restricted stock awards | | | 3,052,012 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | | 1,945,305 | | | — | | | 10,045 | | | — | | | — | | | 10,045 | | | — | | | 10,045 | |
| Exercise of stock options | | | 3,460,364 | | | 1 | | | 79,744 | | | — | | | — | | | 79,745 | | | — | | | 79,745 | |
| Stock-based compensation | | | — | | | — | | | 73,338 | | | — | | | — | | | 73,338 | | | — | | | 73,338 | |
| Distributions and payments to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,789) | | | (5,789) | |
| Change in effective portion of interest rate swap agreement | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,243 | | | 15,243 | |
| Foreign currency translation adjustment | | | — | | | — | | | — | | | (341) | | | (1) | | | (342) | | | (254) | | | (596) | |
Net loss2 | | | — | | | — | | | — | | | — | | | (164,445) | | | (164,445) | | | (28,896) | | | (193,341) | |
| Balances at December 31, 2021 | | | 176,460,407 | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | | | $ | (1,827) | |
2 Excludes $28 attributable to redeemable noncontrolling interest.
Note: Beginning redeemable NCI of $377 — distributions to redeemable noncontrolling interests of $49 — Net loss attributable to redeemable NCI of $28 = Ending redeemable NCI of $300.
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, | |
| | | 2023 | | 2022 | | 2021 | |
| Cash flows from operating activities: | | | | | | | |
| Net loss | | $ | (307,937) | | | $ | (315,086) | | | $ | (193,369) | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
| Depreciation and amortization | | 62,609 | | | 61,608 | | | 53,454 | | |
| Non-cash lease expense | | 33,619 | | | 20,155 | | | 9,708 | | |
| Loss on disposal of property, plant and equipment | | 411 | | | — | | | — | | |
| Revaluation of derivative contracts | | 1,641 | | | (9,583) | | | 17,532 | | |
| Impairment of assets related to PPAs | | 130,088 | | | 113,514 | | | — | | |
| Derecognition of loan commitment asset related to SK ecoplant Second Tranche Closing | | 52,792 | | | — | | | — | | |
| Stock-based compensation expense | | 84,480 | | | 112,259 | | | 73,274 | | |
| Amortization of warrants and debt issuance costs | | 4,772 | | | 3,032 | | | 3,797 | | |
| Loss on extinguishment of debt | | 4,288 | | | 8,955 | | | — | | |
| Gain on remeasurement of investment | | — | | | — | | | (1,966) | | |
| Contingent consideration remeasurement | | — | | | — | | | (3,623) | | |
| Interest expense on interest rate swap settlement | | — | | | — | | | (641) | | |
| Unrealized foreign currency exchange loss (gain) | | 618 | | | (3,267) | | | 77 | | |
| Other | | 450 | | | 3,532 | | | — | | |
| Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable1 | | (89,888) | | | (162,864) | | | 8,608 | | |
Contract assets2 | | 5,361 | | | (21,525) | | | (21,874) | | |
| Inventories | | (231,689) | | | (124,878) | | | (885) | | |
Deferred cost of revenue3 | | 1,655 | | | (24,282) | | | 17,567 | | |
| Customer financing receivable | | — | | | 2,510 | | | 5,428 | | |
Prepaid expenses and other assets4 | | (5,754) | | | (17,590) | | | 1,520 | | |
Other long-term assets5 | | (3,366) | | | (2,617) | | | (2,854) | | |
| Operating lease right-of-use assets and operating lease liabilities | | (32,801) | | | 3,016 | | | (12,953) | | |
| Financing lease liabilities | | 1,011 | | | 896 | | | 1,142 | | |
Accounts payable6 | | (29,080) | | | 86,498 | | | 13,017 | | |
| Accrued warranty | | 1,994 | | | 5,586 | | | 1,481 | | |
Accrued expenses and other liabilities7 | | (13,785) | | | 43,243 | | | (2,144) | | |
Deferred revenue and customer deposits8 | | (42,635) | | | 35,156 | | | (22,677) | | |
| Other long-term liabilities | | (1,385) | | | (9,991) | | | (4,300) | | |
| Net cash used in operating activities | | (372,531) | | | (191,723) | | | (60,681) | | |
| Cash flows from investing activities: | | | | | | | |
| Purchase of property, plant and equipment | | (83,739) | | | (116,823) | | | (49,810) | | |
| Proceeds from sale of property, plant and equipment | | 14 | | | — | | | — | | |
| Net cash acquired from step acquisition | | — | | | — | | | 3,114 | | |
| Net cash used in investing activities | | (83,725) | | | (116,823) | | | (46,696) | | |
| Cash flows from financing activities: | | | | | | | |
Proceeds from issuance of debt9 | | 637,127 | | | — | | | 135,989 | | |
| Payment of debt issuance costs | | (19,736) | | | — | | | (1,950) | | |
| Repayment of debt | | (191,390) | | | (120,586) | | | (123,374) | | |
| Make-whole payment related to PPA IIIa and PPA IV debt | | — | | | (6,553) | | | — | | |
| Purchase of capped call options related to convertible notes | | (54,522) | | | — | | | — | | |
| Proceeds from financing obligations | | 4,993 | | | 3,261 | | | 16,849 | | |
| Repayment of financing obligations | | (18,445) | | | (35,543) | | | (13,642) | | |
| Distributions and payments to noncontrolling interest | | (2,265) | | | (6,854) | | | (5,789) | | |
| Distributions to redeemable noncontrolling interest | | — | | | — | | | (49) | | |
| Proceeds from issuance of common stock | | 16,945 | | | 15,279 | | | 89,790 | | |
| Proceeds from public share offering | | — | | | 385,396 | | | — | | |
| Payment of public share offering costs | | (35) | | | (13,775) | | | — | | |
| Buyout of noncontrolling interest | | (6,864) | | | (12,000) | | | — | | |
| Proceeds from issuance of redeemable convertible preferred stock | | 310,957 | | | — | | | 217,861 | | |
| Payment of issuance costs related to redeemable convertible preferred stock | | (395) | | | — | | | (9,310) | | |
| Contributions from noncontrolling interest | | 6,979 | | | 2,815 | | | — | | |
| Other | | — | | | (76) | | | — | | |
| Net cash provided by financing activities | | 683,349 | | | 211,364 | | | 306,375 | | |
| Effect of exchange rate changes on cash, cash equivalent and restricted cash | | (281) | | | 434 | | | (594) | | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | 226,812 | | | (96,748) | | | 198,404 | | |
| Cash, cash equivalents, and restricted cash: | | | | | | | |
| Beginning of period | | 518,366 | | | 615,114 | | | 416,710 | | |
| End of period | | $ | 745,178 | | | $ | 518,366 | | | $ | 615,114 | | |
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | |
| Cash paid during the period for interest | | $ | 49,929 | | | $ | 48,980 | | | $ | 68,739 | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
| Operating cash flows from operating leases | | 32,538 | | | 14,001 | | | 17,416 | | |
| Operating cash flows from finance leases | | 1,097 | | | 1,085 | | | 878 | | |
| Cash paid during the period for income taxes | | 1,455 | | | 1,439 | | | 576 | | |
| Non-cash investing and financing activities: | | | | | | | |
| Increase in recourse debt, non-current upon adoption of ASU 2020-06, net | | $ | — | | | $ | — | | | $ | 121,491 | | |
| | | | | | | |
| Transfer from customer financing receivable to property, plant and equipment, net | | — | | | 42,758 | | | — | | |
| Forward to purchase Class A common stock | | — | | | 4,183 | | | — | | |
| Liabilities recorded for property, plant and equipment, net | | 9,297 | | | 10,988 | | | 6,095 | | |
| Recognition of operating lease right-of-use asset during the year-to-date period | | 29,823 | | | 36,402 | | | 82,802 | | |
| Recognition of finance lease right-of-use asset during the year-to-date period | | 1,011 | | | 896 | | | 2,210 | | |
| Conversion of redeemable convertible preferred stock | | 310,484 | | | 208,551 | | | — | | |
| Derecognition of the pre-modified forward contract fair value | | 76,242 | | | — | | | — | | |
| Equity component of redeemable convertible preferred stock | | 16,145 | | | — | | | — | | |
1 Including changes in related party balances of $257.8 million, $0.1 million and $2.0 million for approximately 34%the years ended December 31, 2023, 2022 and 28%, respectively,2021, respectively.
2 Including change in related party balances of our total revenue.$6.9 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
3 Including change in related party balances of $0.9 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
4 Including change in related party balances of $2.3 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
5 Including change in related party balances of $9.1 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
6 Including change in related party balances of $0.1 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
7 Including change in related party balances of $3.4 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
8 Including change in related party balances of $8.4 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
9 Including proceeds from issuance of debt from related party of $4.6 million for the year ended December 31, 2023. There were no proceeds from issuance of debt from related party for the years ended of December 31, 2022 and 2021.
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Notes to Consolidated Financial Statements
2. Summary
1. Nature of Significant Accounting PoliciesBusiness, Liquidity and Basis of Presentation
Revenue Recognition
We apply Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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 using a cost-plus margin approach.
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 and 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 startup and commissioning (“Mechanical Completion”), or when the system is shipped and delivered and is turned on and producing power (“COO”).
For certain installations, 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.
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 Servers. 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 the Energy Servers with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of the Energy Servers, standalone selling prices are estimated using a cost-plus approach. Costs relating to the 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 Servers 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 Servers 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 Servers 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 an operating lease ROU asset and an operating 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 Assets and Liabilities of the SK ecoplant Strategic Investment
On March 20, 2023, the Company amended its SPA (the “Amended SPA”) with SK ecoplant and simultaneously entered into the Loan Agreement (collectively “the Agreements.”) On March 23, 2023, pursuant to the Amended SPA, we issued and sold to SK ecoplant shares of non-voting Series B RCPS. The Amended SPA triggered the modification of the equity-classified forward contract on Class A common stock, which resulted in the derecognition of the pre-modified fair value of the forward contract given to SK ecoplant. The Series B RCPS was accounted for as a stock award with liability and equity components. The liability component of the Series B RCPS was recognized at the redemption value net of issuance costs, and the equity component was recognized at its fair value on March 20, 2023 and represented the option of SK ecoplant to convert the Series B RCPS to Class A common stock (the “Conversion Option”). Pursuant to the Loan Agreement we had the option to draw on a loan from SK ecoplant, should SK ecoplant have sent a redemption notice to us under the Amended SPA. The Agreements provided us with a loan commitment asset from SK ecoplant.
The liability component of the Series B RCPS, the Conversion Option, and the loan commitment asset were accounted for under the guidance of Topic 718, Compensation – Stock Compensation (“ASC 718”), and applicable subsections of ASC 480, Distinguishing Liabilities from Equity (“ASC 480”). We used third-party valuation experts to provide us with (i) the pre-modified fair value of the forward contract given to SK ecoplant, (ii) the fair value of the issued Series B RCPS equity component, and (iii) the fair value of the loan commitment asset from SK ecoplant.
Pre-modified forward contract. We valued the forward contract as the difference between (i) our Class A common stock trading price adjusted by a discount for lack of marketability (“DLOM”) as of the date of Amended SPA (the “Valuation Date”) and (ii) the present value of the strike price, with further reduction associated with the expected outcome of the Second Tranche Closing.
Series B RCPS equity component (the Conversion Option). We valued the conversion feature of the Series B RCPS as a European-type call option under the guidance of ASC 718 by applying the Black-Scholes valuation model using inputs of the strike price, maturity, risk-free rate, and volatility. In addition, DLOM was applied to the Class A common stock price.
Loan commitment asset from SK ecoplant. We concluded that the loan commitment was a freestanding financial instrument as of the Valuation Date. We valued the loan commitment asset based on the difference between the present value of cash flows associated with a loan with a market-participant based interest rate (i.e., the rate for which the value of the hypothetical loan agreement equals the face value of the Loan Agreement) and the cash flows associated with the loan committed to by SK ecoplant, and applied a redemption probability to the difference. The Series B RCPS redemption probability was obtained from a lattice model used to value the Series B preferred stock. As of December 31, 2023, the loan
commitment asset from SK ecoplant was derecognized as a result of automatic conversion of all shares of the Series B RCPS into shares of our Class A common stock.
We determined our final estimates of fair values based on internal reviews and in consideration of the estimates received. The objective of the fair value measurement of our estimate was 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 determined the reasonableness of our valuation methodology and underlying assumptions and reviewed the mathematical accuracy of the calculations before recording in our consolidated statements of operations and consolidated balance sheets.
For additional details about the transaction with SK ecoplant, please refer to Part II, Item 8, Note 17 — SK ecoplant Strategic Investment.
Income Taxes
We account for income taxes using the liability method under ASC 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. 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 our 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 VIEs. The consideration 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 the VIEs.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks as part of our ongoing business operations, primarily from exposure to changes in interest rates, in commodity fuel prices and in foreign currency.
Interest Rate Risk
Our cash and cash equivalents are primarily invested in interest-bearing accounts and money market funds. The risk associated with fluctuating interest rates is primarily limited to the yield we make on these investments. 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 can liquidate substantially all of our short-term investment 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 our income statement and in investment fair values, assuming a 1% decline in yield. Based on our investment positions on both December 31, 2023 and 2022, a hypothetical 1% decrease in interest rates across all maturities would result in $7.3 million and $4.4 million declines in interest income and/or an 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.
As all of our debt is fixed-rate convertible debt, interest rate changes do not affect our earnings or cash flows, but it does lead to refinancing risk. In case we end up issuing new debt or refinancing our current debt, the overall interest expense can materially increase.
Commodity Price Risk
We are subject to commodity price risk arising from price movements for natural gas that we supply to our 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 met the definition of a derivative under U.S. GAAP and accordingly, any changes in its fair value were recorded within cost of revenue in our 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. There were no natural gas fixed price forward contracts as of December 31, 2023 and 2022.
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. However, we conduct some international 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 10% decline in the value of the U.S. dollar. Based on our foreign currency holdings as of December 31, 2023 and 2022, a hypothetical 10% 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 U.S., 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, 2023 and 2022 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, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Loss, Changes in Stockholders’ Equity (Deficit) and Cash Flows, for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 15, 2024, 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 was 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.
Product Revenue Recognition – Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
Product revenue for the sale of energy servers is recognized upon transfer of control to customers which typically occurs at customer acceptance, which, depending on the contract terms, is when the product is shipped and delivered to a customer, is physically ready for startup and commissioning, or when the product is shipped, delivered, turned on, and producing power.
We identified the timing of product revenue recognition (i.e., customer acceptance), as a critical audit matter because of the degree of auditor judgment and increased extent of effort when performing audit procedures to evaluate the appropriateness of the timing of product revenue recognized during the year.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the timing of product revenue recognition included the following:
•We obtained an understanding of the nature of the revenue recognition process through inquiry with Company personnel and inspection of executed contracts with customers
•We tested the design and operating effectiveness of internal controls over the Company’s timing of product revenue recognition
•For a sample of product revenue acceptances during the year ended December 31, 2023, we performed the following:
a.We inspected the executed contracts to identify the relevant terms and conditions which would impact the Company’s accounting conclusions, including the timing of the transfer of control of products to customers
b.We inspected source documents to test the timing of revenue recognition, or customer acceptance, such as agreed-upon sales orders, shipping records, mechanical completion certifications, commencement of operation certifications, as well as the related invoices generated and evaluated any differences. We corroborated our inspection of source documents by sending written confirmations to customers confirming the period of customer acceptance
Amendment to Securities Purchase Agreement and Second Tranche Closing – Refer to Note 17 to the financial statements
Critical Audit Matter Description
The Company amended its Securities Purchase Agreement (“Amended SPA”) with SK ecoplant Co., Ltd. (“SK ecoplant,”) and simultaneously entered into a loan commitment agreement (collectively “the Agreements”). The Agreements resulted in the Company receiving cash proceeds and a loan commitment asset from SK ecoplant. In return, SK ecoplant received consideration consisting of the release from the obligation to close on the original forward contract on Class A common stock (“the Pre-modified Forward Contract”), shares of Series B redeemable convertible preferred stock (“Series B RCPS”), and the option for SK ecoplant to convert the Series B RCPS to Class A common stock (the “Conversion Option”).
We identified the accounting and the valuation of the Agreements 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 the Pre-modified Forward Contract, the Series B RCPS, the Conversion Option, and the loan commitment asset (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 Agreements, and the Company’s determination of the fair values of the Financial Instruments, included the following:
•We tested the design and operating effectiveness of internal controls over the Company’s accounting for the Agreements and over the determination of the fair values of the Financial Instruments
•With the assistance of our accounting specialists, we evaluated the Company’s conclusions regarding the accounting for the Agreements including the Company’s application of the contract modification and the identification and classification of financial instruments
•With the assistance of our fair value specialists, we evaluated the reasonableness of the following:
a.Valuation methodologies applied to determine the fair values of the Financial Instruments
b.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 Series B RCPS and the Conversion Option, the note yield related to the loan commitment, and stock volatility
c.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 15, 2024
We have served as the Company’s auditor since 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, 2023, 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, 2023, 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, 2023, of the Company and our report dated February 15, 2024, 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 15, 2024
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands, except share data)
| | | | | | | | | | | | | | | |
| | December 31, | |
| | 2023 | | 2022 | |
| Assets | | | | | |
| Current assets: | | | | | |
Cash and cash equivalents1 | | $ | 664,593 | | | $ | 348,498 | | |
Restricted cash1 | | 46,821 | | | 51,515 | | |
Accounts receivable less allowance for credit losses of $119 as of December 31, 2023 and $119 as of December 31, 20221, 2 | | 340,740 | | | 250,995 | | |
Contract assets3 | | 41,366 | | | 46,727 | | |
Inventories1 | | 502,515 | | | 268,394 | | |
Deferred cost of revenue4 | | 45,984 | | | 46,191 | | |
Prepaid expenses and other current assets1, 5 | | 51,148 | | | 43,643 | | |
| Total current assets | | 1,693,167 | | | 1,055,963 | | |
Property, plant and equipment, net1 | | 493,352 | | | 600,414 | | |
Operating lease right-of-use assets1, 6 | | 139,732 | | | 126,955 | | |
Restricted cash1 | | 33,764 | | | 118,353 | | |
| Deferred cost of revenue | | 3,454 | | | 4,737 | | |
Other long-term assets1, 7 | | 50,208 | | | 40,205 | | |
| Total assets | | $ | 2,413,677 | | | $ | 1,946,627 | | |
| Liabilities and stockholders’ equity | | | | | |
| Current liabilities: | | | | | |
Accounts payable1, 8 | | $ | 132,078 | | | $ | 161,770 | | |
| Accrued warranty | | 19,326 | | | 17,332 | | |
Accrued expenses and other current liabilities1, 9 | | 130,879 | | | 144,183 | | |
Deferred revenue and customer deposits1, 10 | | 128,922 | | | 159,048 | | |
Operating lease liabilities1, 11 | | 20,245 | | | 16,227 | | |
| Financing obligations | | 38,972 | | | 17,363 | | |
| Recourse debt | | — | | | 12,716 | | |
Non-recourse debt1 | | — | | | 13,307 | | |
| Total current liabilities | | 470,422 | | | 541,946 | | |
Deferred revenue and customer deposits1, 12 | | 19,140 | | | 56,392 | | |
Operating lease liabilities1, 13 | | 141,939 | | | 132,363 | | |
| Financing obligations | | 405,824 | | | 442,063 | | |
| Recourse debt | | 842,006 | | | 273,076 | | |
Non-recourse debt1, 14 | | 4,627 | | | 112,480 | | |
| Other long-term liabilities | | 9,049 | | | 9,491 | | |
| Total liabilities | | $ | 1,893,007 | | | $ | 1,567,811 | | |
| Commitments and contingencies (Note 13) | | | | | |
| Stockholders’ equity: | | | | | |
Common stock: $0.0001 par value; Class A shares — 600,000,000 shares authorized, and 224,717,533 shares and 189,864,722 shares issued and outstanding and Class B shares — 600,000,000 shares authorized, and no shares and 15,799,968 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively. | | 21 | | | 20 | | |
| Additional paid-in capital | | 4,370,343 | | | 3,906,491 | | |
| Accumulated other comprehensive loss | | (1,687) | | | (1,251) | | |
| Accumulated deficit | | (3,866,599) | | | (3,564,483) | | |
| Total stockholders’ equity attributable to common stockholders | | 502,078 | | | 340,777 | | |
| Noncontrolling interest | | 18,592 | | | 38,039 | | |
| Total stockholders’ equity | | $ | 520,670 | | | $ | 378,816 | | |
| Total liabilities and stockholders’ equity | | $ | 2,413,677 | | | $ | 1,946,627 | | |
1 We have variable interest entities related to the PPA* V (see Note 10 — Portfolio Financings) and a joint venture in the Republic of Korea (see Note 17 — SK ecoplant Strategic Investment), which represent a portion of the consolidated balances recorded within these financial statement line items.
In August 2023, we sold the PPA V as a result of the PPA V Repowering of the Energy Servers (see Note 10 — Portfolio Financings), as such the consolidated balances recorded within these financial statement line items as of December 31, 2023 exclude the PPA V balances.
2 Including amounts from related parties of $262.0 million and $4.3 million as of December 31, 2023 and December 31, 2022, respectively.
3 Including amounts from related parties of $6.9 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
4 Including amounts from related parties of $0.9 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
5 Including amounts from related parties of $2.3 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
6 Including amounts from related parties of $2.0 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
7 Including amounts from related parties of $9.1 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
8 Including amounts from related parties of $0.1 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
9 Including amounts from related parties of $3.4 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
10 Including amounts from related parties of $1.7 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
11 Including amounts from related parties of $0.4 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
12 Including amounts from related parties of $6.7 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
13 Including amounts from related parties of $1.6 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
14 Including amounts from related parties of $4.6 million as of December 31, 2023. There were no respective related party amounts as of December 31, 2022.
*Power Purchase Agreement
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, | |
| | | | | | | 2023 | | 2022 | | 2021 | |
| | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | |
| Product | | | | | | $ | 975,245 | | | $ | 880,664 | | | $ | 663,512 | | |
| Installation | | | | | | 92,796 | | | 92,120 | | | 96,059 | | |
| Service | | | | | | 183,065 | | | 150,954 | | | 144,184 | | |
| Electricity | | | | | | 82,364 | | | 75,387 | | | 68,421 | | |
Total revenue1 | | | | | | 1,333,470 | | | 1,199,125 | | | 972,176 | | |
| Cost of revenue: | | | | | | | | | | | |
| Product | | | | | | 630,105 | | | 616,178 | | | 471,654 | | |
| Installation | | | | | | 105,735 | | | 104,111 | | | 110,214 | | |
| Service | | | | | | 220,927 | | | 168,491 | | | 148,286 | | |
| Electricity | | | | | | 178,909 | | | 162,057 | | | 44,441 | | |
Total cost of revenue2 | | | | | | 1,135,676 | | | 1,050,837 | | | 774,595 | | |
| Gross profit | | | | | | 197,794 | | | 148,288 | | | 197,581 | | |
| Operating expenses: | | | | | | | | | | | |
| Research and development | | | | | | 155,865 | | | 150,606 | | | 103,396 | | |
| Sales and marketing | | | | | | 89,961 | | | 90,934 | | | 86,499 | | |
General and administrative3 | | | | | | 160,875 | | | 167,740 | | | 122,188 | | |
| Total operating expenses | | | | | | 406,701 | | | 409,280 | | | 312,083 | | |
| Loss from operations | | | | | | (208,907) | | | (260,992) | | | (114,502) | | |
| Interest income | | | | | | 19,885 | | | 3,887 | | | 262 | | |
Interest expense4 | | | | | | (108,299) | | | (53,493) | | | (69,025) | | |
| Other (expense) income, net | | | | | | (2,793) | | | 4,998 | | | (8,139) | | |
| Loss on extinguishment of debt | | | | | | (4,288) | | | (8,955) | | | — | | |
| (Loss) gain on revaluation of embedded derivatives | | | | | | (1,641) | | | 566 | | | (919) | | |
| Loss before income taxes | | | | | | (306,043) | | | (313,989) | | | (192,323) | | |
| Income tax provision | | | | | | 1,894 | | | 1,097 | | | 1,046 | | |
| Net loss | | | | | | (307,937) | | | (315,086) | | | (193,369) | | |
| Less: Net loss attributable to noncontrolling interest | | | | | | (5,821) | | | (13,378) | | | (28,896) | | |
| Net loss attributable to common stockholders | | | | | | (302,116) | | | (301,708) | | | (164,473) | | |
| Less: Net loss attributable to redeemable noncontrolling interest | | | | | | — | | | (300) | | | (28) | | |
| Net loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | | | | | | $ | (302,116) | | | $ | (301,408) | | | $ | (164,445) | | |
| Net loss per share available to common stockholders, basic and diluted | | | | | | $ | (1.42) | | | $ | (1.62) | | | $ | (0.95) | | |
| Weighted average shares used to compute net loss per share available to common stockholders, basic and diluted | | | | | | 212,681 | | | 185,907 | | | 173,438 | | |
1 Including related party revenue of $487.2 million, $36.3 million and $16.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.
2 Including related party cost of revenue of $0.1 million for the year ended December 31, 2023. There was no related party cost of revenue for the years ended December 31, 2022 and 2021.
3 Including related party general and administrative expenses of $0.8 million for the year ended December 31, 2023. There were no related party general and administrative expenses for the years ended December 31, 2022 and 2021.
4 Including related party interest expense of $0.1 million for the year ended December 31, 2023. There was no related party interest expense for the years ended December 31, 2022 and 2021.
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, |
| | | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | | | |
| Net loss | | | | | | $ | (307,937) | | | $ | (315,086) | | | $ | (193,369) | |
| Other comprehensive loss, net of taxes: | | | | | | | | | | |
| Change in derivative instruments designated and qualifying as cash flow hedges | | | | | | — | | | — | | | 15,243 | |
| Foreign currency translation adjustment | | | | | | (430) | | | (794) | | | (595) | |
| Other comprehensive (loss) income, net of taxes | | | | | | (430) | | | (794) | | | 14,648 | |
| Comprehensive loss | | | | | | (308,367) | | | (315,880) | | | (178,721) | |
| Less: Comprehensive loss attributable to noncontrolling interest | | | | | | (5,815) | | | (13,271) | | | (13,907) | |
| Comprehensive loss attributable to common stockholders | | | | | | $ | (302,552) | | | $ | (302,609) | | | $ | (164,814) | |
| Less: Comprehensive loss attributable to redeemable noncontrolling interest | | | | | | $ | — | | | $ | (300) | | | $ | (28) | |
| Comprehensive loss before portion attributable to redeemable noncontrolling interest and noncontrolling interest | | | | | | $ | (302,552) | | | $ | (302,309) | | | $ | (164,786) | |
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Equity Attributable to Common Stockholders | | Noncontrolling Interest | | Total Stockholders’ Equity |
| | | | | | | | Shares | | Amount | | | | | | |
| Balances at December 31, 2022 | | | | | | | | 205,664,690 | | | $ | 20 | | | $ | 3,906,491 | | | $ | (1,251) | | | $ | (3,564,483) | | | $ | 340,777 | | | $ | 38,039 | | | $ | 378,816 | |
| Issuance of restricted stock awards | | | | | | | | 4,160,416 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | | | | | | | 875,695 | | | — | | | 13,363 | | | — | | | — | | | 13,363 | | | — | | | 13,363 | |
| Exercise of stock options | | | | | | | | 525,031 | | | — | | | 3,582 | | | — | | | — | | | 3,582 | | | — | | | 3,582 | |
| Stock-based compensation | | | | | | | | — | | | — | | | 87,076 | | | — | | | — | | | 87,076 | | | — | | | 87,076 | |
| Contributions from noncontrolling interest | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,979 | | | 6,979 | |
| Distributions and payments to noncontrolling interest | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,265) | | | (2,265) | |
| Buyout of noncontrolling interest | | | | | | | | — | | | — | | | 11,482 | | | — | | | — | | | 11,482 | | | (18,346) | | | (6,864) | |
| Derecognition of the pre-modified forward contract fair value | | | | | | | | — | | | — | | | 76,242 | | | — | | | — | | | 76,242 | | | — | | | 76,242 | |
| Equity component of redeemable convertible preferred stock | | | | | | | | — | | | — | | | 16,145 | | | — | | | — | | | 16,145 | | | — | | | 16,145 | |
| Purchase of capped call options related to convertible notes | | | | | | | | — | | | — | | | (54,522) | | | — | | | — | | | (54,522) | | | — | | | (54,522) | |
| Conversion of redeemable convertible preferred stock | | | | | | | | 13,491,701 | | | 1 | | | 310,484 | | | — | | | — | | | 310,485 | | | — | | | 310,485 | |
| Foreign currency translation adjustment | | | | | | | | — | | | — | | | — | | | (436) | | | — | | | (436) | | | 6 | | | (430) | |
| Net loss | | | | | | | | — | | | — | | | — | | | — | | | (302,116) | | | (302,116) | | | (5,821) | | | (307,937) | |
| Balances at December 31, 2023 | | | | | | | | 224,717,533 | | | $ | 21 | | | $ | 4,370,343 | | | $ | (1,687) | | | $ | (3,866,599) | | | $ | 502,078 | | | $ | 18,592 | | | $ | 520,670 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated
Deficit | | Total Equity (Deficit) Attributable to Common Stockholders | | Noncontrolling
Interest | | Total Stockholders’ Equity (Deficit) |
| | Shares | | Amount | | | | | | |
| Balances at December 31, 2021 | | 176,460,407 | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | | | $ | (1,827) | |
| Issuance of restricted stock awards | | 2,957,215 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | 759,744 | | | — | | | 11,600 | | | — | | | — | | | 11,600 | | | — | | | 11,600 | |
| Exercise of stock options | | 537,324 | | | — | | | 3,679 | | | — | | | — | | | 3,679 | | | — | | | 3,679 | |
| Stock-based compensation | | — | | | — | | | 112,722 | | | — | | | — | | | 112,722 | | | — | | | 112,722 | |
| Contributions from noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | — | | | 2,815 | | | 2,815 | |
| Distributions and payments to noncontrolling interest | | — | | | — | | | (500) | | | — | | | — | | | (500) | | | (6,354) | | | (6,854) | |
| Buyout of noncontrolling interest | | — | | | — | | | (24,350) | | | — | | | — | | | (24,350) | | | 12,350 | | | (12,000) | |
| Public share offering | | 14,950,000 | | | 1 | | | 371,526 | | | — | | | — | | | 371,527 | | | — | | | 371,527 | |
| Forward contract to purchase Class A common stock | | — | | | — | | | 4,183 | | | — | | | — | | | 4,183 | | | — | | | 4,183 | |
| Conversion of redeemable convertible preferred stock | | 10,000,000 | | | 1 | | | 208,550 | | | — | | | — | | | 208,551 | | | — | | | 208,551 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | (901) | | | — | | | (901) | | | 107 | | | (794) | |
Net loss1 | | — | | | — | | | — | | | — | | | (301,408) | | | (301,408) | | | (13,378) | | | (314,786) | |
| Balances at December 31, 2022 | | 205,664,690 | | | $ | 20 | | | $ | 3,906,491 | | | $ | (1,251) | | | $ | (3,564,483) | | | $ | 340,777 | | | $ | 38,039 | | | $ | 378,816 | |
1 Excludes $300 attributable to redeemable noncontrolling interest.
Note: Beginning redeemable NCI of $300 — Net loss attributable to redeemable NCI of $300 = Ending redeemable NCI of Nil.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated
Deficit | | Total (Deficit) Equity attributable to Common Stockholders | | Noncontrolling
Interest | | Total Stockholders’ (Deficit) Equity |
| | | Shares | | Amount | | | | | | |
| Balances at December 31, 2020 | | | 168,002,726 | | $ | 17 | | | $ | 3,182,753 | | | $ | (9) | | | $ | (3,103,937) | | | $ | 78,824 | | | $ | 62,195 | | | $ | 141,019 | |
| Cumulative effect upon adoption of new accounting standard | | | — | | | — | | | (126,799) | | | — | | | 5,308 | | | (121,491) | | | — | | | (121,491) | |
| Issuance of restricted stock awards | | | 3,052,012 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| ESPP purchase | | | 1,945,305 | | | — | | | 10,045 | | | — | | | — | | | 10,045 | | | — | | | 10,045 | |
| Exercise of stock options | | | 3,460,364 | | | 1 | | | 79,744 | | | — | | | — | | | 79,745 | | | — | | | 79,745 | |
| Stock-based compensation | | | — | | | — | | | 73,338 | | | — | | | — | | | 73,338 | | | — | | | 73,338 | |
| Distributions and payments to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,789) | | | (5,789) | |
| Change in effective portion of interest rate swap agreement | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,243 | | | 15,243 | |
| Foreign currency translation adjustment | | | — | | | — | | | — | | | (341) | | | (1) | | | (342) | | | (254) | | | (596) | |
Net loss2 | | | — | | | — | | | — | | | — | | | (164,445) | | | (164,445) | | | (28,896) | | | (193,341) | |
| Balances at December 31, 2021 | | | 176,460,407 | | $ | 18 | | | $ | 3,219,081 | | | $ | (350) | | | $ | (3,263,075) | | | $ | (44,326) | | | $ | 42,499 | | | $ | (1,827) | |
2 Excludes $28 attributable to redeemable noncontrolling interest.
Note: Beginning redeemable NCI of $377 — distributions to redeemable noncontrolling interests of $49 — Net loss attributable to redeemable NCI of $28 = Ending redeemable NCI of $300.
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, | |
| | | 2023 | | 2022 | | 2021 | |
| Cash flows from operating activities: | | | | | | | |
| Net loss | | $ | (307,937) | | | $ | (315,086) | | | $ | (193,369) | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
| Depreciation and amortization | | 62,609 | | | 61,608 | | | 53,454 | | |
| Non-cash lease expense | | 33,619 | | | 20,155 | | | 9,708 | | |
| Loss on disposal of property, plant and equipment | | 411 | | | — | | | — | | |
| Revaluation of derivative contracts | | 1,641 | | | (9,583) | | | 17,532 | | |
| Impairment of assets related to PPAs | | 130,088 | | | 113,514 | | | — | | |
| Derecognition of loan commitment asset related to SK ecoplant Second Tranche Closing | | 52,792 | | | — | | | — | | |
| Stock-based compensation expense | | 84,480 | | | 112,259 | | | 73,274 | | |
| Amortization of warrants and debt issuance costs | | 4,772 | | | 3,032 | | | 3,797 | | |
| Loss on extinguishment of debt | | 4,288 | | | 8,955 | | | — | | |
| Gain on remeasurement of investment | | — | | | — | | | (1,966) | | |
| Contingent consideration remeasurement | | — | | | — | | | (3,623) | | |
| Interest expense on interest rate swap settlement | | — | | | — | | | (641) | | |
| Unrealized foreign currency exchange loss (gain) | | 618 | | | (3,267) | | | 77 | | |
| Other | | 450 | | | 3,532 | | | — | | |
| Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable1 | | (89,888) | | | (162,864) | | | 8,608 | | |
Contract assets2 | | 5,361 | | | (21,525) | | | (21,874) | | |
| Inventories | | (231,689) | | | (124,878) | | | (885) | | |
Deferred cost of revenue3 | | 1,655 | | | (24,282) | | | 17,567 | | |
| Customer financing receivable | | — | | | 2,510 | | | 5,428 | | |
Prepaid expenses and other assets4 | | (5,754) | | | (17,590) | | | 1,520 | | |
Other long-term assets5 | | (3,366) | | | (2,617) | | | (2,854) | | |
| Operating lease right-of-use assets and operating lease liabilities | | (32,801) | | | 3,016 | | | (12,953) | | |
| Financing lease liabilities | | 1,011 | | | 896 | | | 1,142 | | |
Accounts payable6 | | (29,080) | | | 86,498 | | | 13,017 | | |
| Accrued warranty | | 1,994 | | | 5,586 | | | 1,481 | | |
Accrued expenses and other liabilities7 | | (13,785) | | | 43,243 | | | (2,144) | | |
Deferred revenue and customer deposits8 | | (42,635) | | | 35,156 | | | (22,677) | | |
| Other long-term liabilities | | (1,385) | | | (9,991) | | | (4,300) | | |
| Net cash used in operating activities | | (372,531) | | | (191,723) | | | (60,681) | | |
| Cash flows from investing activities: | | | | | | | |
| Purchase of property, plant and equipment | | (83,739) | | | (116,823) | | | (49,810) | | |
| Proceeds from sale of property, plant and equipment | | 14 | | | — | | | — | | |
| Net cash acquired from step acquisition | | — | | | — | | | 3,114 | | |
| Net cash used in investing activities | | (83,725) | | | (116,823) | | | (46,696) | | |
| Cash flows from financing activities: | | | | | | | |
Proceeds from issuance of debt9 | | 637,127 | | | — | | | 135,989 | | |
| Payment of debt issuance costs | | (19,736) | | | — | | | (1,950) | | |
| Repayment of debt | | (191,390) | | | (120,586) | | | (123,374) | | |
| Make-whole payment related to PPA IIIa and PPA IV debt | | — | | | (6,553) | | | — | | |
| Purchase of capped call options related to convertible notes | | (54,522) | | | — | | | — | | |
| Proceeds from financing obligations | | 4,993 | | | 3,261 | | | 16,849 | | |
| Repayment of financing obligations | | (18,445) | | | (35,543) | | | (13,642) | | |
| Distributions and payments to noncontrolling interest | | (2,265) | | | (6,854) | | | (5,789) | | |
| Distributions to redeemable noncontrolling interest | | — | | | — | | | (49) | | |
| Proceeds from issuance of common stock | | 16,945 | | | 15,279 | | | 89,790 | | |
| Proceeds from public share offering | | — | | | 385,396 | | | — | | |
| Payment of public share offering costs | | (35) | | | (13,775) | | | — | | |
| Buyout of noncontrolling interest | | (6,864) | | | (12,000) | | | — | | |
| Proceeds from issuance of redeemable convertible preferred stock | | 310,957 | | | — | | | 217,861 | | |
| Payment of issuance costs related to redeemable convertible preferred stock | | (395) | | | — | | | (9,310) | | |
| Contributions from noncontrolling interest | | 6,979 | | | 2,815 | | | — | | |
| Other | | — | | | (76) | | | — | | |
| Net cash provided by financing activities | | 683,349 | | | 211,364 | | | 306,375 | | |
| Effect of exchange rate changes on cash, cash equivalent and restricted cash | | (281) | | | 434 | | | (594) | | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | 226,812 | | | (96,748) | | | 198,404 | | |
| Cash, cash equivalents, and restricted cash: | | | | | | | |
| Beginning of period | | 518,366 | | | 615,114 | | | 416,710 | | |
| End of period | | $ | 745,178 | | | $ | 518,366 | | | $ | 615,114 | | |
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | |
| Cash paid during the period for interest | | $ | 49,929 | | | $ | 48,980 | | | $ | 68,739 | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
| Operating cash flows from operating leases | | 32,538 | | | 14,001 | | | 17,416 | | |
| Operating cash flows from finance leases | | 1,097 | | | 1,085 | | | 878 | | |
| Cash paid during the period for income taxes | | 1,455 | | | 1,439 | | | 576 | | |
| Non-cash investing and financing activities: | | | | | | | |
| Increase in recourse debt, non-current upon adoption of ASU 2020-06, net | | $ | — | | | $ | — | | | $ | 121,491 | | |
| | | | | | | |
| Transfer from customer financing receivable to property, plant and equipment, net | | — | | | 42,758 | | | — | | |
| Forward to purchase Class A common stock | | — | | | 4,183 | | | — | | |
| Liabilities recorded for property, plant and equipment, net | | 9,297 | | | 10,988 | | | 6,095 | | |
| Recognition of operating lease right-of-use asset during the year-to-date period | | 29,823 | | | 36,402 | | | 82,802 | | |
| Recognition of finance lease right-of-use asset during the year-to-date period | | 1,011 | | | 896 | | | 2,210 | | |
| Conversion of redeemable convertible preferred stock | | 310,484 | | | 208,551 | | | — | | |
| Derecognition of the pre-modified forward contract fair value | | 76,242 | | | — | | | — | | |
| Equity component of redeemable convertible preferred stock | | 16,145 | | | — | | | — | | |
1 Including changes in related party balances of $257.8 million, $0.1 million and $2.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.
2 Including change in related party balances of $6.9 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
3 Including change in related party balances of $0.9 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
4 Including change in related party balances of $2.3 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
5 Including change in related party balances of $9.1 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
6 Including change in related party balances of $0.1 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
7 Including change in related party balances of $3.4 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
8 Including change in related party balances of $8.4 million for the year ended December 31, 2023. There were no associated related party balances as of December 31, 2022 and 2021.
9 Including proceeds from issuance of debt from related party of $4.6 million for the year ended December 31, 2023. There were no proceeds from issuance of debt from related party for the years ended of December 31, 2022 and 2021.
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 (the “Energy Servers”) for on-site power generation. Our Energy Servers utilize 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. The corporate headquarters is located in San Jose, California.
Liquidity
We have generally incurred operating losses and negative cash flows from operations since our inception. With the series of new debt offerings, debt extinguishments, and conversions to equity that we completed during 2023, 2022 and 2021, we had $842.0 million and $4.6 million of total outstanding recourse and non-recourse debt, respectively, as of December 31, 2023, which was classified as long-term debt.
On October 23, 2021, we entered into the Securities Purchase Agreement (the “SPA”) with SK ecoplant Co., Ltd. (“SK ecoplant”, formerly known as SK Engineering & Construction Co., Ltd.) in connection with a strategic partnership. Pursuant to the SPA, on December 29, 2021, SK ecoplant purchased 10,000,000 shares of Bloom Energy Series A preferred stock, par value $0.0001 per share (the “Series A RCPS”) at a purchase price of $25.50 per share, for an aggregate purchase price of $255.0 million, including an option to purchase additional Class A common stock.
On August 10, 2022, pursuant to the SPA, SK ecoplant notified us of its intent to exercise its option to purchase additional shares of our Class A common stock, pursuant to a Second Tranche Exercise Notice (as defined in the SPA). It elected to purchase 13,491,701 shares (the “Second Tranche Shares”) at a purchase price of $23.05 per share. The aggregate purchase price approximated cash proceeds to be received by us of $311.0 million, excluding related incremental direct costs.
On March 20, 2023, we entered into the Amended SPA, with SK ecoplant, pursuant to which we issued and sold to SK ecoplant 13,491,701 shares of Series B RCPS for cash proceeds of $311.0 million, excluding issuance cost of $0.5 million. On March 20, 2023, in connection with the Amended SPA, we also entered into the Shareholders’ Loan Agreement with SK ecoplant (the “Loan Agreement”), pursuant to which we were entitled to draw down on a loan from SK ecoplant with a maximum principal amount of $311.0 million, if SK ecoplant sent a redemption notice to us under the Amended SPA or otherwise had reduced any portion of its current holdings of our Class A common stock. On September 23, 2023, all 13,491,701 shares of the Series B redeemable convertible preferred stock, par value $0.0001 per share (the “Series B RCPS”) were automatically converted into shares of our Class A common stock.
On April 11, 2023 and October 5, 2023, our joint venture in the Republic of Korea entered into a three-year $1.5 million and three-year $3.1 million credit agreements with SK ecoplant, respectively, to help fund its working capital. Both loans bear a fixed interest rate of 4.6% payable upon maturity along with the principle.
For more information on the strategic investment with SK ecoplant, please see Note 17 — SK ecoplant Strategic Investment, and for more information about our joint venture in the Republic of Korea, please see Note 11 — Related Party Transactions.
In November 2021, PPA V entered into $136.0 million, 3.04% Senior Secured Notes due June 30, 2031. On August 24, 2023, as part of the PPA V Upgrade, we paid off the outstanding balance and related accrued interest of $118.5 million and $0.5 million, respectively, of our 3.04% Senior Secured Notes due June 30, 2031. For more information, please see Note 10 — Portfolio Financings.
On August 19, 2022, we completed an underwritten public offering (the “Offering”), pursuant to which we issued and sold 13,000,000 shares of Class A common stock at the price of $26.00 per share. As a part of the Offering, the underwriters were provided a 30-day option to purchase an additional 1,950,000 shares of our Class A common stock at the same price, less underwriting discounts and commissions, which was exercised contemporaneously with the Offering. The aggregate net proceeds received by us from the Offering were $371.5 million after deducting underwriting discounts and commissions of $16.5 million and incremental costs directly attributable to the Offering of $0.7 million.
On May 16, 2023, we issued the 3% Green Convertible Senior Notes due June 2028 (the “3% Green Notes”) with an aggregate principal amount of $632.5 million due June 2028, unless earlier repurchased, redeemed or converted, resulting in net cash proceeds of $612.8 million. On June 1, 2023, we used approximately $60.9 million of the net proceeds from this offering to redeem all of the outstanding principal amount of our 10.25% Senior Secured Notes due March 2027. The redemption price equaled 104% of the principal amount redeemed plus accrued and unpaid interest. We also used approximately $54.5 million of the net proceeds from the offering to purchase the Capped Calls. The remaining portion of the 3% Green Notes was planned to be used for working capital investment and general corporate purposes. For more information, please see Note 7 — Outstanding Loans and Security Agreements.
For further information on repayment of 3.04% Senior Secured Notes, issuance of 3% Green Notes, redemption of our 10.25% Senior Secured Notes, and purchase of Capped Calls, please see Note 7 — Outstanding Loans and Security Agreements.
Our future capital requirements 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 of inventory build in anticipation of future sales and installations, and overall economic conditions. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. Failure to obtain this financing in future quarters may affect our results of operations, including our revenues and cash flows.
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.
Inflation Reduction Act of 2022
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “IRA”). It contains provisions which we expect will have a significant impact on the development and financing of clean energy projects in the U.S. The IRA includes the extension and expansion of the Investment Tax Credit (the “ITC”) and the Production Tax Credit (the “PTC”) and the addition of expanded tax credits for other technologies and for manufacturing of clean energy equipment as well as terms allowing parties to more easily monetize the tax credits. The IRA also includes some targeted bonus credit incentives intended to encourage development in low-income communities, the use of domestically produced materials, and compliance with certain labor-related requirements.
The IRA contains several credits and incentive provisions that may be relevant to us, which we have summarized below:
•Section 48 – the ITC, which provides a tax credit based on capital investment in a variety of renewable and conventional energy technologies to incentivize investment in new energy resources and more efficient use of fuel, including fuel cell technology;
•Section 48C – Qualified Advanced Energy Project (reenacted), which provides an ITC through a competitive application process administered through the Department of Energy equal to 6% or 30% of the investment with respect to advanced energy projects;
•Section 45V – Clean Hydrogen, which provides a PTC of up to $3 per kg of qualified clean hydrogen over a 10-year credit period for the production of qualified clean hydrogen at a qualified facility in the US; and
•Section 45Q – Carbon Capture Sequestration, which provides a credit ranging from $12-$17 or $60-$85 per metric ton based on the amount of carbon oxides captured from a qualified facility over a 12-year period.
We believe that the programs and credits included in the IRA align well with our business model and could provide significant benefits with respect to incentivizing the purchase of our current product offerings and technologies. In particular, the IRA authorized a competitive process to apply for credits to expand or enhance manufacturing capacity under IRC 48C, and we have applied for a credit under this provision; at this time, we cannot be assured our application will ultimately be accepted or result in our receipt of credits. Also, the new PTC for qualified clean hydrogen and credit for carbon capture could result in increased demand for commercial solutions to hydrogen production technology and carbon capture, including our solid oxide fuel-cell based Electrolyzer and Energy Servers.
At the time of IRA implementation in August 2022, some of our existing contracts contemplated price adjustments at the inception of the contract for the change in the ITC rate to 30%. As a result, we recognized $8.7 million in product revenue and $1.3 million in installation revenue for the year ended December 31, 2022 from such existing contracts, as a change in variable consideration estimate for energy servers placed in service during the eligible periods under the IRA and which qualified for the 30% ITC rate. In fiscal 2023, all of our contract prices included the impact of the 30% ITC rate under the IRA provisions.
The IRA also creates certain bonus tax credits relevant to our products placed in service in fiscal 2023 and fiscal 2024, available by satisfying domestic content criteria and/or other criteria if such products are located within an “energy community,” as defined by the IRA. In fiscal 2023, contracts that included price adjustments related to the domestic content bonus tax credit were evaluated as variable consideration and we estimated variable consideration by using the most likely amount method of meeting the IRA domestic content criteria. When recognizing revenue, we constrained the estimate of variable consideration to an amount that was not probable of a significant revenue reversal.
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 U.S. (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation.
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 our variable interest entities (“VIEs”), which we refer to as tax equity partnerships (each such VIE, also referred to as our power purchase agreement PPA Entity) and a joint venture in the Republic of Korea (the “Korean JV”). This approach focuses on determining whether we have the power to direct those activities of the PPA Entities and the Korean JV that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, which could potentially be significant to the PPA Entities and the Korean JV. For all periods presented, we have determined that we are the primary beneficiary in all of our operational PPA Entities and the Korean JV, as discussed in Note 10 — Portfolio Financingsand Note 17 — SK ecoplant Strategic Investment, respectively. We evaluate our relationships with the PPA Entities and the Korean JV on an ongoing basis to ensure that we continue to be the primary beneficiary. In August 2023, we sold our last consolidated PPA Entity, PPA V, as a result of the PPA V Repowering of Energy Servers (see Note 10 — Portfolio Financings). All intercompany transactions and balances have been eliminated upon consolidation. The sale of an operating company with a portfolio of the 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 do not have the obligation to absorb losses, or the right to receive benefits, which 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, valuation of financial instruments associated with SK ecoplant Amended SPA, 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 the Energy Servers, product performance warranties and guaranties and extended maintenance, derivative valuations, estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, stock-based compensation expense, estimates of fair value of preferred stock and equity and non-equity items in relation to the SK ecoplant strategic investment, and financing obligation allocations in managed service transactions. In addition, 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 U.S. for all periods presented. In addition to shipments in the U.S., we also ship our Energy Servers to other countries, primarily to the Republic of Korea, Japan, India and Taiwan (collectively referred to as the “Asia Pacific region”). In the years ended December 31, 2023, 2022 and 2021, total revenue related to shipments to the Asia Pacific region was 30%, 44% and 38%, respectively.
Credit Risk — At December 31, 2023, and 2022, one customer that is our related party (see Note 11 — Related Party Transactions) accounted for approximately 74% and 75% of accounts receivable, respectively. To date, we have not experienced any credit losses.
Customer Risk — During the year ended December 31, 2023, revenue from two customers accounted for approximately 37% and 26% of our total revenue. During the year ended December 31, 2022, two customers represented approximately 38% and 37% of our total revenue. In the year ended December 31, 2021, revenue from two customers accounted for approximately 43% and 11% 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).Agreements. We offer our customers several ways to finance their use of a Bloom Energy Server.Servers. Customers, including some of our international channel providers and the 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(i.e., Managed Services Agreement")Agreement), which is then financed through one of our financing partners ("(i.e., Managed Services Financings"), or as a traditional lease.Financings). Finally, customers may purchase electricity through our PPA Entities ("(i.e., Portfolio Financings")Financings). For additional information, please see Part I, Item 7, Section Purchase and Financing Options.
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 (“ASC”) 606 Revenue from Contracts with Customers, revenue is recognized by following a five-step process:
1.Identify the contract(s) with a customer. Evidence of a contract generally consists of an agreement, or 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.
2.Identify the performance obligations in the contract. Performance obligations are identified in our contracts and primarily include transferring control of anthe Energy Server,Servers, installation of the Energy Servers, providing maintenance services and maintenance services renewal options which, in certain situations, provide customers with material rights.
3.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, we consider the effects of any variable consideration, which include performance guarantees that may be payable to our customers.
4.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.
5.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 frequentlysometimes combine contracts governing the sale and installation of anour Energy ServerServers 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 ServerServers 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 606.606.
Most of our contracts contain performance obligations with a combination of our Energy Server product,Servers, 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 based on relative standalone selling prices. Given that we typically sell anour Energy ServerServers together with athe related installation and maintenance services, agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimatednot directly observable. We estimate standalone selling prices by using a cost-plus approach. Costs relating to the 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.based on our Company’s pricing strategy. As our business offerings and eligibility for the ITC evolve over time, we may be required to modify the expected margin in subsequent periods and our revenue could be materially 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 services arrangements are estimated over the life of the maintenance contracts and include estimated future servicematerial costs and future materialnon-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, weWe apply a lower margin to our total 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 services agreements based on their respective costs or, in the case of maintenance services agreements, the estimated costs to be incurred.
We generally recognize product and installation revenue at thea point in time that the customer obtainsour customers obtain control of the Energy Server.Servers. For certain instances, such as bill-and-hold transactions, control of the installations transfersis transferred to the customercustomers over time, and the related revenue is recognized over time as the performance obligation is satisfied using the cost-to-total costcost-to-cost (percentage-of-completion) method. We use an input measure of progress to determine the amount of revenue to recognizebe recognized during each reporting period when such revenue is recognized over time, based on the costs incurred to satisfy the performance obligation.period. We recognize maintenance services revenue, including revenue associated with any related customer material rights, over time as we perform service maintenance activities.
Amounts billed to our customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling costs are recorded within the cost of 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 the Third-Party PPAs and sale-and-leaseback transactions, and international channel providers and traditional lease customers.
providers. 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 startup and commissioning (i.e., Mechanical Completion), 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 transferpower (i.e., Commencement 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 a point in time in the future.
Under our traditional lease financing option that we had in fiscal 2021, 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 services contract are not combined.
Installation Revenue -— Nearly all of our installation revenue relates to the installation of the Energy Servers sold to the customers as part of a direct purchase and to financing parties as part of a traditional lease or Portfolio Financing.Financings. Generally, we recognize installation revenue when the system is physically ready for startup and commissioning (i.e., Mechanical Completion), or when the system is turned on and producing power.power (i.e., COO). 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 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 control is transferred.
Service Revenue -— Service revenue is generated from maintenance services agreements.O&M Agreements. As part of our initial contract with customers for the sale and installation of our Energy Servers, we typically provide a standard one-year warranty which covers defects in materials and workmanship and manufacturing or performance conditions under normal use and service for the first year following commencementCommencement of operations.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 when and if required during the first year following installation. We also sell to our customers extended annual maintenance services that effectively extend the standard first-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'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.Servers. 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 athe customers have material rightrights as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material rightrights 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.
Electricity Revenue -— We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA Entities. Our PPA Entities purchasepurchased the Energy Servers from us and sellsold electricity produced by these systems to customers through long-term PPAs. Customers arewere required to purchase all of the electricity produced by those Energy Servers at agreed-upon rates over the course of the PPAs'PPAs’ contractual term. In August 2023, we sold our last consolidated PPA Entity, PPA V.
In addition, in certain Managed Services Financings pursuant to which we are party to a Managed Services Agreement with a customer in a sale-leaseback-sublease arrangement, we may recognize electricity revenue. We first determine whether the Energy Servers under the sale-leaseback arrangement of a Managed Services Financing were “integral equipment."” As the Energy Servers were determined not to be integral equipment, we determinedetermined if the leaseback was classified as a financing lease or an operating lease.
Under ASC 840, Leases ("ASC 840"), our Managed Services Agreements with the financiers were classified as capital leasesDuring 2023, 2022, and were accordingly recorded as financing transactions, while the sub-lease arrangements with the end customer were
classified as operating leases. We have determined that the financiers are our 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, the 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 the 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 payments received based on the relative standalone selling prices to electricity revenue and to service revenue. Electricity revenue relating to PPAs was typically accounted for in accordance with ASC 840, 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 backsale-and-leaseback 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 successful 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 842.842, Leases (“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 Revenueproduct revenue and Installation Revenueinstallation revenue based on the relative standalone selling prices.
We recognize aan operating lease liability for the Energy ServerServers leaseback obligation based on the present value of the future payments to the financier that are attributed to the Energy ServerServers leaseback using our incremental borrowing rate. We also record aan operating lease 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-leasebacksale-and-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.obligations.
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 Financings to provide electricity to our end customers as the electricity is provided over the term of the 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. 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.
Deferred Revenue
We recognize a contract liability (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 revenue 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 purchase, including financing partners on the Third-Party 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. For the Energy Servers sold to customers
pending installation, we provide warranty reserves as a part of product costs for the period from transfer of control of the Energy Servers to commencementCommencement of operations.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 the Third-Party PPAs and traditional lease and successful sale-leaseback customers. It includes the cost 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 the cost of field replacement units, 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.Entities. The cost of electricity revenue is generally recognized over the term of the Managed Services Agreement 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 August 2023, we sold our last consolidated PPA Entity, PPA V.
Revenue Recognized from Portfolio Financings Through the PPA Entities (See Note 11 -10 — Portfolio Financings) In 2010, we began selling our Energy Servers 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 contribute cash to the PPA Entity in exchange for an equity interest, which then allows the PPA Entity to purchase the Operating Company and the Energy Servers.
The cash contributions held are classified as short-term or long-term restricted cash according to the terms of each PPA Entity'sEntity’s governing documents. As we identified customers, the Operating Company entered into a PPA with the customer pursuant to which the customer agreed to purchase the power generated by one or more Energy Servers at a specified rate per kilowatt hour for a specified term, which can range from 10 to 21 years. The Operating Company, wholly owned by the PPA Entity, typically entered into a maintenance services agreement with us following the first year of service to extend the standard one-year performance warranties and guaranties. This intercompany arrangement is eliminated on consolidation. Those PPAs 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 or revenue arrangements with customers. For arrangements classified as operating leases, 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.
Portfolio Financings for details.Sales-type Leases -— Certain Portfolio Financings with the PPA Entities entered into prior to our adoption of ASC 842 qualified as sales-type leases in accordance with ASC 840.840, Leases (“ASC 840”). The classification for such arrangements were carried over and accounted for as sales-type leases under ASC 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 PPAs, we may also be obligated to supply fuel for the Energy Servers. The amount billed for the delivery of electricity to customers primarily consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue for certain arrangements.
As the Portfolio Financings through the PPA Entities entered into prior to our adoption of ASC 842 contain a lease, the consideration received iswas 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 includeincluded the leased system and the related executory costs (i.e. installation of the system, electricity generated by the system, maintenance costs). Non-lease elements includeincluded service, fuel and interest related to the leased systems.
Service revenue and fuel revenue arewas recognized over the term of the PPA as electricity iswas generated. For those transactions that containcontained a lease, the interest component related to the leased system iswas recognized as interest revenue over the life of the lease term. The customer hashad the option to purchase the Energy Servers at the then fair market value at the end of the PPA contract term.
In fiscal 2022 we sold PPA IIIa, as such we no longer have sale-type lease arrangements. Please refer to Note 10 — Portfolio Financings for details.
Service revenue related to sales-typesales-type leases of $2.3$0.4 million $2.3 and $2.3 million and $2.9 million for the years ended December 31, 2021, 2020 2022 and 2019,2021, respectively, is included in electricityservice revenue in the consolidated statements of operations. There was no service revenue related to sales-type leases for the year ended December 31, 2023. We have not entered into any new Portfolio Financing arrangements through the PPA Entities during the last three years.
Operating Leases -— Certain Portfolio Financings with the PPA Entities entered into prior to the adoption of ASC 842 that were deemed leases in substance but did not meet the criteria of sales-type leases or direct financing leases in accordance with ASC 840, were 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 iswas recognized as electricity sales and service revenue and iswas provided to the customer at rates specified under the PPAs. During the years ended December 31, 2021, 2020 2023, 2022and 2019,2021, revenue from electricity sales from these Portfolio Financings with the PPA Entities amounted to $14.3 million, $25.9 million and $28.6 million, $27.7 million and $29.7 million, respectively.During the years ended December 31, 2021, 2020 2023, 2022and 2019,2021, service revenue amounted to $14.6$3.1 million, $13.8$13.1 million and $14.6 million, respectively.
Incentives and Grants
Tariff Agreement - One of our PPA 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"), 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 for the year ended December 31, 2019 is included in electricity sales in the consolidated statements of operations. Revenue relating to power generation at the Delmarva sites for the year ended December 31, 2019 was $6.8 million and 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 -— 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 Portfolio Financings with PPA Entities, ITCs arewere primarily passed through to Equity Investors with approximately 1% to 10% of incentives received by us. These incentives arewere accounted for by using the flow-through method. On February 9, 2018, the U.S. Congress passed legislation to extend the federal ITCs for fuel cell systems applicable retroactively to January 1, 2017. On December 21, 2020, the U.S. Congress passed legislation to extend the federal ITCs at a rate of 26% for 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 of 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 recapture has occurred during the years ended December 31, 20212023, 2022 and 2020.2021.
In August 2022, the IRA was signed into law. The IRA includes numerous investments in climate protection, among them the extension and expansion of the ITC and the PTC, the addition of expanded tax credits for other technologies and for manufacturing clean energy equipment, as well as terms allowing parties to more easily monetize the tax credits. The IRA contains a two-tiered credit-amount structure for many applicable tax credits. Specifically, many of the credits have a lower base credit amount that can be increased up to five times if the taxpayer can satisfy applicable prevailing wage or apprenticeship requirements. The IRA also creates certain bonus tax credit amounts relevant to Bloom products placed in service in 2023 and 2024, available by satisfying domestic content criteria and/or locating within an “energy community,” as defined by the IRA. The IRA also creates tax credits for the production of hydrogen and carbon capture.
On August 16, 2022, the IRA enacted provisions to enable our Energy Servers to be qualified for 30% or more ITCs. If a contract consideration subject to changes due to the underlying ITC rate assumption changes, we will consider such potential ITC benefit changes as a variable consideration and will generally estimate the variable consideration by using the most likely amount method. When recognizing revenue, we will constrain the estimate of variable consideration to an amount that is not probable of a significant revenue reversal.Recapture of federal tax incentives, includingFederal Tax Incentives, Including the investment tax credit, and IndemnificationsITC
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 yearfive-year recapture period is fulfilled, it could result in a partial reduction of the ITC. Our sale of Energy Servers to the PPA Entities and pursuant to the Third-Party PPAs, in each case pursuant to a Portfolio Financing, were byFinancings, generates ITCs benefiting the third-party owners of the PPA Entities or tax equity partnerships in which we did not have an equity interest (the tax equity partnership purchaser, an "Investment Company"“Investment Company”) and, therefore, the third-party owners of the PPA Entities or Investment Companies, as the case may be, bear the risk of recapture 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 and established tariffs fail to occur. We 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 customers, international channel providers, and financing parties for the first year following the date of acceptance of the Energy Servers. This standard warranty covers defects in materials, workmanship and manufacturing or performance conditions under normal use and service conditions for the first year following 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.
In addition, as part of our standard one-year warranty and Managed Services AgreementsAgreement 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 performance warranty or guaranty, we will reimburse the customer for this underperformance. Our performance obligation includes ensuring
the Energy Server operatesServers operate at least at the efficiency and/or power output levels set forth in the customer agreement. Our aggregate reimbursement obligation for a performance guaranty for each customer is capped based on the purchase price of the underlying Energy Server.Servers. Product performance guaranty payments are accounted for as a reduction in service revenue. We accrue for 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, 20212023, 2022 and 2020.2021.
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.development and other costs.
Stock-Based Compensation -— We account for stock options, restricted stock units ("RSUs"(“RSUs”) and performance-based stock units ("PSUs"(“PSUs”) awarded to employees and non-employee directors under the provisions of ASC 718, Compensation-StockCompensation – Stock Compensation (“ASC 718”).
Stock-based compensation costs for options are measured using the Black-Scholes valuation model. 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. 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. 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.
Stock-based compensation costs for RSUs 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 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"“2018 ESPP”). The fair value of the 2018 ESPP purchase rights is recognized as an 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 iscosts are recorded in the consolidated statements of operations based on the employees’ respective function.functions. 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.
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 position), based on the amount of compensation cost recognized and our statutory tax rate.
Refer to Note 10 -9 — 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 ASC 740, Income Taxes ("(“ASC 740"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, 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,changes, 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 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,stockholders, change in the effective portion of our interest rate swap agreementsderivative instruments designated and qualifying as cash flow hedges, foreign currency translation adjustment and comprehensive (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest.
Fair Value Measurement
ASC 820,Fair Value Measurements and Disclosures Measurement(" (“ASC 820"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:
| | | | | | | | |
| 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. |
| | |
| 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. There were neither financial assets, nor financial liabilities as of December 31, 2023 and 2022 utilizing Level 2 inputs. |
| | |
| 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,contract embedded derivatives in contracts with customers, embedded derivatives in our convertible notes, and 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 derivativesderivatives. Their valuations are performed using a Monte Carlo simulation model which considers various potential electricity price curves over the sales contractscontract terms. |
Other Balance Sheet Components
Cash, Cash Equivalents, and Restricted Cash -— Cash equivalents consist of highly liquid short-term investments with maturities of 90 days or less at the date of purchase.
Restricted cash is held as collateral to provide financial assurance that we will fulfill obligations and commitments primarily related to our Portfolio Financings, Third Party PPAthe Third-Party PPAs and 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 -Derivatives — 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 PPA Entities (refer to Note 13 - Portfolio Financings). In addition, we entered 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. During the year ended December 31, 2019, we also had 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)loss on the consolidated balance sheets.statements of comprehensive loss. 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 are recorded through earnings in the consolidated statements of operations.
While we hedge certain of our natural gas purchase requirements under our 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 prior to their termination qualified as cash flow hedges for accounting purposes as they effectively converted variable rate obligations into fixed rate obligations. The effective change is recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. As of January 1, 2019, we adopted ASU 2017-12, Derivatives and Hedging(Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). Pursuant 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 agreements 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 preferred stock with conversion features in a complex transaction that is more fully explained in 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 entered 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. Customer financing receivables were generated by Energy Servers leased to PPA Entities’ customers in leasing arrangements that qualified and continue to be accounted for as sales-type leases. Customer financing receivables for 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 continue to be recognized as cost of revenue when the Energy Servers are placed in service.
We record a reserve for credit losses related to the collectability of customer financing receivables using the historical aging of the customer receivable balance. The collectability is determined based on past events, including historical experience, customer credit rating, as well as current market conditions. We monitor customer ratings and collectability on an on-going basis. Account balances will be charged off against the credit loss reserve, when needed, after all means of collection have been exhausted and the potential for recovery is considered remote.
Accounts Receivable -— Accounts receivable primarily represents trade receivables from sales to customers recorded at amortized cost less allowance for credit losses. The allowance for credit losses reflects our best estimate about future losses over the contractual life of outstanding accounts receivable taking into consideration historical experience, specific allowances for known troubled accounts, other currently available information including customer financial condition, and both current and forecasted economic 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 thea lower of cost or net realizable value. We record inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory, 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.
Property, Plant and Equipment -— Property, plant and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. The Energy Servers are depreciated to their residual values over their useful economic lives which reflect consideration of the terms of their related PPA 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 |
| | |
| 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 | | * |
* Lesser of 35 years or the term of the underlying land lease.
When assets are retired or disposed of, the assets and related accumulated depreciation and amortization are removed from our consolidated financial statements and the resulting gain or loss is reflected in the consolidated statements of operations.
Impairment of Long-Lived Assets - — Our long-lived assets include property, plant and equipment and the Energy Servers capitalized in connection with our Managed Services Financing Program, Portfolio Financings 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. Impairment charges for the year ended December 31, 2023, amounted to $123.7 million related to the PPA
V Upgrade. Impairment charges for the year ended December 31, 2022, amounted to $44.8 million and $64.0 million related to the PPA IIIa Upgrade and the PPA IV Upgrade, respectively (see Note 10 — Portfolio Financings). We did not have any impairment charges in any of the periods 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 liabilities assumed. The fair value of identifiable assets and liabilities, and thus 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 of July 1, 2021. As ofended December 31, 2021, we recognized goodwill of $2.0 million in our consolidated balance 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 all or substantially all of our assets), which are considered contingent redemption provisions that are not solely within our control. We recorded the RCPS at fair value upon issuance, net of any issuance costs. For additional information, see Note 18 - SK ecoplant Strategic Investment.2021.
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"(“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. Refer to Note 13 - Portfolio 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'Investors’ targeted rate of return specified in the partnership agreement is met (the "flip"“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. In August 2023, we sold our last consolidated PPA Entity being our VIE, PPA V, as a result of the PPA V Repowering of the Energy Servers (see Note 10 — Portfolio Financings). As of December 31, 2023 we had one VIE which we consolidate, Korean JV, which profit and loss are allocated to noncontrolling interests under the HLBV method.
Foreign Currency TransactionsConsiderations
Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The functional currency of the Company’s parent entity is the U.S. dollar.
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.
local currencies. The functional currency of our joint venture in the Republic of Korea is the local currency, the South Korean won ("KRW"(“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. AssetsThe assets and liabilities of this entitythese entities 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,these entities, translation adjustments resulting from the process of translating the KRWlocal currency financial statements into the 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.
Transactions made in a currency other than the functional currency are remeasured to the functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are remeasured to the functional currency at the exchange rate at that date and non-monetary assets and liabilities are measured at historical rates. Foreign currency transaction gains and losses are included as a component of other (expense) income, net in our consolidated statements of operations.
The reporting currency for these consolidated financial statements is the U.S. dollar.
Accounting Guidance Not Yet Adopted
In August 2023, the FASB issued ASU 2023-05, Business Combinations — Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement (“ASU 2023-05”), which addresses the accounting for contributions made to a joint venture. ASU 2023-05 requires joint ventures to measure all assets and liabilities upon formation at fair value. This guidance will be applied prospectively to all joint venture formations with a formation date on or after January 1, 2025. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within the segment measure of profit or loss. This guidance will be applied retrospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2023, and interim reporting periods in fiscal years beginning after December 31, 2024. We are currently evaluating the potential impact, but we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance will be applied on a prospective basis and is effective for annual reporting periods in fiscal years beginning after December 15, 2024. Retrospective application is permitted. We are currently evaluating the potential impact, but we do not expect the adoption of this guidance to have a material impact on our 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 2021
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) ("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 and by eliminating the measurement model for beneficial conversion features. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted as early as fiscal years (including interim periods) beginning after December 15, 2020. Consequently, a convertible 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 be 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 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.
There 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 - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended ("ASU 2020-04"), which provides optional expedients for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate ("LIBOR") or other reference rate expected to be discontinued. ASU 2020-04 is effective
immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In the fourth quarter of 2021, our LIBOR-based debt was refinanced with fixed rate debt. ASU 2020-04 can be applied through December 31, 2022, and has not affected our consolidated financial statements.
Lessor with Variable Lease Payments - In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments ("ASU 2021-05"), which modifies ASC 842 to require lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses if they were classified as sales-type or direct financing leases. The amendments in ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2021-05 on our consolidated financial statements.
Contract Assets and Contract Liabilities Acquired in a Business Combination -— In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers(" (“ASU 2021-08"2021-08”), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the currentprevious requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 will bebecame effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The adoption impact of ASU 2021-08 will depend on the magnitude of any future acquisitions. The standard willdoes not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.
There have been no significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.
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, |
| | | 2023 | | 2022 |
| | | | |
| Accounts receivable | | $ | 340,740 | | | $ | 250,995 | |
| Contract assets | | 41,366 | | | 46,727 | |
| Customer deposits | | 75,734 | | | 121,085 | |
| Deferred revenue | | 72,328 | | | 94,355 | |
| | | | | | | | | | | | | | |
| | 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, howeverbut where billing milestones have not been reached. Customer deposits and deferred revenue areinclude payments received from customers or invoiced amounts prior to transfer of controls of performance obligations. CustomerAt December 31, 2022, customer deposits except for the $34.2included $24.6 million related to the transactiontransactions with SK ecoplant, areand refundable fees until certainreceived from customers. At December 31, 2023, there were no customer deposits related to transactions with SK ecoplant (see Note 17 — SK ecoplant Strategic Investment).
Contract assets and contract liabilities are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current in the consolidated balance sheets when both the milestones other than the passage of time, are expected to be complete and the customer is invoiced within one year of the balance sheet date, and as long-term when both the above-mentioned milestones are met.expected to be complete, and the customer is invoiced more than one year out from the balance sheet date. Contract liabilities are classified as current in the consolidated balance sheets when the revenue recognition associated with the related customer payments and invoicing is expected to occur within one year of the balance sheet date and as long-term when the revenue recognition associated with the related customer payments and invoicing is expected to occur in more than one year from the balance sheet date.
Contract Assets
| | | | | Years Ended
December 31, | |
| | | | Years Ended
December 31, | |
| | | | Years Ended
December 31, | |
| | | | | | 2023 | | | | | | | | 2023 | | 2022 |
| | | | Years Ended
December 31, |
| | | 2021 | | 2020 |
| | Beginning balance | |
| Beginning balance | |
| Beginning balance | Beginning balance | | | $ | 3,327 | | | $ | 2,768 | |
| Transferred to accounts receivable from contract assets recognized at the beginning of the period | 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 | Revenue recognized and not billed as of the end of the period | | | 23,072 | | | 559 | |
| Ending balance | Ending balance | | | $ | 25,201 | | | $ | 3,327 | |
Contract assets as of December 31, 2023 were primarily related to the PPA V Upgrade. For additional information, please see Note 10 —Portfolio Financings.
Deferred Revenue
Deferred revenue activity including deferred incentive revenue activity, during the years ended December 31, 20212023 and 20202022 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 | |
| | | | | | | | | | | | | | | | | | |
| | | | Years Ended
December 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| Beginning balance | | | | | | $ | 94,355 | | | $ | 115,476 | |
| Additions | | | | | | 1,014,175 | | | 1,001,404 | |
| Revenue recognized | | | | | | (1,036,202) | | | (1,022,525) | |
| Ending balance | | | | | | $ | 72,328 | | | $ | 94,355 | |
Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the end of the period. The significantprimary component of deferred revenue at the end of the period consists of performance obligations relating to the provision of maintenance services under current contracts and future renewal periods. TheseSome of these obligations provide customers with material rights over a period that we estimate willto be largely commensurate with the period of their expected use of the associated Energy Server.Servers. As a result, we expect to recognize these amounts as revenue over a period of up to 21 years, predominantly on a relative 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 12-month 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,portion of previouslythis 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.is expected to be recognized beyond this 12-month period mainly due to deployment schedules.
We 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: product, installation, servicesservice and electricity (in thousands):
| | | | Years Ended
December 31, |
| | | 2021 | | 2020 | | 2019 |
| | | | Years Ended December 31, | |
| | | | Years Ended December 31, | |
| | | | Years Ended December 31, | |
| | | | | | 2023 | | | | | | | | 2023 | | 2022 | | 2021 |
| | Revenue from contracts with customers: | Revenue from contracts with customers: | | | |
| Revenue from contracts with customers: | |
| Revenue from contracts with customers: | |
| Product revenue | |
| Product revenue | |
| Product revenue | Product revenue | | | $ | 663,512 | | | $ | 518,633 | | | $ | 557,336 | |
| Installation revenue | Installation revenue | | | 96,059 | | | 101,887 | | | 60,826 | |
| Services revenue | | | 144,184 | | | 109,633 | | | 95,786 | |
| Service revenue | |
| Electricity revenue | 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: | | |
| Total revenue from contracts with customers | |
| Revenue from contracts that contain leases: | |
| Electricity revenue | |
| Electricity revenue | |
| Electricity revenue | Electricity revenue | | | 65,318 | | | 63,023 | | | 60,389 | |
| Total revenue | Total revenue | | | $ | 972,176 | | | $ | 794,247 | | | $ | 785,177 | |
4. Financial Instruments
Cash, Cash Equivalents, and Restricted Cash
The carrying values of cash, cash equivalents, and restricted cash approximate fair values and were 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, |
| | | 2023 | | 2022 |
| As Held: | | | | |
| Cash | | $ | 144,102 | | | $ | 226,463 | |
| Money market funds | | 601,076 | | | 291,903 | |
| | $ | 745,178 | | | $ | 518,366 | |
| As Reported: | | | | |
| Cash and cash equivalents | | $ | 664,593 | | | $ | 348,498 | |
| Restricted cash | | 80,585 | | | 169,868 | |
| | $ | 745,178 | | | $ | 518,366 | |
Restricted cash consisted of the following (in thousands):
| | December 31, |
| | December 31, | | | | December 31, |
| | | | 2021 | | 2020 | | | 2023 | | 2022 |
| Current: | Current: | | | | | Current: | | |
| Restricted cash | Restricted cash | | $ | 89,462 | | | $ | 26,706 | |
Restricted cash related to PPA Entities1 | | 3,078 | | | 25,764 | |
| Restricted cash, current | | 92,540 | | | 52,470 | |
Restricted cash related to PPA V1 | |
| | 46,821 | |
| Non-current: | Non-current: | | | | |
| Restricted cash | 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 | |
| Restricted cash | |
| Restricted cash | |
Restricted cash related to PPA V1 | |
| | 33,764 | |
| | $ | |
1 We have VIEs that representAs of December 31, 2022, we had a variable interest entity (“VIE”) related to our PPA Entity, PPA V, which represented a portion of the consolidated balances recorded within the "restricted cash"“restricted cash” and other financial statement line items in the consolidated balance sheets (see Note 11 -10 — Portfolio Financings). In August 2023, we sold the PPA V as a result of the PPA V Repowering of the Energy Servers (see Note 10 —Portfolio Financings), and as such there were no balances related to PPA V in the consolidated balance sheets as of December 31, 2023. In addition, the restricted cash held in the PPA II and PPA IIIb entities as of December 31, 2021, includes $41.72023 included $32.2 million and $1.2$0.9 million of current restricted cash, respectively, and $57.7$8.2 million and $6.7 million of non-current restricted cash, respectively. The restricted cash held in the PPA II and PPA IIIb entities as of December 31, 2020, includes $20.32022, included $40.6 million and $0.7$1.2 million of current restricted cash, respectively, and $88.4$28.5 million and $13.3$6.7 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 designatedcertain financial institution.institutions. These transactions are accounted for as sales and cash proceeds are included in cash used in operating activities. We derecognized $116.3$291.4 million, $283.3 million and $49.3$116.3 million of accounts receivable during the years ended December 31, 2023, 2022 and 2021, and 2020, respectively.
The costscost of factoring such accounts receivable on our consolidated statements of operations for the years ended December 31, 2023 and 2022 was $5.5 million and $4.0 million, respectively. The cost of factoring such accounts receivable on our consolidated statements of operations for the year ended December 31, 2021 and 2020 werewas not material. The cost of factoring is recorded in general and administrative expenses.
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 swap agreements is described in Note 2 - —Summary of 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 are 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 |
| | Fair Value Measured at Reporting Date Using | | | | Fair Value Measured at Reporting Date Using |
| December 31, 2023 | | December 31, 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | Assets | Assets | |
| Assets | |
| Assets | |
| Cash equivalents: | Cash equivalents: | |
| Cash equivalents: | |
| Cash equivalents: | |
| Money market funds | |
| Money market funds | |
| Money market funds | Money market funds | | $ | 297,034 | | | $ | — | | | $ | — | | | $ | 297,034 | |
| | | $ | |
| | $ | 297,034 | | | $ | — | | | $ | — | | | $ | 297,034 | |
| | $ | |
| | | $ | |
| Liabilities | Liabilities | | | | | | | | |
| | Derivatives: | 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 | | — | | | — | | | — | | | — | |
| | Derivatives: | |
| | Derivatives: | |
| | Embedded EPP derivatives | Embedded EPP derivatives | | — | | | — | | | 6,461 | | | 6,461 | |
| | Embedded EPP derivatives | |
| | $ | — | | | $ | 13,200 | | | $ | 6,461 | | | $ | 19,661 | |
| Embedded EPP derivatives | |
| | | $ | |
| | $ | |
| | $ | |
| | | | | Fair Value Measured at Reporting Date Using | | | Fair Value Measured at Reporting Date Using |
| December 31, 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2022 | | December 31, 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | Assets | Assets | |
| Assets | |
| Assets | |
| Cash equivalents: | |
| Cash equivalents: | |
| Cash equivalents: | Cash equivalents: | |
| Money market funds | Money market funds | | $ | 235,902 | | | $ | — | | | $ | — | | | $ | 235,902 | |
| | $ | 235,902 | | | $ | — | | | $ | — | | | $ | 235,902 | |
| Money market funds | |
| Money market funds | |
| | $ | |
| Liabilities | Liabilities | | | | | | | | |
| | Derivatives: | Derivatives: | |
| Natural gas fixed price forward contracts | | $ | — | | | $ | — | | | $ | 2,574 | | | $ | 2,574 | |
| | Derivatives: | |
| Derivatives: | |
| Embedded EPP derivatives | Embedded EPP derivatives | | — | | | — | | | 5,541 | | | 5,541 | |
| Interest rate swap agreements | | — | | | 15,989 | | | — | | | 15,989 | |
| | $ | — | | | $ | 15,989 | | | $ | 8,115 | | | $ | 24,104 | |
| Embedded EPP derivatives | |
| Embedded EPP derivatives | |
| | $ | |
Money Market Funds -— Money market funds are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial assets.
Option to acquire a variable number of shares of Class A Common Stock - 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 is calibrated and considers the observable implied volatility, the stock price of our 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 shares of Class A Common Stock is classified as a Level 2 financial liability.
Natural Gas Fixed Price Forward Contracts - As of December 31, 2020, natural gas fixed price forward contracts were valued using a combination of factors including the counterparty's credit rating and estimates of future natural gas prices. The leveling of each financial instrument is reassessed at the end of each period and is 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 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. |
For the years ended December 31, 2021 and 2020, we recognized an unrealized gain of $1.1 million and an unrealized loss of $0.1 million, respectively. We realized gains of $1.5 million and $4.5 million for the years ended December 31, 2021 and 2020, respectively, on the settlement of these contracts in cost of revenue on our consolidated statements of operations.
Embedded Escalation Protection Plan Derivative Liability in Sales Contracts -— We estimate 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'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.
For the years ended December 31, 2021 and 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, in (loss) gain on revaluation of embedded 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 of 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) includedThe changes in the valuation of natural gas contractsLevel 3 financial liabilities during the years ended December 31, 2023, 2022 and 2021 were deemed unobservable.as follows (in thousands):
| | | | | |
| Embedded EPP Derivative Liability |
| Liabilities at December 31, 2021 | $ | 6,461 | |
| Changes in fair value | (566) | |
| Liabilities at December 31, 2022 | 5,895 | |
| EPP liability settlement | (3,160) | |
| Changes in fair value | 1,641 | |
| Liabilities at December 31, 2023 | $ | 4,376 | |
To estimate the liabilities related to the EPP contracts, an option pricing method was implemented through a Monte Carlo simulation. simulation, which considers various potential electricity price forward curves over the sales contracts’ terms. We use historical grid prices and available forecasts to estimate future electricity prices. The grid pricing 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 gain (loss) on revaluation of embedded derivatives.
The unobservable inputs were simulated based on the available values for avoided cost and cost of electricity as calculated for December 31, 20212023 and 2020,2022, using an expected growth rate of 7% over the contracts'contracts’ life and volatility of 20%15%. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 2021.2023. 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 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 inputs listed above would have had a direct impact on the fair values of the aboveEPP derivatives if they were adjusted. Generally, an increase in natural gas prices and a decrease in electric grid prices would each result in an increase in the estimated fair value of our EPP derivative liabilities.
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. DuringFor the fourth quarter of 2021, we terminated our hedges and recognized $10.8 million of interest expense in relation to the terminated hedges in the consolidated statement of operations for the yearyears ended December 31, 2021.
Redeemable Convertible Preferred Stock - RCPS are2023, 2022 and 2021, we recorded atthe fair value upon issuance, net of any issuance coststhe embedded EPP derivatives with no material unrealized gains or losses in accordance with ASC 815-40, Contracts in Entity’s Own Equity. For additional information see Note 18 - SK ecoplant Strategic Investment.
We revaluedeither of the Option to purchase Class A common stock to its fair value as ofthree years ended December 31, 2021,2023, 2022 and recorded a loss of $3.6 million which is included in other income (expense), net2021 in our consolidated statements of operations. The fair value of the Option is reflected in Accrued expensesthese derivatives was 4.4 million and other current liabilities in5.9 million as of December 31, 2023 and 2022, respectively.
In June 2023, per an EPP agreement with one of our consolidatedcustomers, we paid $3.2 million, which was recorded as a reduction to our balance sheet.of embedded EPP derivative liability as of December 31, 2023.
Financial Assets and Liabilities and Other Items Not Measured at Fair Value on a Recurring Basis
Customer Receivables and Debt Instruments -— The 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 senior notes are based on rates currently offered for instruments with similar maturities and terms (Level 3)2). 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 | | | December 31, 2023 | | December 31, 2022 |
| | | | Net Carrying
Value | | Fair Value | | Net Carrying
Value | | Fair Value | | | 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 | Debt instruments | |
| Recourse: | Recourse: | |
| | Recourse: | |
| Recourse: | |
| 3% Green Convertible Senior Notes due June 2028 | |
| 3% Green Convertible Senior Notes due June 2028 | |
| 3% Green Convertible Senior Notes due June 2028 | |
| 2.5% Green Convertible Senior Notes due August 2025 | |
| 10.25% Senior Secured Notes due March 2027 | 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: | 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 | |
| 4.6% Term Loan due October 2026 | |
| 4.6% Term Loan due October 2026 | |
| 4.6% Term Loan due October 2026 | |
| 4.6% Term Loan due April 2026 | |
| 3.04% Senior Secured Notes due June 2031 | 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 | | | $ | — | | | $ | — | |
6. Balance Sheet Components
Inventories
The components of inventory consist of the following (in thousands):
| | December 31, |
| | December 31, | | | | December 31, |
| | | | 2021 | | 2020 | | | 2023 | | 2022 |
| | Raw materials | Raw materials | | $ | 80,809 | | | $ | 79,090 | |
| Raw materials | |
| Raw materials | |
| Work-in-progress | Work-in-progress | | 31,893 | | | 29,063 | |
| Finished goods | Finished goods | | 30,668 | | | 33,906 | |
| $ | 143,370 | | | $ | 142,059 | |
| | $ | |
The inventory reserves were $13.9$18.7 million and $14.0$17.2 million as of December 31, 20212023 and 2020,2022, respectively.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
| | | December 31, | | | | December 31, |
| | | | | | | | | | | | | | | 2023 | | 2022 |
| | December 31, | | | | | |
| | | 2021 | | 2020 |
| | | | | |
| | Prepaid workers compensation | |
| Receivables from employees | |
| Prepaid managed services | |
| Prepaid hardware and software maintenance | Prepaid hardware and software maintenance | | $ | 3,494 | | | $ | 5,227 | |
| Receivables from employees | | 5,463 | | | 5,160 | |
| Tax receivables | |
| Advance income tax provision | |
| Deferred expenses (Note 17) | |
| Deposits made | |
| Interest receivable | |
| Prepaid rent | |
| Prepaid deferred commissions | |
| Other prepaid expenses and other current assets | 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, consists of the following (in thousands):
| | December 31, |
| | December 31, | | | | December 31, |
| | | | 2021 | | 2020 | | | 2023 | | 2022 |
| | | | | | | | | | | |
| Energy Servers | Energy Servers | | $ | 674,799 | | | $ | 669,422 | |
| Machinery and equipment | |
| Construction-in-progress | |
| Leasehold improvements | |
| Buildings | |
| Computers, software and hardware | Computers, software and hardware | | 21,276 | | | 20,432 | |
| Machinery and equipment | | 110,600 | | | 106,644 | |
| Furniture and fixtures | 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 | |
| | 774,534 | |
| Less: accumulated depreciation | Less: accumulated depreciation | | (356,590) | | | (309,670) | |
| $ | 604,106 | | | $ | 600,628 | |
| | $ | |
Depreciation expense related to property, plant and equipment was $53.4$62.6 million, $61.6 million and $52.2$53.4 million for the years ended December 31, 20212023, 2022 and 2020,2021, respectively.
Property, plant and equipment under operating leases by the PPA EntitiesV was $368.0 million and $368.0$226.0 million and accumulated depreciation for these assets was $139.4 million and $115.9$92.7 million as of December 31, 20212022. There were no property, plant and 2020,
respectively.equipment under operating leases by PPA V as of December 31, 2023. Depreciation expense for these assetsproperty, plant and equipment under operating leases by PPA V (sold in August 2023) was $23.5$10.9 million for the year ended December 31, 2023. Depreciation expense for property, plant and equipment under operating leases by PPA V, PPA IV (sold in November 2022), and PPA IIIa (sold in June 2022) was $12.1 million and $23.8$23.5 million for the years ended December 31, 2022 and 2021, respectively.
PPA IIIa Upgrade
In June 2022, we started a project (the “PPA IIIa Upgrade,” the “PPA IIIa Repowering”) to replace 9.8 megawatts of the Energy Servers (the “old PPA IIIa Energy Servers”) at PPA IIIa Investment Company and 2020, respectively.Operating Company (“PPA IIIa”)
with current generation Energy Servers (the “new PPA IIIa Energy Servers”). The replacement was complete in the fourth quarter of fiscal 2022. See Note 10 —Portfolio Financings for additional information.
PPA IV Upgrade
In November 2022, we started a project (the “PPA IV Upgrade,” the “PPA IV Repowering”) to replace 19.3 megawatts of the Energy Servers (the “old PPA IV Energy Servers”) at PPA IV Investment Company and Operating Company (“PPA IV”) with current generation Energy Servers (the “new PPA IV Energy Servers”). The replacement was substantially complete as of December 31, 2023. See Note 10 —Portfolio Financings for additional information.
PPA V Upgrade
In August 2023, we started a project (the “PPA V Upgrade,” the “PPA V Repowering”) to replace 37.1 megawatts of the Energy Servers (the “old PPA V Energy Servers”) at PPA V with current generation Energy Servers (the “new PPA V Energy Servers”). The replacement was complete in the first quarter of fiscal 2024. See Note 10 —Portfolio Financings for additional information.
Other Long-Term Assets
Other long-term assets consist of the following (in thousands):
| | | December 31, | | | | December 31, |
| | 2023 | | | | 2023 | | 2022 |
| | December 31, | | | | | |
| Deferred commissions | |
| Deferred expenses (Note 17) | |
| Long-term lease receivable | |
| Deposits made | |
| Prepaid managed services | |
| Deferred tax asset | |
| Prepaid insurance | |
| | 2021 | | 2020 |
| | | | | |
| Prepaid insurance | | $ | 9,534 | | | $ | 11,792 | |
| Deferred commissions | | 7,569 | | | 6,732 | |
| Long-term lease receivable | | 7,953 | | | 6,995 | |
| Prepaid and other long-term assets | Prepaid and other long-term assets | | 14,060 | | | 8,992 | |
| $ | 39,116 | | | $ | 34,511 | |
| Prepaid and other long-term assets | |
| Prepaid and other long-term assets | |
| | $ | |
Accrued Warranty and Product Performance Liabilities
Accrued warranty liabilities consist of the following (in thousands):
| | | December 31, | | | | December 31, |
| | | | | | | | | | | | | | | 2023 | | 2022 |
| | December 31, | | | | | |
| Product performance | |
| Product warranty | |
| | | | 2021 | | 2020 |
| | | | | |
| Product warranty | | $ | 961 | | | $ | 1,549 | |
| Product performance | | 10,785 | | | 8,605 | |
| Maintenance services contracts | | — | | | 109 | |
| $ | 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 | |
| Accrued warranty and product performance liabilities, net | 17,719 | |
| Warranty and product performance expenditures during the year | (12,133) | |
| Balances at December 31, 2022 | $ | 17,332 | |
| Accrued warranty and product performance liabilities, net | 27,845 | |
| Warranty and product performance expenditures during the year | (25,851) | |
| Balances at December 31, 2023 | $ | 19,326 | |
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
| | December 31, |
| | | 2021 | | 2020 |
| | December 31, | | | | December 31, |
| | | | | | | | | 2023 | | 2022 |
| | | | | | |
| Compensation and benefits | Compensation and benefits | | $ | 38,222 | | | $ | 28,343 | |
| General invoice and purchase order accruals | |
| Sales tax liabilities | |
| Sales-related liabilities | |
| Accrued installation | |
| Interest payable | |
| Accrued restructuring costs (Note 12) | |
| Provision for income tax | |
| Accrued consulting expenses | |
| Accrued legal expenses | |
| Finance lease liability | |
| Delaware grant (Note 13) | |
| PPA IV Upgrade financing obligations | |
| Current portion of derivative liabilities | Current portion of derivative liabilities | | 6,059 | | | 19,116 | |
| Sales-related liabilities | | 6,040 | | | 14,479 | |
| | Accrued installation | | 13,968 | | | 16,468 | |
| Sales tax liabilities | | 1,491 | | | 2,732 | |
| Interest payable | | 2,159 | | | 2,224 | |
| Other | Other | | 46,198 | | | 28,642 | |
| $ | 114,138 | | | $ | 112,004 | |
| | $ | |
Other Long-Term LiabilitiesPreferred Stock
Other long-term liabilities consistAs of December 31, 2023, we had 20,000,000 shares of preferred stock authorized. 13,491,701 of these shares were designated as Series B RCPS and were converted to Class A common stock as of September 23, 2023, as a result of the following (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | |
| Delaware grant | | $ | 9,495 | | | $ | 9,212 | |
| Other | | 7,277 | | | 8,056 | |
| | $ | 16,772 | | | $ | 17,268 | |
SK ecoplant Second Tranche Closing. AWe recordeds of December 31, 2022, we had 20,000,000 shares of preferred stock authorized. 10,000,000 of these shares were designated as Series A redeemable convertible preferred stock and were converted to Class A common stock as of November 8, 2022, as a long-term liability for the potential future repaymentresult of the incentive grant received from the Delaware Economic Development AuthoritySK ecoplant Initial Investment. For additional information, please see Note 17 —SK ecoplant Strategic Investment.
The preferred stock had $0.0001 par value. There were no shares of
$9.5 millionpreferred stock issued and
$9.2 millionoutstanding as of December 31,
20212023 and December 31,
2020, respectively. See Note 13 - Commitments and Contingencies for a full description2022. Conversion of the grant.Class B Common Stock
On July 27, 2023, in accordance with our Restated Certificate of Incorporation, each share of our Class B common stock entitled to ten votes per share automatically converted into one share of our Class A common stock entitled to one vote per share.
7. Outstanding Loans and Security Agreements
The following is a summary of our debt as of December 31, 20212023 (in thousands, except percentage data):
| | | | | Unpaid
Principal
Balance | | Net Carrying Value | | | Interest
Rate | | Maturity Dates | | Entity | | Recourse |
| | | | Current | | Long-
Term | | Total | | Interest
Rate | |
| | | | | | | | | | | | | | | | | | Unpaid
Principal
Balance | | Net Carrying Value | | | | Interest
Rate | | Maturity Dates | | Entity |
| 10.25% Senior Secured Notes due March 2027 | | $ | 70,000 | | | $ | 8,348 | | | $ | 60,620 | | | $ | 68,968 | | | | 10.25% | | March 2027 | | Company | | Yes |
| | |
| | 3% Green Convertible Senior Notes due June 2028 | |
| | 3% Green Convertible Senior Notes due June 2028 | |
| | 3% Green Convertible Senior Notes due June 2028 | | | 632,500 | | | — | | | 615,205 | | | 615,205 | | | | | 3.0% | | June 2028 | | Company |
| 2.5% Green Convertible Senior Notes due August 2025 | 2.5% Green Convertible Senior Notes due August 2025 | | 230,000 | | | — | | | 222,863 | | | 222,863 | | | | 2.5% | | August 2025 | | Company | | Yes | 2.5% Green Convertible Senior Notes due August 2025 | | 230,000 | | | — | | — | | | 226,801 | | 226,801 | | | 226,801 | | 226,801 | | | | | 2.5% | | | | 2.5% | | August 2025 | | Company |
| Total recourse debt | 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 |
| | 4.6% Term Loan due October 2026 | |
| 4.6% Term Loan due October 2026 | |
| 4.6% Term Loan due October 2026 | | | 3,085 | | | — | | | 3,085 | | | 3,085 | | | | | 4.6% | | October 2026 | | Korean JV |
| 4.6% Term Loan due April 2026 | | 4.6% Term Loan due April 2026 | | 1,542 | | | — | | | 1,542 | | | 1,542 | | | | | 4.6% | | April 2026 | | Korean JV |
| Total non-recourse debt | Total non-recourse debt | | 239,669 | | | 17,483 | | | 217,416 | | | 234,899 | | | | |
| Total debt | Total debt | | $ | 539,669 | | | $ | 25,831 | | | $ | 500,899 | | | $ | 526,730 | | | | |
| Total debt | |
| Total debt | |
The following is a summary of our debt as of December 31, 20202022 (in thousands, except percentage data):
| | | | | Unpaid
Principal
Balance | | Net Carrying Value | | Unused
Borrowing
Capacity | | Interest
Rate | | Maturity Dates | | Entity | | Recourse | | | Unpaid
Principal
Balance | | Net Carrying Value | | Interest
Rate | | Maturity Dates | | Entity |
| | | | Current | | Long-
Term | | Total | |
| | 10.25% Senior Secured Notes due March 2027 | 10.25% Senior Secured Notes due March 2027 | | $ | 70,000 | | | $ | — | | | $ | 68,614 | | | $ | 68,614 | | | $ | — | | | 10.25% | | March 2027 | | Company | | Yes |
| | 10.25% Senior Secured Notes due March 2027 | |
| | 10.25% Senior Secured Notes due March 2027 | | | $ | 61,653 | | | $ | 12,716 | | | $ | 48,244 | | | $ | 60,960 | | | 10.25% | | March 2027 | | Company |
| 2.5% Green Convertible Senior Notes due August 2025 | 2.5% Green Convertible Senior Notes due August 2025 | | 230,000 | | | — | | | 99,394 | | | 99,394 | | | — | | | 2.5% | | August 2025 | | Company | | Yes | 2.5% Green Convertible Senior Notes due August 2025 | | 230,000 | | | — | | — | | | 224,832 | | 224,832 | | | 224,832 | | 224,832 | | | 2.5% | | 2.5% | | August 2025 | | Company |
| Total recourse debt | 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 |
| 3.04% Senior Secured Notes due June 30, 2031 | |
| 3.04% Senior Secured Notes due June 30, 2031 | |
| 3.04% Senior Secured Notes due June 30, 2031 | | | 127,430 | | | 13,307 | | | 112,480 | | | 125,787 | | | 3.04% | | June 2031 | | PPA V |
| Total non-recourse debt | Total non-recourse debt | | 227,054 | | | 120,846 | | | 102,045 | | | 222,891 | | | 968 | | |
| Total debt | Total debt | | $ | 527,054 | | | $ | 120,846 | | | $ | 270,053 | | | $ | 390,899 | | | $ | 968 | | |
| Total debt | |
| Total debt | |
Recourse debt refers to debt that we have an obligation to pay. Non-recourse debt refers to debt that is recourse to only our subsidiaries.subsidiaries (i.e., PPAs and Korean JV). The differences between the unpaid principal balances and the net carrying values apply to deferred financing costs. We and all of our subsidiaries were in compliance with all financial covenants as of December 31, 20212023 and December 31, 2020.2022.
Recourse Debt Facilities
10.25%3% Green Convertible Senior Secured Notes due March 2027 - June 2028
On May 1, 2020,16, 2023, we issued $70.0 million of 10.25% Senior Securedthe 3% Green Notes in a private placement ("10.25% Senior Secured Notes"an aggregate principal amount of $632.5 million due on June 1, 2028, unless earlier repurchased, redeemed or converted, less an initial purchasers’ discount of $15.8 million and other issuance costs of $3.9 million (together, the “3% Green Notes Transaction Costs”)., resulting in net proceeds of $612.8 million. The 10.25% Senior Secured3% Green Notes were issued pursuant to, and are governed by, an indenture (the “Senior Secured Notes Indenture”“Indenture”) entered into among us, the guarantor party thereto and U.S. Bank National Association, in its capacity, dated 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 $150.0 million indentureMay 16, 2023, between us and U.S. Bank Trust Company, National Association, which containedas Trustee, in private placements to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”).
Pursuant to the purchase agreement among us and the representatives of the initial purchasers of the 3% Green Notes, we granted the initial purchasers an accordion feature foroption to purchase up to an additional $80.0$82.5 million aggregate principal amount of notes that could bethe 3% Green Notes (the “Greenshoe Option”). The 3% Green Notes issued on or priorMay 16, 2023, included $82.5 million aggregate principal amount pursuant to September 27, 2021. We chose not tothe full exercise this accordion feature, which has now expired.by the initial purchasers of the Greenshoe Option.
The 3% Green Notes are senior, unsecured obligations accruing interest at a rate of 3% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2023.
InterestWe may not redeem the 3% Green Notes prior to June 5, 2026, subject to a partial redemption limitation. We may elect to redeem, at face value, all or any portion of the 3% Green Notes at any time, and from time to time, on or after June 5, 2026, and on or before the forty-sixth scheduled trading day immediately before the maturity date, provided the share price for our Class A common stock exceeds 130% of the conversion price at redemption.
Before March 1, 2028, the noteholders have the right to convert their 3% Green Notes only upon the occurrence of certain events, including satisfaction of a condition relating to the closing price of our common stock (the “Closing Price Condition”) or the trading price of the 3% Green Notes (the “Trading Price Condition”), a redemption event, or other specified corporate events. If the Closing Price Condition is met on at least 20 (whether or not consecutive) of the last 30 consecutive trading days in any calendar quarter, and only during such calendar quarter, the noteholders may convert their 3% Green Notes at any time during the immediately following quarter, commencing after the calendar quarter ending on September 30, 2023, subject to partial redemption limitation. The Closing Price Condition was not met during the three months ended September 30, 2023, and accordingly, the noteholders could not convert their 3% Green Notes during the quarter ended December 31, 2023.
Subject to the Trading Price Condition, the noteholders may convert their 3% Green Notes during the five business days immediately after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 3% Green Notes, as determined following a request by a holder of the 3% Green Notes, for each day of that period is less than 98% of the product of the closing price of our common stock and the then applicable conversion rate. From and after March 1, 2028, the noteholders may convert their 3% Green Notes at any time at their election until the close of business on the 10.25% Senior Securedsecond scheduled trading day immediately before the maturity date. Should the noteholders elect to convert their 3% Green Notes, we may elect to settle the conversion by paying or delivering, as applicable, cash, shares of our Class A common stock, $0.0001 par value per share, or a combination thereof, at our election.
The initial conversion rate is payable quarterly, commencing June 30, 2020.53.0427 shares of Class A common stock per $1,000 principal amount of notes, which represents an initial conversion price of approximately $18.85 per share of Class A common stock. The 10.25% Senior Securedconversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. Also, we may increase the conversion rate at any time if our Board of Directors determines it is in the best interests of the Company or to avoid or diminish income tax to holders of common stock. In addition, if certain corporate events that constitute a Make-Whole Fundamental Change, as defined below, occur, then the conversion rate applicable to the conversion of the 3% Green Notes may, in certain circumstances, be increased by up to 22.5430 shares of Class A common stock per $1,000 principal amount of notes for a specified period of time. On December 31, 2023, the maximum number of shares into which the 3% Green Notes could have been potentially converted if the conversion features were triggered was 47,807,955 shares of Class A common stock.
According to the Indenture, contains customarya Make-Whole Fundamental Change means (i) a Fundamental Change, that includes certain change-of-control events of default and covenants relating to among other things,us, certain business combination transactions involving us and certain delisting events with respect to our Class A common stock, or (ii) the incurrencesending of new debt, affiliate transactions, liensa redemption notice with respect to the 3% Green Notes.
The 3% Green Notes contain certain customary provisions relating to the occurrence of Events of Default, as defined in the Indenture. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to us occurs, then the principal amount of, and restricted payments. On or after March 27, 2022, we may redeemall accrued and unpaid interest on, all of the 10.25% Senior Secured3% Green Notes then outstanding will immediately become due and payable without any further action or notice by any person. However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the 3% Green Notes for up to 180 days at a price equalspecified rate per annum not exceeding 0.50% on the principal amount of the 3% Green Notes.
The 3% Green Notes Transaction Costs were recorded as debt issuance costs and presented a reduction to 108%the 3% Green Notes on our consolidated balance sheets and are amortized to interest expense at an effective interest rate of 3.8%.
Total interest expense recognized related to the 3% Green Notes for the year ended December 31, 2023, was $14.4 million, and was comprised of contractual interest expense of $12.0 million and amortization of the initial purchasers’ discount and other issuance costs of 2.4 million. We have not recognized any special interest expense related to the 3% Green Notes to date. The amount of unamortized debt issuance costs as of December 31, 2023, was $17.3 million.
Although the 3% Green Notes contain embedded conversion features, we account for the 3% Green Notes in its entirety as a liability. As of December 31, 2023, the net carrying value of the 3% Green Notes was classified as a long-term liability in our consolidated balance sheets.
Capped Calls
On May 11, 2023, in connection with the pricing of the 3% Green Notes, and on May 15, 2023, in connection with initial purchasers’ exercise of the Greenshoe Option, we entered into privately negotiated capped call transactions (the “Capped Calls”) with certain counterparties (the “Option Counterparties”). The Capped Calls cover, subject to customary anti-dilution adjustments substantially similar to those applicable to the 3% Green Notes, the aggregate number of shares of our Class A common stock that initially underlie the 3% Green Notes, and are expected generally to reduce potential dilution to holders of our common stock upon any conversion of the 3% Green Notes and at our election (subject to certain conditions) offset any cash payments we would be required to make in excess of the principal amount of converted 3% Green Notes.
The Capped Calls expire on June 1, 2028, and are exercisable only at maturity, but may be early terminated in various circumstances, including if the 10.25% Senior Secured3% Green 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,are early converted or repurchased. The default settlement method for the Capped Calls is net share settlement. However, we may redeemelect to settle the 10.25% Senior SecuredCapped Calls in cash.
The Capped Calls have an initial strike price of approximately $18.85 per share of Class A common stock, subject to certain adjustments. The strike price of $18.85 corresponds to the initial conversion price of the 3% Green Notes. The number of shares underlying the Capped Calls is 33,549,508 shares of Class A common stock. The cap price of the Capped Calls is initially $26.46 per share of Class A common stock, which represents a premium of 100% over the last reported sale price of our common stock on May 11, 2023.
The Capped Calls are freestanding financial instruments. We used a portion of the proceeds from the issuance of the 3% Green Notes upon repaymentto pay for the Capped Calls’ premium. As the Capped Calls meet certain accounting criteria, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of a make-whole premium. If we experience a change of control, we must offer$54.5 million incurred to purchase for cash all or any part of each holder’s 10.25% Senior Secured Notes atthe Capped Calls was recorded as a purchase price equalreduction to 101% of the principal amount of the 10.25% Senior Secured Notes, plus accruedadditional paid-in capital on our consolidated balance sheets and unpaid interest. The non-current balance of the outstanding unpaid principal of the 10.25% Senior Secured Notes was $61.7 million as of December 31, 2021. The current balance of the outstanding unpaid principal of the 10.25% Senior Secured Notes was $8.3 million as of December 31, 2021.will not be remeasured.
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"“2.5% Green Notes”), in an aggregate principal amount of $230.0 million, unless earlier repurchased, redeemed or converted. The principal amount of the Green Notes are $230.0 million,converted, less an initial purchaser'spurchaser’s discount of $6.9 million and other issuance costs of $3.0 million (together, the “2.5% Green Notes Transaction Costs”), resulting in net proceeds of $220.1 million.
The Green Notes are senior, unsecured obligations accruing interest at a rate of 2.5% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2021.
We may not redeem the Green Notes prior to August 21, 2023. We may elect to redeem, at face value, all or any portion of the 2.5% Green Notes at any time on or after August 21, 2023, and on or before the twenty-sixth trading day immediately before the maturity date, provided certain conditions are met.
Before May 15, 2025, the noteholders have the right to convert their 2.5% Green Notes only upon the occurrence of certain events, including a conversion upon satisfaction of a condition relating to the closing price of our common stock ("the Closing Price Condition").Condition. If the Closing Price Condition is met on at least 20 of the last 30 consecutive trading days in any quarter, the noteholders may convert their 2.5% Green Notes at any time during the immediately following quarter. The Closing Price Condition was not met during the three months ended September 30, 20212023, and accordingly, the noteholders maycould not convert their 2.5% Green Notes at any time during the quarter endingended December 31, 2021.2023. From and after May 15, 2025, the noteholders may convert their 2.5% Green Notes at any time at their election until the close of business on the second trading day immediately before the maturity date. Should the noteholders elect to convert their 2.5% Green Notes, we may elect to settle the conversion by paying or delivering, as applicable, cash, shares of our Class A common stock or a combination thereof.
The initial conversion rate is 61.6808 shares of Class 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 conversion 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,applicable to the conversion of the 2.5% Green Notes may, in certain circumstances, be increased by up to 15.4202 shares of Class A common stock per $1,000 principal amount of notes for a specified period of time.
We adopted ASU 2020-06 as On December 31, 2023, the maximum number of January 1, 2021 usingshares into which the modified retrospective transition method. Upon adoption, we combined the previously separated equity component of the2.5% Green Notes withcould have been potentially converted if the liability component, which is now together classifiedconversion features were triggered was 17,733,230 shares of Class A common stock.
The 2.5% Green Notes Transaction Costs were recorded as debt thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocatedand presented a reduction to equity was reclassifiedthe 2.5% Green Notes on our consolidated balance sheets and are amortized to debt and amortized as interest expense. Accordingly, we recorded a net decrease to accumulated deficitexpense at an effective interest rate 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, 2021.3.5%.
Interest on the 2.5% Green Notes for the yearyears ended December 31, 2023, 2022 and 2021, was $7.7 million, $7.7 million and $7.7 million, respectively, including amortization of issuance costs of $2.0 million. million, $2.0 million and $2.0 million, respectively. The amount of unamortized debt issuance costs as of December 31, 2023 and 2022, was $3.2 million and $5.2 million, respectively.
10.25% Senior Secured Notes due March 2027
On May 1, 2020, we issued $70.0 million of 10.25% Senior Secured Notes in a private placement (the “10.25% Senior Secured Notes”). The 10.25% Senior Secured Notes were 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 were secured by certain of our operations and maintenance agreements. The 10.25% Senior Secured Notes were supported by a $150.0 million indenture between us and U.S. Bank National Association, which contained an accordion feature for an additional $80.0 million of notes that could have been issued on or prior to September 27, 2021. We chose not to exercise this accordion feature, which has already expired.
Interest expenseon the 10.25% Senior Secured Notes was payable quarterly, commencing June 30, 2020. The 10.25% Senior Secured Notes Indenture contained customary events of default and covenants relating to, among other things, the incurrence of new debt, affiliate transactions, liens and restricted payments. Commencing on March 27, 2022, we had the right to redeem all of the 10.25% Senior Secured Notes at a price equal to 108% of the principal 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. Had we experienced a change of control, we must have offered to purchase for cash all or any part of each holder’s 10.25% Senior Secured Notes at a purchase price equal to 101% of the principal amount of the 10.25% Senior Secured Notes, plus accrued and unpaid interest.
The current and non-current balances of the outstanding unpaid principal of the 10.25% Senior Secured Notes were $12.7 million and $48.9 million as of December 31, 2022, respectively. The total outstanding unpaid principal balance of $57.6 million on the 10.25% Senior Secured Notes due March 2027 was called and retired at 104% on June 1, 2023. The 4% premium of $2.3 million and unpaid accrued interest of $1.0 million were included in the final payment to the noteholders. We recognized a loss on extinguishment of debt of $2.9 million as a result of redemption of the 10.25% Senior Secured Notes.
Interest on the 10.25% Senior Secured Notes for the yearyears ended December 31, 20202023, 2022 and 2021, was $2.9$2.6 million, $7.0 million and $7.2 million, respectively, including amortization of issuance costs of $0.8 million.0.1 million, 0.3 million and 0.4 million, respectively.
Non-recourse Debt Facilities
3.04% Senior Secured Notes due June 2031 -
In November 2021, PPA V issued senior secured notes in an aggregate principal amount of $136.0 million due June 2031. The note bearsnotes bore a fixed rate of 3.04% per annum payable quarterly. The proceeds from the 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 an outstanding principal balance of $109.1 million, accrued interest of $0.1 million, and fees required to terminate associated interest rate swaps of $11.5 million, (ii) pay the required premium for the PPA V production insurance of $6.5 million, (iii) and pay related fees and expenses related to the refinancing totaling $2.1 million, resulting in a net cash flow of $6.7 million. The note purchase agreement requiresrequired us to maintain a debt service reserve, the balance of which was $8.0$8.6 million as of December 31, 2021,2022, out of which $8.0 million was included as part of long-term restricted cash and $0.6 million was included as part of current restricted cash in the consolidated balance sheets. The loan iswas secured by all assets of PPA V.
On August 24, 2023, as part of the PPA V Upgrade, we paid off the outstanding balance and related accrued interest of $118.5 million and $0.5 million, respectively, of our 3.04% Senior Secured Notes due June 2031, and recognized a loss on extinguishment of debt of $1.4 million (for additional information, please see Note 10 —Portfolio Financings). The debt service reserve of $8.6 million was reclassified from restricted cash to cash and cash equivalents at the time of extinguishment of debt.
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013,
On June 14, 2022, as part of the PPA IIIa Upgrade, we paid off the outstanding balance and related accrued interest of $30.2 million and $0.4 million, respectively, and recognized a loss on extinguishment of debt of $4.2 million. The debt service reserve of $3.6 million was reclassified from restricted cash to cash and cash equivalents at the time of extinguishment of debt.
6.07% Senior Secured Notes due March 2030
On November 22, 2022, as part of the PPA IV Upgrade, we paid off the outstanding balance and related accrued interest of $70.5 million and $0.4 million, respectively, and recognized a loss on extinguishment of debt of $4.7 million. The debt service reserve of $9.1 million was reclassified from restricted cash to cash and cash equivalents at the time of extinguishment of debt.
4.6% Term Loans due April 2026 and October 2026
On April 11, 2023 and October 5, 2023, Korean JV entered into a $46.8three-year $1.5 million and three-year $3.1 million credit agreementagreements with SK ecoplant, respectively, to help fund the purchase and installation of our Energy Servers. The loan bearsits working capital. Both loans bear a fixed interest rate of 7.5%4.6% payable quarterly. Theupon maturity along with the principle. Neither 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 $3.6 million and $3.8 million as of December 31, 2021 and 2020, respectively, 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.
6.07% Senior Secured Notes due March 2030 - The notes bear a fixed interest rate of 6.07% per annum payable quarterly, which began in December 2015 and ends in March 2030. The note purchase agreement requires us to maintain a debt service reserve, the balance of which was $9.1 million and $8.5 million as of December 31, 2021 and 2020, respectively, which was included as part of long-term restricted cash in the consolidated balance sheets. The notes are secured by all the assets of the PPA IV.
LIBOR + 2.5% Term Loan due December 2021 - In June 2015, PPA V entered into a $131.2 million term loan due December 2021. The loan was secured by all the assets of the PPA V and required quarterly principal payments which began in March 2017. In accordance with the credit agreement, PPA V was issued 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’ commitments to the loan and the commitments to a letter of credit facility, the PPA V also paid commitment fees at 0.5% per annum over the outstanding commitments, paid quarterly. In connection with the floating-rate credit agreement, in July 2015, PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan. The agreement also included commitments to a letter of credit facility with the aggregate principal amount of $6.4 million, later adjusted down to $6.2 million. In November 2021, PPA V issued 3.04% Senior Secured Notes due June 2031 in an aggregate principal amount of $136.0 million due June 2031, the proceeds of which were primarily utilized to pay all obligations under the LIBOR + 2.5% Term Loan due December 2021.reserve.
Repayment Schedule and Interest Expense
The following table presents details of our outstanding loan principal repayment schedule as of December 31, 20212023 (in thousands):
| | 2022 | $ | 25,831 | |
| 2023 | 32,430 | |
| 2024 | 2024 | 36,369 | |
| 2025 | 2025 | 270,613 | |
| 2026 | 2026 | 44,870 | |
| 2027 | |
| 2028 | |
| Thereafter | Thereafter | 129,556 | |
| $ | 539,669 | |
| $ | |
Interest expense of $69.0$108.3 million, $53.5 million and $78.8$69.0 million for the years ended December 31, 20212023, 2022 and 2020,2021, respectively, was recorded in interest expense on the consolidated statements of operations. This interestInterest 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 during2023 included $52.8 million as a result of 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.Second Tranche Closing. For additional information, please see Note 18 -17 — SK ecoplant Strategic Investment.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, 2021 and December 31, 2020 on our consolidated balance sheets are as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | | 2021 | | 2020 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Liabilities | | | | |
| | | | |
| Accrued expenses and other current liabilities | | $ | — | | | $ | 15,989 | |
| | | | |
| | | | |
PPA V - In July 2015, PPA V entered into 9 interest rate swap agreements to convert a variable interest rate debt to a fixed rate and we designated and documented the interest rate swap arrangements as cash flow hedges. NaN of these swaps matured in 2016, 3 were to mature on December 31, 2021 and the remaining 3 were to mature on June 30, 2031. The effective change is recorded in accumulated other comprehensive loss and is recognized as interest expense on settlement. The notional amounts of the swaps are none and $181.4 million as of December 31, 2021 and 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 measured 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 realized immaterial gains attributable to the change in valuation during the years ended December 31, 2021 and 2020, and these gains are included in other expense, net, in the consolidated statements 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 loss and in earnings are 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 | | | | | |
| | | | | | | | | | | | |
Embedded EPP Derivatives in Sales Contracts
We estimate the fair value of the embedded EPP derivatives in certain of 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 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 gain (loss) on revaluation of embedded derivatives. For the years ended December 31, 2021 and 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 are included within loss on revaluation of embedded derivatives in the consolidated statements of operations. The fair value of these derivatives was $6.5 million and $5.5 million as of December 31, 2021 and 2020, respectively.
9.8. Leases
Facilities, Energy Servers, and Vehicles
We lease most of our facilities, the Energy Servers, and vehicles under operating and finance leases that expire at various dates through February 2036.November 2037. 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 StatesU.S. and around the world including in China, India, Germany, Japan, the Republic of Korea Taiwan and the United Arab Emirates.Taiwan.
Some of thesethe lease 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 leases. For the years ended December 31, 2023, 2022 and 2021, and 2020, rent expenseexpenses for all occupied facilities was $16.0were $23.0 million, $21.4 million and $9.9$16.0 million, respectively.
At inception of the contract, we assess 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 exchange 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, the Energy Servers, 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 unamortized initial direct costs and prepaid (accrued) lease payments less
unamortized balance lease incentives.incentives received. 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.Incremental Borrowing Rate (“IBR”). In computing our lease liabilities, we use the incremental borrowing rateIBR based on the information available on the commencement date using an estimate of company-specific rate in the United StatesU.S. on a collateralized basis and consistent with the lease term for each lease. The lease term is the non-cancelable period of the lease and includes options to extend 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, 20212023 and 20202022 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 | |
| | | | | | | | | | | | | | |
| | Years Ended
December 31, |
| | 2023 | | 2022 |
| | | | |
| Operating Leases: | | | | |
Operating lease right-of-use assets, net 1, 2 | | $ | 139,732 | | | $ | 126,955 | |
| Current operating lease liabilities | | (20,245) | | | (16,227) | |
| Non-current operating lease liabilities | | (141,939) | | | (132,363) | |
| Total operating lease liabilities | | $ | (162,184) | | | $ | (148,590) | |
| | | | |
| Finance Leases: | | | | |
Finance lease right-of-use assets, net 2, 3, 4 | | $ | 2,708 | | | $ | 2,824 | |
Current finance lease liabilities 5 | | (1,072) | | | (1,024) | |
Non-current finance lease liabilities 6 | | (1,837) | | | (1,971) | |
| Total finance lease liabilities | | (2,909) | | | (2,995) | |
| Total lease liabilities | | $ | (165,093) | | | $ | (151,585) | |
1 These assets primarily include leases for facilities, the 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.sheets.
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, 20212023, 2022 and 20202021 were as follows (in thousands):
| | | | Years Ended
December 31, |
| | | | Years Ended December 31, | |
| | | | Years Ended December 31, | |
| | | | Years Ended December 31, | |
| | | | | | 2023 | | | | | | | | 2023 | | 2022 | | 2021 |
| | | | 2021 | | 2020 |
| Operating lease costs | Operating lease costs | | | $ | 15,850 | | | $ | 9,804 | |
| Operating lease costs | |
| Operating lease costs | |
| Financing lease costs: | Financing lease costs: | | |
| Amortization of financing lease right-of-use assets | | | 1,345 | | | 51 | |
| Interest expense for financing lease liabilities | | | 349 | | | 16 | |
| Amortization of right-of-use assets | |
| Amortization of right-of-use assets | |
| Amortization of right-of-use assets | |
| Interest on lease liabilities | |
| Total financing lease costs | Total financing lease costs | | | 1,694 | | | 67 | |
| | Short-term lease costs | Short-term lease costs | | | 407 | | | 613 | |
| | Total lease costs | Total lease costs | | | $ | 17,951 | | | $ | 10,484 | |
Weighted average remaining lease terms and discount rates for our facilities, Energy Servers and vehiclesleases as of December 31, 20212023 and 20202022 were as follows:
| | | December 31, | | | | December 31, |
| | 2023 | | | | 2023 | | 2022 |
| | December 31, |
| 2021 | | 2020 |
| Remaining lease term (years): | | | | |
| Weighted average remaining lease term: | |
| Weighted average remaining lease term: | |
| Weighted average remaining lease term: | |
| Operating leases | |
| Operating leases | |
| Operating leases | Operating leases | | 8.9 years | | 6.7 years | | 7.4 years | | 8.6 years |
| Finance leases | Finance leases | | 3.5 years | | 4.2 years | Finance leases | | 3.2 years | | 3.3 years |
| | Discount rate: | |
| Weighted average discount rate: | |
| Operating leases | |
| Operating leases | |
| Operating leases | Operating leases | | 9.6 | % | | 8.7 | % | | 10.6 | % | | 10.3 | % |
| Finance leases | Finance leases | | 7.6 | % | | 7.0 | % | Finance leases | | 9.5 | % | | 6.9 | % |
Future lease payments under lease agreements for our facilities, Energy Servers and vehicles as of December 31, 20212023 were as follows (in thousands):
| | | Operating Leases | | | | Operating Leases | | Finance Leases |
| | Operating Leases | | Finance Leases |
| 2022 | | $ | 13,153 | | | $ | 948 | |
| 2023 | | 14,994 | | | 944 | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | | 13,500 | | | 771 | |
| 2025 | 2025 | | 13,524 | | | 301 | |
| 2026 | 2026 | | 13,061 | | | 83 | |
| 2027 | |
| 2028 | |
| Thereafter | Thereafter | | 61,636 | | | — | |
| Total minimum lease payments | Total minimum lease payments | | 129,868 | | | 3,047 | |
| Less: amounts representing interest or imputed interest | Less: amounts representing interest or imputed interest | | (10,581) | | | (26) | |
| Present value of lease liabilities | Present value of lease liabilities | | $ | 119,287 | | | $ | 3,021 | |
Managed Services and Portfolio Financings Through the 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, 20212020, 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 the PPA Entities include non-cancellable lease terms, during which terms the majority of our investment in the Energy Servers under lease are typically recovered. We mitigate remaining residual value risk of itsthe Energy Servers through its provision of maintenance on the Energy Servers during the lease term and through insurance whosewhich 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 the Energy Servers under successful sale-and-leaseback transactions are also accounted for as financing liability.obligations. These financing obligations are included in each agreements'agreement’s contract value and are recognized as short-term or long-term liabilitiesfinancing obligations based on the estimated payment dates. The lease agreements expire on various dates through 2034. For successful sale-and-leaseback transactions, we recordedrecord operating lease right-of-use assets and operating lease liabilities and recordedrecord operating lease expenseexpenses over the lease term. The recognized operating lease expense has beenexpenses for the years ended December 31, 2023 and 2022 were $9.7 million and $5.6 million. The recognized operating lease expenses for the year ended December 31, 2021 were immaterial.
We recognized $28.7 million, $20.4 million and $35.1 million of product revenue, $8.4 million, $11.3 million and $20.9 million of installation revenue, $5.0 million, $3.3 million and $10.0 million of financing obligations, and $16.5 million, $12.6 million and $29.4 million of operating lease right-of-use assets and operating lease liabilities from such successful sale and leaseback transactions for the yearyears ended December 31, 2021.2023, 2022 and 2021, respectively.
At December 31, 2021,2023, 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 | | | |
| | | | | | | | | | |
| | Financing Obligations | | |
| | | | |
| 2024 | | $ | 43,799 | | | |
| 2025 | | 42,868 | | | |
| 2026 | | 38,298 | | | |
| 2027 | | 21,972 | | | |
| 2028 | | 12,068 | | | |
| Thereafter | | 26,340 | | | |
| Total minimum lease payments | | 185,345 | | | |
| Less: imputed interest | | (97,017) | | | |
| Present value of net minimum lease payments | | 88,328 | | | |
| Less: current financing obligations | | (38,971) | | | |
| Long-term financing obligations | | $ | 49,357 | | | |
The long-termtotal financing obligations, as reflected in our consolidated balance sheets, were $461.9$444.8 million and $460.0$459.4 million as of December 31, 20212023 and 2020,2022, respectively. TheWe expect the difference between these obligations and the principal obligations in the table above willto be offset against the carrying value of the related Energy Servers at the end of the lease and the remainder recognized as either a gain or loss at that point.
Portfolio Financings through the PPA Entities -— Customer arrangements entered into prior to January 1, 2020 under Portfolio Financing arrangements through a PPA Entity that qualified as leases arewere 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 ofIn August 2023, we sold our aggregate net investment in sales-type leases under our last consolidated PPA Entity, PPA V. For additional information, please see Note 10 — 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 | |
1Financings. Net of current estimated credit losses of approximately $0.1 million as of December 31, 2021 and December 31, 2020.
As of December 31, 2021, the future scheduled 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. |
Future estimated operating lease payments we expect to receive from Portfolio Financing arrangements through PPA Entities as of December 31, 2021, were as follows (in 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 | |
10.9. 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 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, 2021, options to purchase 48,777 shares of Class B common stock were outstanding with a weighted average exercise price of $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"“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 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 yearsfour-year period from the vesting commencement date and expire ten years from the grant date. Original grants under the 2012 Plan were for "common stock"“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, 2021,2023 and 2022, stock options to purchase 6,891,128of 4,511,074 and 5,436,417 shares of Class B common stock were outstanding with a weighted average exercise price of $27.52$27.28 and $27.15 per share, respectively, and no shares were available for future grant. The 2012 Equity Incentive Plan has been canceled but continues to govern outstanding option grants under the 2012 Plan.
2018 Equity Incentive Plan
The 2018 Equity Incentive Plan (the "2018 Plan"“2018 Plan”) was approved in April 2018. The 2018 Plan became effective upon the IPOour initial public offering (“IPO”) and serves as the successor to the 2012 Plan. The 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, PSUs 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 three or four years from the vesting commencement date and expire ten years from the grant date.
The 2018 Plan allows for an annual increase on January 1, of each of 2019 through 2028, by the lesser of (a) 4four percent (4%) of the number of Class A common stock, Class B common stock (until their automatic conversion to Class A common stock on July 27, 2023), 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, 2021,2023 and 2022, stock options to purchase 3,797,3912,736,550 and 3,311,892 shares of Class A common stock were outstanding, respectively, with a weighted average exercise price of $9.70$10.42 and $10.11 per share, respectively. As of December 31, 2023 and 8,367,663 shares of outstanding2022, 9,887,706 and 9,543,386 RSUs that may be settled for Class A common stock, which were granted pursuant to the 2018 Plan.Plan, respectively, were outstanding. As of December 31, 2021,2023 and 2022, we had 23,999,76832,877,906 and 28,340,641 shares reserved for issuance under the 2018 Plan.Plan, respectively.
Stock-Based Compensation Expense
We used the following weighted-average assumptions in applying the Black-Scholes valuation 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% |
The following table summarizes the components of stock-based compensation expense in the consolidated statements of operations (in thousands):
114 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended
December 31, |
| | | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | | |
| Cost of revenue | | | | | | $ | 17,504 | | | $ | 18,955 | | | $ | 13,811 | |
| Research and development | | | | | | 27,620 | | | 33,956 | | | 20,274 | |
| Sales and marketing | | | | | | 16,415 | | | 18,651 | | | 17,085 | |
| General and administrative | | | | | | 25,556 | | | 42,404 | | | 24,962 | |
| | | | | | $ | 87,095 | | | $ | 113,966 | | | $ | 76,132 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Years Ended
December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | |
| Cost of revenue | | | | | | $ | 13,811 | | | $ | 17,475 | | | $ | 45,429 | |
| Research and development | | | | | | 20,274 | | | 19,037 | | | 40,949 | |
| Sales and marketing | | | | | | 17,085 | | | 10,997 | | | 32,478 | |
| General and administrative | | | | | | 24,962 | | | 26,384 | | | 77,435 | |
| | | | | | $ | 76,132 | | | $ | 73,893 | | | $ | 196,291 | |
As of December 31, 2021, 20202023, and 2019,2022, we capitalized $5.8 million, $5.9$8.9 million and $7.3$6.3 million of stock-based compensation cost, respectively, into inventory, and property, plant and equipment.equipment and deferred cost of goods sold.
Stock Option and Stock Award Activity
The following table summarizes the stock option activity under our stock plans during the reporting period:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding Options |
| | | Number of
Shares | | Weighted
Average
Exercise
Price | | Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value |
| | | | | | | | |
| | | | | | | | | (in thousands) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Balances at December 31, 2019 | | 17,837,316 | | | $ | 20.76 | | | 6.9 | | $ | 14,964 | |
| Granted | | 200,000 | | | 7.30 | | | | | |
| Exercised | | (1,341,324) | | | 11.18 | | | | | |
| Cancelled | | (1,341,721) | | | 22.49 | | | | | |
| Balances at December 31, 2020 | | 15,354,271 | | 21.27 | | | 6.0 | | 129,855 | |
| | | | | | | | |
| Exercised | | (3,460,364) | | 23.05 | | | | | |
| Cancelled | | (1,156,612) | | 16.33 | | | | | |
| Balances at December 31, 2021 | | 10,737,295 | | 21.23 | | | 5.2 | | 60,304 | |
| Vested and expected to vest at December 31, 2021 | | 10,620,061 | | | 21.36 | | | 5.2 | | 58,772 | |
| Exercisable at December 31, 2021 | | 8,858,957 | | | 23.67 | | | 4.8 | | 36,441 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding Options |
| | | Number of
Shares | | Weighted
Average
Exercise
Price | | Remaining
Contractual
Life (Years) | | Aggregate
Intrinsic
Value |
| | | | | | | | | (in thousands) |
| Balances at December 31, 2021 | | 10,737,295 | | | $ | 21.23 | | | 5.2 | | $ | 60,304 | |
| Exercised | | (537,324) | | | 7.08 | | | | | |
| Forfeited | | (42,774) | | | 6.98 | | | | | |
| Expired | | (1,408,888) | | | 30.39 | | | | | |
| Balances at December 31, 2022 | | 8,748,309 | | | $ | 20.70 | | | 4.6 | | $ | 40,532 | |
| Exercised | | (525,031) | | | 6.76 | | | | | |
| | | | | | | | |
| Expired | | (975,654) | | | 26.58 | | | | | |
| Balances at December 31, 2023 | | 7,247,624 | | | $ | 20.93 | | | 3.8 | | $ | 19,446 | |
| Vested and expected to vest at December 31, 2023 | | 7,241,265 | | | 20.93 | | | 3.8 | | 19,444 | |
| Exercisable at December 31, 2023 | | 7,230,957 | | | 20.96 | | | 3.8 | | 19,321 | |
Stock Options - — During the years ended December 31, 20212023, 2022 and 2020,2021, we recognized $15.6$0.4 million, $7.1 million and $19.1$15.6 million of stock-based compensation costs for stock options, respectively.
We did not grant options in the yearyears ended December 31, 20212023, 2022 and we granted 200,000 options of Class A common stock during the year ended December 31, 2020, and the weighted average grant-date fair value of those granted awards was $7.30 per share.2021.
During the years ended December 31, 2021, 20202023, 2022 and 2019,2021, the intrinsic value of stock options exercised was $28.9$3.6 million, $11.2$3.8 million and $2.6$28.9 million, respectively.
As of December 31, 20212023 and 2020,2022, we had unrecognized compensation costs related to unvested stock options of $6.2$0.1 million and $20.7$0.4 million, respectively. This cost is expected to be recognized over the remaining weighted-average period of 0.90.3 years and 1.80.9 years, respectively. Cash received from stock options exercised totaled $3.6 million, $3.7 million and $79.7 million and $15.0 million for the years ended December 31, 2023, 2022 and 2021, and 2020, respectively.
A summary of our stock awards activity and related information is as follows:
| | | Number of
Awards
Outstanding | | | | Number of
Awards
Outstanding | | Weighted
Average Grant
Date Fair
Value |
| | Number of
Awards
Outstanding | | Weighted
Average Grant
Date Fair
Value |
| | | Unvested Balance at December 31, 2019 | | 10,112,266 | | | $ | 17.29 | |
| Unvested Balance at December 31, 2021 | |
| Unvested Balance at December 31, 2021 | |
| Unvested Balance at December 31, 2021 | |
| Granted | Granted | | 4,744,467 | | | 12.43 | |
| Vested | Vested | | (7,806,038) | | | 17.48 | |
| Forfeited | Forfeited | | (631,907) | | | 14.93 | |
| Unvested Balance at December 31, 2020 | | 6,418,788 | | | $ | 13.71 | |
| Unvested Balance at December 31, 2022 | |
| Granted | Granted | | 6,475,536 | | | 25.82 | |
| Vested | Vested | | (2,904,996) | | | 17.04 | |
| Forfeited | Forfeited | | (1,621,664) | | | 20.97 | |
| Unvested Balance at December 31, 2021 | | 8,367,664 | | | 20.52 | |
| Unvested Balance at December 31, 2023 | |
Stock Awards - — The estimated fair value of RSUs and PSUs is based on the fair value of our Class A common stock on the date of grant. For the years ended December 31, 20212023, 2022 and 2020,2021, we recognized $50.1$71.2 million, $89.4 million and $44.1$50.1 million of stock-based compensation costs for stock awards, respectively.
As of December 31, 20212023 and 2020,2022, we had $114.9$113.5 million and $59.8$135.7 million of unrecognized stock-based compensation cost related to unvested stock awards, expected to be recognized over a weighted average period of 2.32.0 years and 2.21.9 years, respectively.
Executive Awards
In November 2019,2021, the Board approved stock options ("2019Company granted RSU and PSU awards (the “2021 Executive Awards"Awards”) to certain executive staff. The 2019staff, other than our Chief Executive Awards were grantedOfficer, pursuant to the 2018 Plan andPlan. The RSUs have time-based vesting schedules. The PSUs consist of 3annual 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 isare recognized over the service period as we evaluate the probability of the achievement of the performance conditions.
In May 2021, we issued RSUsthe Company also granted RSU and PSUsPSU awards to our Chief Executive Officer.Officer pursuant to the 2018 Plan. 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, 2021,2023, the unamortized compensation expense for the RSUs and PSUs was $24.0$8.2 million. Actual compensation expense is dependent on the performance of the 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 volatility of 71.2%, (ii) risk-free interest rate of 1.6%, and (iii) no expected dividend yield.
In 2022, the Company granted RSU and PSU awards (the “2022 Executive Awards”) to certain executive staff, including our Chief Executive Officer, pursuant to the 2018 Plan. The RSUs have time-based vesting schedules. The PSUs consist of three vesting tranches during 2023-2025 with an annual vesting schedule based on the attainment of performance conditions related to fiscal 2022 and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2022 Executive Awards are recognized over the service period. As of December 31, 2023, the unamortized compensation expense for the RSUs and PSUs was $6.2 million. Actual compensation expense is determined by the attained performance condition of the PSUs in fiscal 2022.
On February 15, 2023 and July 11, 2023, the Company granted RSU and PSU awards (the “2023 Executive Awards”) to certain executive staff pursuant to the 2018 Equity Incentive Plan. The RSUs have time-based vesting schedules, started vesting on February 15, 2023 and shall vest over a three year period. The PSUs which started vesting on February 15, 2023 have either a three-year or one-year cliff vesting period, and the PSUs which started vesting on July 11, 2023, cliff vest on February 15, 2024. The PSUs will vest based on a combination of time and achievement against performance metrics targets assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2023 Executive Awards are recognized over the service period as we evaluate the probability of the achievement of the performance conditions. As of December 31, 2023, the unamortized compensation expense for the RSUs and PSUs was $7.0 million.
The following table presents the stock activity and the total number of shares available for grant under our stock plans as of December 31, 2021:plans:
| | | | | | | | |
| | | Plan Shares Available
for Grant |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Balances at December 31, 2020 | | 20,233,754 | |
Added to plan | | 8,102,014 | |
Granted | | (6,475,536) | |
| | |
Cancelled | | 2,778,276 | |
Expired | | (491,724) | |
| Balances at December 31, 2021 | | 24,146,784 | |
| Added to plan | | 8,384,460 | |
| Granted | | (5,431,930) | |
| Cancelled/Forfeited | | 2,597,990 | |
| Expired | | (1,356,663) | |
| Balances at December 31, 2022 | | 28,340,641 | |
| Added to plan | | 8,948,255 | |
| Granted | | (6,290,060) | |
| Cancelled/Forfeited | | 2,774,990 | |
| Expired | | (895,920) | |
| Balances at December 31, 2023 | | 32,877,906 | |
2018 Employee Stock Purchase Plan
In April 2018, we adopted the 2018 ESPP. The 2018 ESPP became effective upon our initial public offering ("IPO")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 the 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 1one percent (1%) of the total number of Class A common stock, Class B common stock (automatically converted to Class A common stock on July 27, 2023) and common stock equivalents (including options, RSUs, warrants and preferred stock on an as converted basis) issued and outstanding on the immediately preceding December 31 (rounded down to the nearest whole share); provided, that the Board of Directors or the 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, 20212023, 2022 and 2020,2021, we recognized $7.7$15.5 million, $16.2 million and $5.7$7.6 million of stock-based compensation costs for the 2018 ESPP, respectively. We issued 875,695, 759,744 and 1,945,305 shares in the yearyears ended December 31, 2021.2023, 2022 and 2021, respectively. During the yearyears ended December 31, 2023, 2022 and 2021, we added an additional 2,239,563, 12,055,792 and 1,902,572 shares and there were 2,544,66815,204,584 and 13,840,716 shares available for issuance as of December 31, 2021.2023 and 2022, respectively.
As of December 31, 2021,2023 and 2022, we had $9.8$8.8 million and $12.0 million of unrecognized stock-based compensation costs, expected to be recognized over a weighted average period of 0.5 years.0.8 years and 0.6 years and respectively.
We used the following weighted-average assumptions in applying the Black-Scholes valuation model for determination of the 2018 ESPP share valuation:
| | | Years Ended
December 31, | |
| | Years Ended
December 31, | |
| | Years Ended
December 31, | |
| | 2023 | |
| | | Years Ended
December 31, |
| Risk-free interest rate | |
| | | 2021 | | 2020 | |
| Risk-free interest rate | |
| | Risk-free interest rate | Risk-free interest rate | | | 0.1% - 2.8% | | 0.12%- 1.51% | |
| Expected term (years) | Expected term (years) | | | 0.5 - 2.0 | | 0.5 - 2.0 | |
| Expected term (years) | |
| Expected term (years) | |
| Expected dividend yield | |
| Expected dividend yield | |
| Expected dividend yield | Expected dividend yield | | | — | | — | |
| Expected volatility | Expected volatility | | | 95.0% - 114.5% | | 61.0% - 119.2% | |
| Expected volatility | |
| Expected volatility | |
11.10. Portfolio Financings
Overview
We have developed various financing options that enable customers'customers’ use of the Energy Servers through 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.
Wepast, we and our third-party equity investors (together, "Equity Investors"the “Equity Investors”) contributecontributed funds into a limited liability investment entity ("Investment Company"(the “Investment Company”) that owns and is parent to the Operating Company (together, the "PPA Entities"“PPA Entities”). These PPA Entities constitute 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 that we 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.
In accordance with our 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 6 different PPA Entities to date. The contributed funds arewere restricted for use by the Operating Company to the purchase of our Energy Servers manufactured by us in our normal course of operations. All 6six PPA Entities established in the past utilized their entire available financing capacity and have completed the purchase of their Energy Servers. Any debt incurred by the Operating Companies iswas non-recourse to us. Under these structures, each Investment Company iswas treated as a partnership for U.S. federal income tax purposes. Equity Investors receivereceived investment tax credits and accelerated tax depreciation benefits.
In 2016,June 2022 and November 2022, we purchased the tax equity investor’s interest insold PPA I,IIIa and PPA IV, respectively, which resulted in a change inwere accounted as 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 the PPA II Investment Company, and admitted two new equity investorsconsolidated VIEs, as a memberresult of the repowering of the Energy Servers. In August 2023, we paid off the outstanding balance and related accrued interest of the PPA V debt and released related debt service reserve. For details, please see Note 7 — Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section. In August 2023, we sold PPA V, our last consolidated PPA Entity. The other three PPA Entities — PPA II, Operating Company, retaining only a minor equity interest in the Operating Company. OnePPA IIIb and PPA VI — are not considered VIEs.
PPA IIIa Repowering of the new equity investors becameEnergy Servers
PPA IIIa was established in 2012 and we, 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 member, and as a resultportfolio of 9.8 megawatts of the Energy Servers.
On March 31, 2022, 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. In 2019, we also entered into a PPA IIIb upgrade of Energy Servers transactionMembership Interest Purchase Agreement (the “MIPA”) where we bought out the equity interest of the third-party investor, decommissionedwherein the PPA IIIa became wholly owned by us (the “PPA IIIa Buyout”).
Following the PPA IIIa Buyout and prior to June 14, 2022, we repaid all outstanding debt of the Project Company of $30.6 million, and recognized loss on extinguishment of debt in an amount of $4.2 million, which includes the write-off of the debt discount related to warrants of $1.8 million and a make-whole payment of $2.4 million associated with the debt extinguishment. Refer to Note 7 — Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section.
On June 14, 2022, we sold our 100% interest in the Project Company to the financier through the MIPA. Simultaneously, we entered into an agreement with the Project Company to upgrade the old 9.8 megawatts of the old PPA IIIa Energy Servers by replacing them with the new PPA IIIa Energy Servers and providing related installation services, which was financed by the financier (the “EPC Agreement”). The plan was to remove the old PPA IIIa Energy Servers prior to installing the new PPA IIIa Energy Servers and return the old PPA IIIa Energy Servers to Bloom. We also amended and restated our operations and maintenance agreement with the Project Company to cover all the new PPA IIIa Energy Servers and the old PPA IIIa Energy Servers prior to their upgrade (“the O&M Agreement”). The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.
Certain power purchase agreements within the PPA IIIa portfolio were classified as sales-type leases under ASC 840, while some were classified as operating leases. We elected the practical expedient package with the adoption of ASC 842, which allowed us to carry forward the lease classification upon adoption of ASC 842 on January 1, 2020. The leases were modified prior to the sale of PPA IIIa to the financier. Such modified leases were reassessed and determined to not be leases under ASC 842 because customers have no control over the identified assets. Accordingly, on the date of modification, the customer financing receivables were derecognized and recognized as property, plant, and equipment (the “PPA IIIa PP&E”).
Due to our repurchase option on the old PPA IIIa Energy Servers, we concluded there was no transfer of control of the old PPA IIIa Energy Servers upon sale of the membership interest to the financier. Accordingly, we continued to recognize the old PPA IIIa Energy Servers, despite the legal ownership of such assets under the MIPA. Upon reclassification of the lease assets to property, plant and equipment, net, we assessed the recorded assets for impairment. The carrying amount of the PPA IIIa PP&E was determined to be not recoverable as the net undiscounted cash flows were less than the carrying amounts for PPA IIIa PP&E. Therefore, we recognized the asset impairment charge as electricity cost, consistent with depreciation expense classification for property, plant and equipment under leases.
The PPA IIIa Upgrade was complete in the fourth quarter of fiscal 2022. It resulted in the following summarized impacts on our consolidated statements of operations for the year ended December 31, 2023: (i) service revenue recognized of $3.5 million related to the O&M Agreements, (ii) installation revenue recognized of $0.4 million, and (iii) cost of installation revenue of $0.1 million. The PPA IIIa Upgrade had the following impacts on our consolidated statements of operations for the year ended December 31, 2022: (i) product, installation and service revenue recognized of $49.8 million, $4.6 million, and $0.7 million, respectively, as a result of the sale of the new PPA IIIa Energy Servers; (ii) cost of electricity revenue of $45.0 million, including the impairment of the old PPA IIIa Energy Servers of $44.8 million and accelerated depreciation of $0.2 million prior to the completion of installation; (iii) cost of product and installation revenue of $21.8 million and $3.2 million, respectively, due to the sale of the new PPA IIIa Energy Servers; and (iv) $4.2 million of loss on extinguishment of debt.
Impacts on our consolidated statements of cash flows for the year ended December 31, 2022, are summarized as follows: net cash provided by financing activities decreased by $32.6 million due to the repayment of debt of $30.2 million and cash fee of $2.4 million associated with debt extinguishment. There was no impact on cash flows from financing activities for the year ended December 31, 2023.
PPA IV Repowering of the Energy Servers
PPA IV was established in 2014 and we, through the Project Company, had previously entered into certain agreements for the purpose of developing, financing, owning, operating, maintaining and managing a portfolio of 19.3 megawatts of the Energy Servers.
On November 2, 2022, we entered into the MIPA where we bought out the equity interest of the third-party investor for $4.0 million, wherein the PPA IV became wholly owned by us (the “PPA IV Buyout”).
Following the PPA IV Buyout and prior to November 22, 2022, we repaid all outstanding debt of the Project Company of $70.9 million and recognized a loss on extinguishment of debt in an amount of $4.7 million, which includes the write-off of the debt discount of $0.6 million and a make-whole payment of $4.1 million associated with the debt extinguishment. Refer to Note 7 — Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section.
On November 22, 2022, we sold our 100% interest in the OperatingProject Company to the financier through the MIPA. Simultaneously, we entered into an agreement with the Project Company to upgrade the 19.3 megawatts of the old PPA IV Energy Servers by replacing them with the new PPA IV Energy Servers and soldproviding related installation services, which was financed by the financier under the EPC Agreement. The old PPA IV Energy Servers were be removed prior to installing the new PPA IV Energy Servers, whereby upon completion of installation the old PPA IV Energy Servers are returned to Bloom. We also amended and restated our O&M Agreement with the Project Company to cover all the new PPA IV Energy Servers and the old PPA IV Energy Servers prior to their upgrade. The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.
The power purchase agreements within the PPA IV portfolio were classified as operating leases under ASC 840. We elected the practical expedient package with the adoption of ASC 842, which allowed us to carry forward the lease classification upon adoption of ASC 842 on January 1, 2020. The leases were modified prior to the sale of PPA IV to the financier. Such modified leases were reassessed and determined to not be leases under ASC 842 because customers have no
control over the identified assets. Accordingly, on the date of modification, the operating leases were recognized as property, plant, and equipment (the “PPA IV PP&E”).
Due to our repurchase option on the old PPA IV Energy Servers, we concluded there was no transfer of control of the old PPA IV Energy Servers upon sale of the membership interest to the financier. Accordingly, we continued to recognize the old PPA IV Energy Servers, despite the legal ownership of such assets under the MIPA. We assessed the recorded assets for impairment. The carrying amount of the PPA IV PP&E was determined to be not recoverable as the net undiscounted cash flows are less than the carrying amounts for the PPA IV PP&E. Therefore, we recognized the asset impairment charge as electricity cost, consistent with depreciation expense classification for property, plant and equipment under leases.
The PPA IV Upgrade was substantially complete as of December 31, 2023. The Upgrade resulted in the following summarized impacts on our consolidated statements of operations for the year ended December 31, 2023: (i) installation revenue recognized of $10.0 million, (ii) service revenue recognized of $1.8 million related to the O&M Agreements, (iii) electricity revenue recognized of $6.1 million (iv) product revenue decreased by $3.4 million due to the revenue adjustment, (v) cost of installation revenue of $6.6 million, and (vi) cost of product revenue of $0.1 million. The PPA IV Upgrade had the following impacts on our consolidated statements of operations for the year ended December 31, 2022: (i) product and electricity revenue recognized of $102.3 million and $1.4 million, respectively, as a result of the sale of new Energy Servers; (ii) cost of electricity revenue of $64.3 million, including the impairment of old Energy Servers deployed at customer sites through our Managed Services Financing option. Theof $64.0 million and accelerated depreciation of $0.3 million prior to the completion of installation; (iii) cost of product revenue of $37.4 million, due to the sale of the new PPA IIIb Investment CompanyIV Energy Servers; (iv) general and Operating Company became wholly-owned by us but no longer metadministrative expenses of $4.7 million primarily due to the definitionimpairment of prepaid insurance, and; (v) $4.7 million of loss on extinguishment of debt.
As a VIE. We therefore continueresult of the equity interest buyout from the third-party investor, noncontrolling interest related to consolidate PPA IIIbIV of $23.7 million was eliminated and recorded as part of additional paid-in capital in our consolidated financial statements.statements of stockholders’ equity (deficit).
Impacts on our consolidated statements of cash flows for the year ended December 31, 2022, are summarized as follows: net cash provided by financing activities decreased by $74.6 million due to the repayment of debt of $70.5 million and cash fee of $4.1 million associated with debt extinguishment. There was no impact on cash flows from financing activities for the year ended December 31, 2023.
PPA Entities'V Interest Buyout
On November 2, 2022, we acquired all of Constellation Energy Generation, LLC’s (“Constellation”) interest in PPA V (the “2022 PPA V Buyout”), as set forth in the Purchase and Sale Agreement. The aggregate purchase price of the transaction amounted to $8.0 million. After the acquisition our interest in PPA V increased from 10% to 70%.
On August 10, 2023, we acquired all of Solar TC Corp’s (“Intel”) interest in PPA V, as set forth in the Purchase and Sale Agreement (the “2023 PPA V Buyout”). The aggregate purchase price of the transaction amounted to $6.9 million. After the acquisition, PPA V became wholly owned by us.
The changes in our ownership interest in PPA V were accounted for as equity transactions in accordance with ASC 810, Consolidations (“ASC 810”). The carrying amounts of the noncontrolling interest were eliminated to reflect the changes in our ownership interest in PPA V, and the differences between the fair values of the considerations paid and the carrying amounts of the noncontrolling interest immediately prior to the 2022 PPA V Buyout on November 2, 2022 and immediately prior to the 2023 PPA V Buyout on August 10, 2023 of $48.1 million and $11.5 million, respectively, were recognized as additional paid-in capital in our consolidated statements of stockholders’ equity (deficit).
PPA V Repowering of the Energy Servers
PPA V was established in 2015 and we, through the Project Company, had previously entered into certain agreements for the purpose of developing, financing, owning, operating, maintaining and managing a portfolio of 37.1 megawatts of the Energy Servers.
On August 24, 2023, we entered into the MIPA with the financier. Following the 2023 PPA V Buyout and prior to signing the MIPA, we repaid all of the outstanding debt of the Project Company of $119.0 million, including accrued interest of $0.5 million, and recognized a loss on extinguishment of debt in an amount of $1.4 million, represented in its entirety by the derecognition of the related debt issuance costs. Refer to Note 7 — Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section.
On August 25, 2023, we sold our 100% interest in the Project Company to the financier through the MIPA. Simultaneously, we entered into an agreement with the Project Company to upgrade the 37.1 megawatts of the old PPA V Energy Servers by replacing them with the new PPA V Energy Servers and to provide related installation services, which was financed by the financier (i.e., EPC Agreement). We also amended and restated our O&M Agreement with the Project Company to cover all the new PPA V Energy Servers and the old PPA V Energy Servers prior to their upgrade. The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.
Due to our repurchase option on the old PPA V Energy Servers, we concluded there was no transfer of control of the old PPA V Energy Servers upon sale of the membership interest to the financier. Accordingly, we continued to recognize the old PPA Energy Servers, despite the legal ownership of such assets having been transferred under the MIPA. We assessed the recorded assets for impairment. The carrying amount of the PPA V property, plant and equipment was determined to be not recoverable as the net undiscounted cash flows were less than the carrying amounts for PPA V property. plant and equipment. Therefore, we recognized the asset impairment charge as electricity cost, consistent with our depreciation expense classification for property, plant and equipment under leases.
The PPA V Upgrade was complete in the first quarter of fiscal 2024, and resulted in the following summarized impacts on our consolidated statements of operations for the year ended December 31, 2023: (i) product revenue and installation revenue recognized of $176.2 million and $14.8 million, respectively, as a result of the sale of the new PPA V Energy Servers; (ii) electricity revenue recognized of $6.1 million related to the old PPA V Energy Servers and the release of deferred incentive revenue of $5.0 million, (iii) service revenue recognized of $2.6 million related to the O&M Agreements (iv) cost of electricity revenue of $125.6 million, primarily including the impairment of the old PPA V Energy Servers of $123.7 million and accelerated depreciation of $0.4 million prior to the completion of installation; (v) cost of product revenue and cost of installation revenue of $75.3 million and $13.2 million, respectively, due to the sale of the new PPA V Energy Servers; (vi) general and administrative expenses of $6.4 million due to the impairment of non-recoverable production insurance; (vii) loss on extinguishment of debt of $1.4 million, (viii) interest expense of $0.3 million, and (ix) net loss attributable to noncontrolling interest of $1.0 million.
Impacts on our consolidated statements of cash flows for the year ended December 31, 2023, are summarized as follows: net cash provided by financing activities decreased by $118.5 million due to the repayment of debt related to PPA V, and acquisition of all of interest in PPA V from Intel for $6.9 million net of distributions to Intel’s noncontrolling interest of $2.3 million.
PPA Entity’s Activities Summary
The table below shows the details of the 3one Investment Company VIEs that werewas active during the year ended December 31, 20212023 and theirits cumulative activities from inception to the years indicated (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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, 2021 and 2020. At December 31, 2021 and 2020, the carrying value of redeemable noncontrolling interests of $0.3 million and $0.4 million, respectively, exceeded the maximum redemption value. | | | | | | | |
| | | PPA V |
| Overview: | | | |
| Maximum size of installation (in megawatts) | | | 40 |
| Installed size (in megawatts) | | | 37 |
| Term of power purchase agreements (in years) | | | 15 |
| First system installed | | | Jun-15 |
| Last system installed | | | Dec-16 |
| Initial income (loss) and tax benefits allocation to Equity Investor | | | 99% |
| Initial cash allocation to Equity Investor | | | 90% |
| Income (loss), tax and cash allocations to Equity Investor after the flip date | | | No flip |
Equity Investors1 | | | Constellation2 and Intel |
| Company cash contributions | | | $ | 27,932 | |
| Equity Investor cash contributions | | | 227,344 | |
| Debt financing | | | 131,237 | |
| Activity as of December 31, 2023: | | | |
| Distributions to Equity Investor | | | 227,344 | |
| Debt repayment—principal | | | 267,226 | |
| Activity as of December 31, 2022: | | | |
| Distributions to Equity Investor | | | 30,786 | |
| Debt repayment—principal | | | 139,795 | |
| Activity as of December 31, 2021: | | | |
| Distributions to Equity Investor | | | 26,601 | |
| Debt repayment—principal | | | 132,587 | |
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1 Investor names represent ultimate parents of subsidiary financing the project. Bloom purchased the equity interest in PPA V from Equity Investors in fiscal 2022 and 2023. Refer to the sections entitled PPA V Interest Buyout and PPA V Repowering of the Energy Servers for further details. |
2 Formerly known as Exelon Corporation. |
PPA Entities’Entity’s Aggregate Assets and Liabilities
Generally, the assets of an operating company owned by an investment companyInvestment Company can be used to settle only the operating company obligations, and the operating company creditors do not have recourse to us. The following arewere the aggregate carrying values of our VIEs'VIE’s assets and liabilities in our consolidated balance sheets, after eliminations of intercompany transactions and balances, including each of the PPA EntitiesV in the PPA IIIa transaction, the PPA IV transaction and the PPA V transaction as of December 31, 2022 (in thousands):
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| | | December 31, | | December 31, |
| | 2021 | | 2020 |
| | | | | |
| 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: | | | | |
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| 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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We | | | | | |
| December 31, |
| 2022 |
| Assets | |
| Current assets: | |
| Cash and cash equivalents | $ | 5,008 | |
| Restricted cash | 550 | |
| Accounts receivable | 2,072 | |
| Prepaid expenses and other current assets | 1,927 | |
| Total current assets | 9,557 | |
| Property and equipment, net | 133,285 | |
| Restricted cash | 8,000 | |
| Other long-term assets | 1,869 | |
| Total assets | $ | 152,711 | |
| Liabilities | |
| Current liabilities: | |
| Accrued expenses and other current liabilities | $ | 1,037 | |
| Deferred revenue and customer deposits | 662 | |
| Non-recourse debt | 13,307 | |
| Total current liabilities | 15,006 | |
| Deferred revenue and customer deposits | 4,748 | |
| Non-recourse debt | 112,480 | |
| Total liabilities | $ | 132,234 | |
Before the sale on August 24, 2023, we consolidated each PPA EntityV as VIEsa VIE in the PPA IV transaction and the PPA V transaction, as we remain the minority shareholder in each of these transactions but havehad determined that we arewere the primary beneficiary of these VIEs. Thesethis VIE. PPA Entities containV contained debt that iswas non-recourse to us and ownowned the Energy Server assets for which we dodid not have title.
11. Related Party Transactions
On September 23, 2023, all 13,491,701 shares of the Series B RCPS (i.e., the Second Tranche Shares) were automatically converted into shares of our Class A common stock. For more information on the Second Tranche Closing, see Note 17 — SK ecoplant Strategic Investment. Consequently, SK ecoplant became a principal owner of an aggregate of 23,491,701 shares of our Class A common stock, including (i) 10,000,000 shares held with sole voting and investment power (as a result of the conversion of 10,000,000 shares of our Series A RCPS into 10,000,000 shares of our Class A common stock on November 8, 2022) and (ii) 13,491,701 shares held with shared voting and investing power with Econovation LLC, 51.67% and 48.33% of which is owned by SK ecoplant and Blooming Green Energy, respectively, as the assignee of the Second Tranche Shares. SK ecoplant is considered to be a related party as of September 23, 2023, and became entitled to nominate a member to the Board of Directors of Bloom. As of December 31, 2023, SK ecoplant’s beneficial ownership of our Class A common stock represents 10.5% of our outstanding Class A common stock.
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 table provides our stand-alone assets and liabilities, those of the PPA Entities combined, and our consolidated balances as of December 31, 2021 and 2020 (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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12. Related Party Transactions
Our operations includeincluded the following related party transactions (in thousands):
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| | | | | Years Ended
December 31, | | |
| | | | | | | 2021 | | 2020 | | 2019 |
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| Total revenue from related parties | | | | | | $ | 16,038 | | | $ | 7,562 | | | $ | 228,100 | |
| Interest expense to related parties | | | | | | — | | | 2,513 | | | 6,756 | |
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| | | | | Years Ended
December 31, |
| | | | | | | 2023 | | 2022 | | 2021 |
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Total revenue from related parties1 | | | | | | $ | 487,240 | | | $ | 36,281 | | | $ | 16,038 | |
Cost of product revenue2 | | | | | | 133 | | | — | | | — | |
General and administrative expenses3 | | | | | | 812 | | | — | | | — | |
Interest expense4 | | | | | | 84 | | | — | | | — | |
1Includes revenue from SK ecoplant for the year ended December 31, 2023, which became a related party on September 23, 2023, however we had transactions with SK ecoplant in prior periods (see Note 17 — SK ecoplant Strategic Investment). Revenue from related parties for the years ended December 31, 2022 and 2021 relate to Korean JV in its entirety.
2Includes expenses billed by SK ecoplant to Korean JV for headcount support, maintenance and other services.
3$0.6 million relate to rent expenses per operating lease agreements entered between Korean JV and SK ecoplant, $0.2 million relate to miscellaneous expenses billed by SK ecoplant to Korean JV.
4Interest expense per two term loans entered between Korean JV and SK ecoplant in fiscal 2023 (see Note 7 — Outstanding Loans and Security Agreements).
Below is the summary of outstanding related party balances as of December 31, 2023 and December 31, 2022 (in thousands):
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| | 2023 | | 2022 |
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| Accounts receivable | | $ | 262,031 | | | $ | 4,257 | |
| Contract assets | | 6,872 | | | — | |
| Deferred cost of revenue, current | | 875 | | | — | |
| Prepaid expenses and other current assets (Note 17) | | 2,257 | | | — | |
Operating lease right-of-use assets1 | | 2,031 | | | — | |
| Other long-term assets (Note 17) | | 9,069 | | | — | |
| Accounts payable | | 77 | | | — | |
| Accrued expenses and other current liabilities | | 3,427 | | | — | |
| Deferred revenue and customer deposits, current | | 1,707 | | | — | |
Operating lease liabilities, current1 | | 440 | | | — | |
| Deferred revenue and customer deposits, long-term | | 6,709 | | | — | |
Operating lease liabilities, non-current1 | | 1,617 | | | — | |
Non-recourse debt2 (Note 7) | | 4,627 | | | — | |
1 Balances relate to operating leases entered between Korean JV and SK ecoplant.
2Represent the total balance of two term loans entered between Korean JV and SK ecoplant in fiscal 2023 (see Note 7 — Outstanding Loans and Security Agreements).
Bloom Energy Japan Limited
In May 2013, we entered into a joint venture with Softbank Corp. ("Softbank"(“Softbank”), which was accounted for as an equity method investment. Under this arrangement, we sold the Energy Servers and provided maintenance services to the joint venture. On July 1, 2021 (the "BEJ“BEJ Closing Date"Date”), we acquired Softbank'sSoftbank’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"Japan”) is no longer considered a related party. For additional information, see Note 17 - Business Combinations.
For the yearsyear ended December 31, 2021 and 2020, we recognized related party total revenue of $1.6 million and $3.4 million, respectively. Accounts receivable from this joint venture was $2.4 million as of December 31, 2020.million.
SK ecoplant Joint Venture and Strategic Partnership
In September 2019, we entered into a joint venture agreement with SK ecoplant to establish a light-assembly facility in the Republic of Korea for sales of certain portions of our Energy ServerServers for the stationary utility and commercial and industrial market in the Republic of Korea. Based on the expanded relationship between us and SK ecoplant, the joint venture in 2022 and 2023 was further extended. The joint venture is majority controlleda VIE of Bloom and managed by uswe consolidate it in our financial statements as we are the primary beneficiary and is accounted for as a consolidated subsidiary.therefore have the power to direct activities which are most significant to the joint venture. For the years ended December 31, 20212023, 2022 and 2020,2021, we recognized related party revenue of $14.5$37.3 million, $36.3 million and $4.2$14.5 million, respectively. As of December 31, 20212023 and 2020,2022, we had outstanding accounts receivable of $4.4$19.6 million and none,$4.3 million, respectively.
For additional information, see Note 17 — SK ecoplant Strategic Investment.
12. Restructuring
In September 2023, as a result of a review of current strategic priorities and resource allocation, we approved the Restructuring Plan intended to realign our operational focus to support our multi-year growth, scale the business, and improve our cost structure and operating margins. The Restructuring Plan included (i) an optimization of our workforce across multiple functions, (ii) a relocation of our Repair & Overhaul (“R&O”) department from our manufacturing and warehousing facility in Newark, Delaware, to Mexico, and (iii) a closure of a manufacturing, warehousing, research and development (“R&D”) facility in Sunnyvale, California (i.e., facility closure). We began executing the Restructuring Plan in September 2023 and expect these efforts to continue in subsequent quarters. The restructuring activities are expected to be completed in the first half of fiscal 2024, subject to local law and consultation requirements, as well as our business needs.
The determination of when we accrue for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. We account for one-time benefit arrangements in accordance with ASC 420, Exit or Disposal Cost Obligations (“ASC 420”) and account for ongoing benefit arrangements in accordance with ASC 712, Nonretirement Postemployment Benefits. For involuntary termination benefits that are not provided under the terms of an ongoing benefit arrangement, the liability for the current fair value of expected future costs associated with a management-approved restructuring plan is recognized in the period in which the plan is communicated to the employees and the plan is not expected to change significantly. For ongoing benefit arrangements, inclusive of statutory requirements, employee termination costs are accrued when the existing situation or set of circumstances indicates that an obligation has been incurred, it is probable the benefits will be paid, and the amount can be reasonably estimated. The restructuring charges that have been incurred but not yet paid are recorded in accrued expenses and other current liabilities in our consolidated balance sheets, as they are expected to be settled within the next twelve months. Other costs associated with restructuring or exit activities may include contract termination costs, relocation costs and impairments of long-lived assets, which are expensed in accordance with ASC 420 and ASC 360, Property, Plant and Equipment.
According to the Restructuring Plan, 74 full-time employees and 48 contractors were separated from the Company in September 2023. An additional 71 full-time employees and 8 contractors separated from the Company in October 2023. Both full-time employees and contractors who were impacted by the restructuring were eligible to receive severance benefits.
On October 28, 2023, we communicated to additional 61 full-time employees about their forthcoming separation from the Company on January 2, 2024. These employees are sent on paid leave from the communication date through January 2, 2024, and are eligible for one-time employee termination benefits represented by the base salary they earn through the term of the leave.
In fiscal 2023, we incurred $9.3 million in restructuring costs recorded as severance expenses of $5.3 million, facility closure costs of $2.6 million, and other restructuring costs of $1.4 million. We expect to incur another $7.6 million in restructuring costs in subsequent quarters, out of which we expect $3.5 million will relate to relocation costs, $3.3 million will relate to the facility closure costs, and $0.8 million will relate to other one-time employee termination benefits. However, the actual timing and amount of costs associated with these restructuring actions may differ from our current expectations and estimates and such differences may be material.
On October 23, 2021, we expandedThe following table presents our existing relationshipcurrent liability as accrued for restructuring charges on our consolidated balance sheets. The table sets forth an analysis of the components of the restructuring charges and payments made against the accrual for the year ended December 31, 2023 (in thousands):
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| | | Facility Closure | | Severance | | Other | | Total | | | | | | | |
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| Balance at December 31, 2022 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | |
| Restructuring accruals | | | 2,611 | | | 5,306 | | | 1,249 | | | 9,166 | | | | | | | | |
| Payments | | | (34) | | | (4,842) | | | (497) | | | (5,373) | | | | | | | | |
| Balance at December 31, 2023 | | | $ | 2,577 | | | $ | 464 | | | $ | 752 | | | $ | 3,793 | | | | | | | | |
Facility closure costs recorded in fiscal 2023 in accordance with SK ecoplant. In connectionASC 420 related to the closure of a manufacturing, warehousing, R&D facility in Sunnyvale, California, which is planned to be consolidated with our manufacturing facility in Fremont, California. At December 31, 2023, $2.6 million of accrued facility closure costs were included in accrued expenses and other current liabilities in our consolidated balance sheets.
Severance expense recorded in fiscal 2023 in accordance with ASC 420 was a result of the separation of 145 full-time employees and 56 contractors associated with the execution of the strategic partnership, we entered into a Securities Purchase Agreement pursuant to which we 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 partnership. For additional information, see Note 18 - SK ecoplant Strategic Investment.
Debt to Related Parties
We had no debt or convertible notes from investors considered to be related parties as ofRestructuring Plan. At December 31, 2021.2023, $0.5 million of accrued severance-related costs were included in accrued expenses and other current liabilities in our consolidated balance sheets.
Other costs are represented by (1) $0.2 million of performance bonuses, (2) $0.2 million of stock-based compensation expense, and (3) $1.0 million of other one-time employee termination benefits. On December 31, 2023, $0.8 million of accrued other costs were included in accrued expenses and other current liabilities in our consolidated balance sheets, respectively.
The following table summarizes restructuring costs included in the accompanying consolidated statements of operations (in thousands):
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| Cost of product revenue | | $ | 2,976 | | | | | | | | |
| Cost of installation revenue | | 71 | | | | | | | | |
| Cost of service revenue | | 521 | | | | | | | | |
| Operating expenses: | | | | | | | | | |
| Research and development | | 1,609 | | | | | | | | |
| Sales and marketing | | 1,679 | | | | | | | | |
| General and administrative | | 2,467 | | | | | | | | |
| Total | | $ | 9,323 | | | | | | | | |
13. Commitments and Contingencies
Commitments
Purchase Commitments with Suppliers and Contract Manufacturers -— In order to reduce manufacturing lead-times and to ensurefor 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 occasionally issue purchase orders to our component suppliers and third-party manufacturers that may not be cancellable. As of December 31, 20212023 and December 31, 2020,
2022, 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 the Energy Servers at certain levels of output and efficiency to itsour customers over the contractual term. The PPA EntitiesWe 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 ofas service revenue in the consolidated statements of operations. We paid $0.3$25.9 million and $7.4$12.1 million for the years ended December 31, 20212023 and 2020, respectively.2022, respectively, for such performance guarantees.
Letters of Credit - — In 2019, pursuant to the PPA II upgrade of the Energy Servers, we agreed to indemnify our financing partner for losses that may be incurred in the event of certain regulatory, legal or legislative developmentdevelopments and established a cash-collateralized LCletter of credit facility for this purpose. As of December 31, 2021,2023 and December 31, 2022, the balance of this cash-collateralized LCletter of credit was $99.4 million, of which $41.7$40.4 million and $57.7$69.1 million, is recognizedrespectively.
In August 2023, as short-term and long-termpart of the PPA V Upgrade, the debt service reserve of $8.6 million was reclassified from restricted cash to cash and cash equivalents at the time of repayment of the 3.04% Senior Secured Notes due June 2031. For additional information, please see Note 7 – Outstanding Loans and Security Agreements and Note 10 – Portfolio Financings. The restricted cash held in PPA V as of December 31, 2022, was $8.6 million.
In addition, we have other outstanding letters of credit issued to our customers and other counterparties in the U.S. and international locations under different performance and financial obligations. These letters of credit are collateralized through cash deposited in the controlled bank accounts with the issuing banks and are classified as restricted cash in our consolidated balance sheets. In September 2023, we canceled certain existing cash-collateralized letters of credit with an approximate value of $60.4 million issued to our customers in the Republic of Korea under long-term service agreements and replaced them with surety bonds on a non-collateralized basis. As of December 31, 2023 and December 31, 2022, the balances of the cash-collateralized letters of credit issued to our customers and other counterparties in the U.S. and international locations were $32.6 million and $84.3 million, respectively.
Pledged Funds -— In 2019, pursuant to the PPA IIIb upgrade of the 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, 2021,2023 and December 31, 2022, the balance of the long-term restricted cash fund was $6.7 million.$7.6 million and $7.9 million, respectively.
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 approved grant containsconsisted of two typescomponents — a performance grant of milestones$12.0 million that we must completewas received in 2012-2013 and was tied to retain the entire amount of the grant proceeds. The first milestone wastotal compensation paid 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 a supplier incentive grant of $4.5 million that we would have received if we had employed 900 full time employees by pre-established dates. We forfeited the cumulativeentire $4.5 million supplier incentive component of the grant. We forfeited and repaid two portions of the performance grant based on our achievement of one out of three milestones for the 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 $191.4as follows:
■$108 million in cumulative compensation. As of December 31, 2020,total compensation over the four-year period ended September 30, 2017, which we had 424 full time workers in Delaware and paid $152.2 million in cumulative compensation. We have so far received $12.0did not meet, requiring us to repay $1.5 million of the grant, which is contingent upon meeting
■$144 million in total compensation over the milestones throughfour-year period ended September 30, 2023. In the event that2021, which we dodid not meet, the milestones, we may haverequiring us 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, and
■$72 million in 2017total compensation over the two-year period ended September 30, 2023, which we met, so no repayment was required.
We account for grants by analogizing to the grant accounting model under IAS 20, Accounting for Government Grants and 2021, respectively. Disclosure of Government Assistance. We recognize grant funding with conditions as a reduction of expenses the related costs for which the grant is intended to compensate in the period during which the related qualifying expenses are incurred and as the grant conditions are fulfilled. Any amount received in advance of fulfilling such conditions is recorded in accrued expenses and other current liabilities in our consolidated balance sheets, if the conditions are expected to be met within the next twelve months, and in other long-term liabilities in our consolidated balance sheets, if the conditions are expected to be met in more than twelve-month period.
As of December 31, 2021,2022, we have recorded $9.5 million of grant related liability in accrued expenses and other long-termcurrent liabilities for potential future repaymentsrepayment of thisthe grant. As of September 30, 2023, we concluded there was reasonable assurance that we had met the grant requirements, and $9.5 million was recognized in the consolidated statements of operations as a reduction in (i) cost of product revenue of $5.3 million, (ii) cost of service revenue of $2.9 million, (iii) general and administrative expenses of $0.6 million, (iv) research and development expenses of $0.5 million, and (v) sales and marketing expenses of $0.2 million for the year ended December 31, 2023.
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 mattersmatter 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 onin 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'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 in contravention of our forum selection clause in our Restated Certificate of Incorporation 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 directorsdirectors’ alleging violations under SectionSections 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" “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 motionmotions 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, theThe court denied plaintiffs’ motion on April 14, 2022. The claims for violation of Sections 11 and 15 of the Securities Act that were not dismissed by the court are proceedingentered the discovery phase.
On January 6, 2023, Bloom and the plaintiffs’ entered into an agreement in principle to discovery. A case schedulesettle the claims against Bloom, its executives and directors, and the IPO underwriters for a payment of $3 million, which we expect to be funded entirely by our insurers. If the settlement becomes effective, we expect it to result in a dismissal with prejudice of all claims against us, our executives and directors, and the underwriters. The settlement does not constitute an acknowledgement of liability or wrongdoing. On June 30, 2023, Bloom and the plaintiff’s executed a definitive settlement agreement containing the foregoing terms and customary terms for class action settlements, and on the same date, filed the settlement agreement with the court to seek its approval. The judge issued a preliminary approval of the settlement on October 31, 2023. Notice of the settlement together with requested Plaintiff attorney fees 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 pertainingsent to the allegations made indefined class of Bloom stockholders and a final fairness hearing on May 2, 2024 will occur before 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, 2021,2022, the City of Santa Clara filed a Motiondemurrer seeking to dismiss all of the Company’s claims. The trial judge rejected the demurrer on all claims except one, and allowed Bloom to leave to amend that claim. The second amended petition was filed on July 5, 2022. The City of Santa Clara demurred only to the amended cause of action seeking damages for Demurrer.tortious conduct. The trial judge granted that demurrer and struck the tort claim on October 27, 2022; the writ of mandate and constitutional claims were allowed to proceed. The parties are currently briefing the writ of mandate claims which will be heard onseek immediate issuance of the building permits. On April 21, 2021. If we are unable2023, the parties executed a settlement agreement which allows our two pending customer installations to secureproceed under building permits for these customerand requires the City of Santa Clara to amend its zoning code so that future 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 ourof Bloom Energy Servers in Santa Clara underrequire only 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"GTP”), a former supplier, filed a request for expedited arbitration with the World Intellectual Property Organization Arbitration and Mediation Center in Geneva Switzerland (“WIPO”), for various claims arising under a Supplyallegedly in relation to an Intellectual Property and Confidential Disclosure Agreement between Plansee/GTP and Bloom Energy Corporation includingCorporation. Plansee/GTP’s statement of claims includes allegations of infringement of several claims of U.S. Patent Nos. 8,802,328, 8,753,785 and 9,434,003. We believeOn April 3, 2022, we filed a complaint against Plansee/GTP in the Eastern District of Texas to address the dispute between Plansee/GTP and Bloom Energy Corporation in a proper forum before a U.S. Federal District Court. Our complaint seeks the correction of inventorship of U.S. Patent Nos. 8,802,328, 8,753,785 and 9,434,003 (the “Patents-in-Suit”); declaratory judgment of invalidity, unenforceability, and non-infringement of the Patents-in-Suit; and declaratory judgment of no misappropriation. Further, our complaint seeks to recover damages we have suffered in relation to Plansee/GTP’s business dealings that, as alleged, constitute acts of unfair competition, tortious interference contract, breach of contract, violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act and violations of the Clayton Antitrust Act. On June 9, 2022, Plansee/GTP filed a motion to dismiss the complaint filed in the Eastern District of Texas and compel arbitration (or alternatively to stay). We filed our opposition on June 30, 2022, Plansee/GTP filed its reply on July 14, 2022 and we filed our sur-reply on July 22, 2022. On February 9, 2023, Magistrate Judge Payne issued a report and recommendation to stay the district court action pending an arbitrability determination by the arbitrator for each claim.
On February 23, 2023, we filed an amended complaint adding additional causes of action and filed objections to the Magistrate’s report and recommendation. On April 26, 2023, Judge Gilstrap overruled our objections to the Magistrate’s report and recommendation and stayed the district court action pending arbitrability determinations by the arbitrator in the WIPO proceeding. The arbitration had been held in abeyance awaiting the decision of the Eastern District of Texas. A hearing by the arbitrator in WIPO on arbitrability took place on June 27, 2023. On October 2, 2023, the arbitrator in the WIPO proceeding issued a ruling concluding that all the parties’ claims were arbitrable. On November 18, 2023, the arbitrator bifurcated the arbitration into a first phase that will focus on Bloom’s claims directed to improper inventorship of the Patents-in-Suit and Bloom’s defective product claims. Briefing on the first phase will take place throughout 2024 with a potential evidentiary hearing to be without merit and we intend to defend this action vigorously. Given that the case is stillscheduled in its early stages, we2025. We are unable to predict the ultimate outcome of thisthe arbitration at this time and accordingly are not able to estimate any range of reasonably possible losses.time.
14. Segment Information
Our chief operating decision makers ("CODM"(“CODM”), the CEOChief Executive Officer and the CFO,Chief Financial Officer, review financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance. The CODM allocateallocates resources and make operational decisions based on direct involvement with our operations and product development efforts. We are managed under a functionally-basedfunctionally based organizational structure with the head of each function reporting to the CEO.Chief Executive Officer. The CODM assessassesses 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)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) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Years Ended
December 31, |
| | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | | |
| United States | | | | | | $ | (310,243) | | | $ | (320,107) | | | $ | (195,208) | |
| Foreign | | | | | | 4,200 | | | 6,118 | | | 2,885 | |
| Total | | | | | | $ | (306,043) | | | $ | (313,989) | | | $ | (192,323) | |
The provision for income taxes is comprised of the following (in thousands):
| | | | Years Ended
December 31, |
| | | 2021 | | 2020 | | 2019 |
| | | | | | Years Ended
December 31, | |
| | | | | | Years Ended
December 31, | |
| | | | | | Years Ended
December 31, | |
| | | | | | 2023 | | | | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | | | | | | | | | | | |
| Current: | Current: | | |
| Federal | |
| Federal | |
| Federal | Federal | | | $ | — | | | $ | — | | | $ | — | |
| State | State | | | 107 | | | 21 | | | 26 | |
| Foreign | Foreign | | | 1,012 | | | 472 | | | 595 | |
| Total current | Total current | | | 1,119 | | | 493 | | | 621 | |
| Deferred: | Deferred: | | | | | | | |
| Federal | Federal | | | — | | | — | | | — | |
| Federal | |
| Federal | |
| State | State | | | — | | | — | | | — | |
| Foreign | Foreign | | | (73) | | | (237) | | | 12 | |
| Total deferred | Total deferred | | | (73) | | | (237) | | | 12 | |
| Total provision for income taxes | 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 |
| | | | | | Years Ended
December 31, | |
| | | | | | Years Ended
December 31, | |
| | | | | | Years Ended
December 31, | |
| | | | | | 2023 | | | | | | | | 2023 | | 2022 | | 2021 |
| | Tax at federal statutory rate | Tax at federal statutory rate | | | $ | (40,387) | | | $ | (37,552) | | | $ | (67,795) | |
| Tax at federal statutory rate | |
| Tax at federal statutory rate | |
| State taxes, net of federal effect | State taxes, net of federal effect | | | 107 | | | 21 | | | 26 | |
| Impact on noncontrolling interest | | | 6,074 | | | 4,522 | | | 4,001 | |
| Impact of noncontrolling interest | |
| Elimination of acquiree deferred taxes | Elimination of acquiree deferred taxes | | | 2,149 | | | — | | | — | |
| Non-U.S. tax effect | Non-U.S. tax effect | | | 412 | | | 78 | | | 264 | |
| Nondeductible expenses | | | 3,603 | | | 908 | | | 144 | |
| Nondeductible expenses and losses | |
| Stock-based compensation | Stock-based compensation | | | 5,307 | | | 5,956 | | | 6,484 | |
| Loss on debt extinguishment | Loss on debt extinguishment | | | — | | | 214 | | | — | |
| U.S. tax on foreign earnings (GILTI) | U.S. tax on foreign earnings (GILTI) | | | 59 | | | 203 | | | 221 | |
| (Gain) loss on SK Equity Transaction | |
| Acquisition contingent liability | Acquisition contingent liability | | | (762) | | | — | | | — | |
| Change in valuation allowance | Change in valuation allowance | | | 24,484 | | | 25,906 | | | 57,288 | |
| Provision for income taxes | Provision for income taxes | | | $ | 1,046 | | | $ | 256 | | | $ | 633 | |
For the year ended December 31, 2023, the Company recognized a provision for income taxes of $1.9 million on a pre-tax loss of $306.0 million, for an effective tax rate of (0.6)%. For the year ended December 31, 2022, we recognized a provision for income taxes of $1.1 million on a pre-tax loss of $314.0 million, for an effective tax rate of (0.3)%. 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, 20202023, 2022 and 20192021 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 |
| | | | | | December 31, | |
| | | | | | December 31, | |
| | | | | | December 31, | |
| | | | | | 2023 | | | | | | | | 2023 | | 2022 |
| | | | | | | | | | | | | | |
| Tax credits and net operating loss carryforwards | Tax credits and net operating loss carryforwards | | | $ | 562,384 | | | $ | 510,599 | |
| Lease liabilities | Lease liabilities | | | 151,937 | | | 128,151 | |
| Depreciation and amortization | Depreciation and amortization | | | 9,516 | | | 7,541 | |
| Deferred revenue | Deferred revenue | | | 23,208 | | | 27,134 | |
| Accruals and reserves | Accruals and reserves | | | 14,524 | | | 15,068 | |
| Research and development expenditures capitalization | |
| Stock-based compensation | Stock-based compensation | | | 20,138 | | | 35,815 | |
| | Other items - deferred tax assets | | | 28,258 | | | 25,931 | |
| Disallowed Interest expenses | |
| Investment in PPA entities | |
| Other items — deferred tax assets | |
| Gross deferred tax assets | Gross deferred tax assets | | | 809,965 | | | 750,239 | |
| Valuation allowance | Valuation allowance | | | (689,257) | | | (614,958) | |
| Net deferred tax assets | 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) | |
| Managed services — deferred costs | |
| Managed services — deferred costs | |
| Managed services — deferred costs | |
| Right-of-use assets and leased assets | Right-of-use assets and leased assets | | | (89,165) | | | (70,818) | |
| Other items - deferred tax liability | | | (1,742) | | | (1,413) | |
| Other items — deferred tax liability | |
| Gross deferred tax liabilities | Gross deferred tax liabilities | | | (119,753) | | | (134,399) | |
| Net deferred tax asset | 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 valuation allowance for deferred tax assets was $689.3$831.6 million and $615.0$758.2 million as of December 31, 20212023 and 2020,2022, respectively. The net change in the total valuation allowance for the years ended December 31, 20212023 and 20202022 was an increase of $74.3$73.4 million and a decreasean increase of $18.6$69.0 million, respectively.
At December 31, 2021,2023, we had federal and California net operating loss carryforwards of $2.1 billion and $1.3$1.5 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 2024 — 2028 | | $ | 0.2 | | | $ | 0.1 | |
| Expire in 2029 — 2033 | | 0.7 | | | 0.6 | |
| Expire beginning in 2034 | | 0.8 | | | 0.8 | |
| Carryforward indefinitely | | 0.4 | | | — | |
| Total | | $ | 2.1 | | | $ | 1.5 | |
| | | | | | | | | | | | | | |
| | | 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, 2021,2023, we also had other state net operating loss carryforwards of $366.1$369.5 million, that will beginbegan to expire in 2022.fiscal 2024. In addition, at December 31, 2023, we had approximately $26.2$39.1 million of federal research credit, $6.6 million of federal investment tax credit, and $15.9$19.1 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 | |
| | | | | | | | | | | | | | |
| | Federal | | California |
| Expire in 2024 — 2028 | | $ | 4.3 | | | $ | — | |
| Expire in 2029 — 2033 | | 7.9 | | | — | |
| Expire beginning in 2034 | | 33.5 | | | — | |
| Carryforward indefinitely | | — | | | 19.1 | |
| Total | | $ | 45.7 | | | $ | 19.1 | |
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, 2021.2023. 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, 2021,2023, the amount of uncertain tax positions increased by $4.3$9.8 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, | |
| | | | | | Years Ended
December 31, | |
| | | | | | Years Ended
December 31, | |
| | | | | | 2023 | | | | | | | | 2023 | | 2022 | | 2021 |
| | | Years Ended
December 31, |
| | 2021 | | 2020 |
| Unrecognized tax benefits beginning balance | |
| Unrecognized tax benefits beginning balance | |
| Unrecognized tax benefits beginning balance | Unrecognized tax benefits beginning balance | | | $ | 37,753 | | | $ | 34,480 | |
| Gross decrease for tax positions of prior year | Gross decrease for tax positions of prior year | | | — | | | — | |
| Gross increase for tax positions of prior year | Gross increase for tax positions of prior year | | | 95 | | | 307 | |
| Gross increase for tax positions of current year | Gross increase for tax positions of current year | | | 4,162 | | | 2,966 | |
| Unrecognized tax benefits end balance | 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$54.1 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 material interest or penalties accrued during or for the years ended December 31, 20212023 and 2020.
We are subject to taxation in the United StatesU.S. and various states and foreign jurisdictions. We currently do not have any incomeOur 2020 tax examinationsyear that was under audit by the IRS has been closed in progress nor have we had any income tax examinations since2023 without a material impact on our inception.financial position. All of our tax years will remain open for examination by federal and state authorities for three and four years from the date of utilization of any net operating losses and tax credits.
The Tax Cuts and Jobs Act of 2017 ("(“Tax Act"Act”) includes a provision referred to as Global Intangible Low-Taxed Income ("GILTI"(“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"method”), or (ii) account for GILTI in the measurement of deferred taxes ("(“deferred method"method”). We elected to account for the tax effects of this provision using the period cost method.
On August 16, 2022, the U.S. government enacted the IRA. 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,IRA establishes a new corporate alternative minimum tax credits, modifications to the net interest deduction limitations, and technical amendments regarding thebased on financial statement income adjusted for certain items. The new minimum tax depreciation of qualified improvement property placed in serviceis effective for tax years beginning after December 31, 2017.2022. The CARES Act doesenactment of the IRA did not have a material impact onto our financial resultstax expense for the yearyears ended December 31, 2021.2023 and 2022, but we are currently assessing the impact of the production and tax credit-related IRA provisions on our business for future periods.
OurThe accumulated undistributed foreign earnings of the Company as of December 31, 20212023 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. On July 27, 2023, each share of our Class B common stock automatically converted into one share of our Class A common stock.
Net loss per share (diluted) is computed by using (i) the if-converted method when calculating the potentially dilutive effect, if any, of our convertible notes.notes, and our redeemable convertible preferred stock, and (ii) the treasury stock method when calculating the potentially dilutive effect, if any, of our outstanding stock options and awards, and shares issued in conjunction with the Company’s ESPP. 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, |
| | | | | | | 2023 | | 2022 | | 2021 |
| Numerator: | | | | | | | | | | |
| Net loss available to common stockholders | | | | | | $ | (302,116) | | | $ | (301,708) | | | $ | (164,473) | |
| Denominator: | | | | | | | | | | |
| Weighted average shares of common stock, basic and diluted | | | | | | 212,681 | | | 185,907 | | | 173,438 | |
| Net loss per share available to common stockholders, basic and diluted | | | | | | $ | (1.42) | | | $ | (1.62) | | | $ | (0.95) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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:antidilutive (in thousands):
| | | |
| | | | | | Years Ended
December 31, | | | | Years Ended
December 31, |
| | | | | 2021 | | 2020 | | 2019 | | | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | |
| Convertible notes | Convertible notes | | | 14,187 | | | 29,729 | | | 27,213 | |
| Convertible notes | |
| Convertible notes | |
| Redeemable convertible preferred stock | Redeemable convertible preferred stock | | | 82 | | | — | | | — | |
| Stock options and awards | Stock options and awards | | | 7,018 | | | 6,109 | | | 4,631 | |
| | | | | | | 49,133 | |
| | | | 21,287 | | | 35,838 | | | 31,844 | |
| | | | | | 49,133 | |
| | | | | | | 49,133 | |
As of December 31, 2022, pursuant to the notice received from SK ecoplant of its intent to exercise its option to purchase additional shares of our Class A common stock, there were an additional 13,491,701 common stock equivalents that were excluded from the table above.
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 (“(the “Restated PDA”) and the Joint Venture Agreement (“JVA”(the “JVA”) with SK ecoplant. The restatedRestated PDA establishes SK ecoplant’s purchase commitments for our Energy Servers for the next three yearsthree-year period on a take or paytake-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. WeThe joint venture is a VIE of Bloom and we consolidate it in our financial statements as we are the primary beneficiary and therefore have the power to direct activities which are most significant to the joint venture.
In October 2021, 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,In September 2023, we entered into the Amended and Restated JVA and the Share Purchase Agreement (together, the “Amended JV Agreements”) with SK ecoplant which changed the share of our voting rights in the Korean JV to 40% and increased the scope of assembly done by the joint venture facility in the Republic of Korea to full assembly. Neither the Amended JV Agreements, nor the fact that SK ecoplant is considered to be our related party after the conversion of Series B RCPS into shares of our Class A common stock (for additional information, please see Note 11 — Related Party Transactions)
changed our status as the primary beneficiary of the Korean JV. Therefore, we continue to consolidate this VIE in our financial statements as of December 31, 2023.
The following are the aggregate carrying values of the Korean JV’s assets and liabilities in our consolidated balance sheets, after eliminations of intercompany transactions and balances, as of December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 3,003 | | | $ | 2,591 | |
| Accounts receivable | | 19,567 | | | 4,257 | |
| Inventories | | 8,156 | | | 13,412 | |
| Prepaid expenses and other current assets | | 644 | | | 2,645 | |
| Total current assets | | 31,370 | | | 22,905 | |
| Property and equipment, net | | 2,519 | | | 1,141 | |
| Operating lease right-of-use assets | | 2,138 | | | 2,390 | |
| Other long-term assets | | 46 | | | 47 | |
| Total assets | | $ | 36,073 | | | $ | 26,483 | |
| Liabilities | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 3,480 | | | $ | 5,607 | |
| Accrued expenses and other current liabilities | | 2,347 | | | 1,355 | |
| Deferred revenue and customer deposits | | — | | | 2 | |
| Operating lease liabilities | | 440 | | | 393 | |
| Total current liabilities | | 6,267 | | | 7,357 | |
| Operating lease liabilities | | 1,617 | | | 2,000 | |
| Non-recourse debt | | 4,627 | | | — | |
| Total liabilities | | $ | 12,511 | | | $ | 9,357 | |
In September 2023, and December 2023, we entered into the First and the Second Amendments to the Restated PDA, respectively (the “First Amended Restated PDA” and the “Second Amended Restated PDA”, respectively). The First Amended Restated PDA amends the delivery terms. The Second Amended Restated PDA extends the initial term of the Restated PDA to December 31, 2027 and increases SK ecoplant’s purchase commitments for Bloom Energy products.
The Second Amended Restated PDA adds a new minimum purchase commitment of 250 megawatts and extends the timing of delivery of the remaining take-or- pay commitment under the original agreement. For the four-year period from January 1, 2024 to December 31, 2027, the total purchase commitment under the Second Amended Restated PDA is 500 megawatts, including a recommitment of 250 megawatts from the Restated PDA and an additional 250 megawatts commitment.
Under the Second Amended Restated PDA SK ecoplant can fulfill its volume commitments with both our Energy Servers and the Electrolyzer and this enables SK ecoplant to pursue opportunities globally outside of the Republic of Korea. The purchase commitments are expressed on a quarterly and annual basis. Should SK ecoplant fail to meet these purchase commitments, this would constitute an event of default and we would be entitled to damages equivalent to the lost profit.
The Initial Investment
In October 2021, we entered into the 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, thethe closing of the sale of the Series A RCPS was completed, and we issued the 10,000,000 shares of the Series A RCPS (the "Initial Investment"“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 Stockcommon stock (the “Option”). The number of sharesAccording to the SPA, 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 holdwas entitled 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 behave been completed as ofby November 30, 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 guidanceThe sale 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 separatelySeries A RCPS was recorded at fair value on the date the SPA was executed. We determined theits fair value of the Option on that date to be $9.6 million.
We determined the fair value of the RCPS$218.0 million 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.issuance. Accordingly, we allocated the excess of the cash proceeds received of $255.0 million plus the change in fair value of the Series A RCPS between October 23, 2021, and December 29, 2021, of $9.7 million, over the fair value of the Series A 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 bewas recorded in deferred revenue and customer deposits. Accordingly, during the years ended December 31, 2022 and 2021, we recognized asproduct revenue over the take or pay period based on an estimate of the$9.6 million and $2.8 million, respectively, in connection with this arrangement. No product revenue we expect to receive under the PDA. Accordingly,was recognized during the year ended December 31, 2021, we recognized Product Revenue of $2.8 million2023 in connection with this arrangement. TheAs of December 31, 2022, the unrecognized amount of $34.2$24.6 million included $7.8$10.0 million in current deferred revenue and customer deposits and $26.4$14.6 million in long-termnon-current deferred revenue and customer deposits non-current, on the consolidated balance sheet.
We revalued the Option to its fair value assheets. As of December 31, 2021,2023, the unrecognized amount of deferred revenue and customer deposits was reduced to zero as a result of the Second Tranche Closing (see details below in section “The Second Tranche Closing”).
Restated PDA, JVA, CCA and the SPA entered into with SK ecoplant concurrently were evaluated as a combined contract in accordance with ASC 606and, 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 was a freestanding financial instrument that should have been 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.
On August 10, 2022, pursuant to the SPA, SK ecoplant notified us of its intent to exercise its option to purchase additional shares of our Class A common stock, pursuant to a lossSecond Tranche Exercise Notice (as defined in the SPA) electing to purchase 13,491,701 shares at a purchase price of $3.6$23.05 per share. The Option was fairly valued as of the notice date at $4.2 million, which is included inand gain on revaluation of $9.0 million was recorded under other (expense) income, (expense), net in our consolidated statements of operations. Upon the receipt of the notice from SK ecoplant the Option met the criteria of equity award and was classified as a forward contract as part of additional paid-in capital.
On November 8, 2022, each share of the Series A RCPS was converted into 10,000,000 shares of Class A common stock.
On December 6, 2022, SK and Bloom mutually agreed to delay the Second Tranche Closing until March 31, 2023. The mutual agreement to modify the closing date did not change the accounting or valuation of the equity-classified forward recorded.
The Second Tranche Closing
On March 20, 2023, SK ecoplant entered into the Amended SPA with us, pursuant to which on March 23, 2023, we issued and sold to SK ecoplant 13,491,701 shares of non-voting Series B RCPS, par value $0.0001 per share, at a purchase price of $23.05 per share for cash proceeds of $311.0 million, excluding issuance cost of $0.5 million.
The Amended SPA triggered the modification of the equity-classified forward contract on Class A common stock, which resulted in the derecognition of the pre-modified fair value of the Option is reflectedforward contract given to SK ecoplant of $76.2 million. We valued the forward contract as the difference between our Class A common stock trading price adjusted by a discount for lack of marketability (“DLOM”) as of the date of Amended SPA (the “Valuation Date”) and the present value of the strike price, with further reduction associated with the expected outcome of the Second Tranche Closing. The derecognition of the pre-modified fair value was recorded in Accrued expensesadditional paid-in capital in our consolidated balance sheets as of December 31, 2023.
The Series B RCPS was accounted for as a stock award with liability and otherequity components. The liability component of the Series B RCPS was recognized at the redemption value of $311.0 million, less issuance costs of $0.5 million, and was recorded in current liabilities in our consolidated balance sheet.
sheets as of December 31, 2023. The RCPS has been presented outside of permanent equity in the mezzanine sectioncomponent of the Series B RCPS (the “Conversion Option”) was valued as a European-type call option under the guidance of ASC 718 by applying the Black-Scholes valuation model using inputs of the strike price, maturity, risk-free rate, and volatility. In addition, DLOM was
applied to the Class A common stock price. The Conversion Option was recognized at its fair value of $16.1 million on March 20, 2023 and recorded in additional paid-in capital in 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 dispositionas of all or substantially all of our assets), which are considered contingent redemption provisions that are not solely within our control.December 31, 2023.
We incurred transaction costs of $9.8 millionOn March 20, 2023, in connection with this arrangement.the Amended SPA we also entered into the Loan Agreement, pursuant to which we had the option to draw on a loan from SK ecoplant with a maximum principal amount of $311.0 million, a maturity of five years and an interest rate of 4.6%, should SK ecoplant have sent a redemption notice to us under the Amended SPA (i.e., loan commitment asset). We allocatedconcluded that the transaction costsloan commitment was a freestanding financial instrument as of the Valuation Date, as such its fair value was based on the difference between the RCPS,present value of cash flows associated with a loan with a market-participant based interest rate (i.e., the rate for which the value of the hypothetical loan agreement equals the face value of the Loan Agreement) and the Optioncash flows associated with the loan committed to by SK ecoplant, and applied a redemption probability to the difference. The Series B RCPS redemption probability was obtained from a lattice model used to value the Series B preferred stock. As of December 31, 2023, the loan commitment asset from SK ecoplant was derecognized as a result of automatic conversion of all shares of the Series B RCPS into shares of our Class A common stock.
The Amended SPA and the Loan Agreement provided us with cash proceeds of $311.0 million and a loan commitment asset of $52.8 million from SK ecoplant for total consideration of $363.8 million. In return, SK ecoplant received consideration of $403.3 million, consisting of the release from the obligation to close on the original transaction fair valued at $76.2 million, the obligation from us to issue the Series B RCPS at redemption value of $311.0 million, and the option to convert the Series B RCPS to Class A common stock, which had an estimated fair value of $16.1 million. The excess consideration provided by us amounted to $39.5 million, which resulted in a reduction of our deferred revenue and customer deposits by $24.6 million related to the Initial Investment, as of December 31, 2023. The net excess consideration of $14.9 million was recognized as $8.2 million in prepaid expenses and other current assets and $6.7 million was classified as other long-term assets in our consolidated balance sheets as of March 31, 2023. The deferred expense is recognized as contra-revenue based on their relative fair values. Accordingly, an amountthe remaining purchase commitments under the Second Amended Restated PDA. During the year ended December 31, 2023, the deferred expense recognized as contra-revenue was $3.5 million. As a result, as of $9.4December 31, 2023, we recognized the net excess consideration of $11.4 million, is set off against the carrying amountof which $2.3 million was classified as prepaid expenses and other current assets and $9.1 million was classified as other long-term assets, in our consolidated balance sheets.
On September 23, 2023, all 13,491,701 shares of the Series B RCPS withwere automatically converted into shares of our Class A common stock pursuant to the Certificate of Designation, dated as of March 20, 2023, setting forth the rights, preferences, privileges, and restrictions of the Series B RCPS, as amended by the Certificate of Amendment to the Certificate of Designation, dated as of April 18, 2023. As a result of the conversion: (i) the liability component of the Series B RCPS of $310.5 million was reclassified to additional paid-in capital, less par value of the issued $13,491,701 shares of our Class A common stock, and (ii) the loan commitment asset was recorded at its fair value of $52.8 million, of which $5.3 million was classified as current and $47.5 million was classified as non-current in our consolidated balance of $0.4 million includedsheets, and was expensed immediately and recognized in other income (expense), netinterest expense 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 dispositionconversion of all or substantially allSeries B RCPS into shares 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 in effect at that time.
Protective provisions: Bloom is prohibited from the following actions without the affirmative vote of a majority of the holders of the RCPS: (i) increasing the authorized number of shares of RCPS; (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, the 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 A Common Stock, SK ecoplant shall vote in accordance with the 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 majority 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 received on conversion of the RCPS prior to its exercise of the Option. However, if SK ecoplant holds the Class A Common Stock received on conversion of the RCPS at the time it exercises the Option, these share are also subject to the aforementioned restriction on disposition.
•Restrictions on beneficial ownership: Following the issuance of the RCPS and continuing until the later of (i) the second anniversary of the date of issuance of the Option Shares; (ii) the date on 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 matteris considered 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).a related party. For additional information, please see Note 11 — Related Party Transactions.
•Preemptive rights: Subsequent to the purchase of the Option Shares, if we issue 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 conditions and at the same price as issued to other investors.
19.18. Subsequent Events
There have been no material 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.
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 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, 2021.2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021,2023, 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 expect 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 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, 2021,2023, there were no changes in our internal controlscontrol over financial reporting, which were identified in connection with management’s evaluation required by paragraphparagraphs (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 CEOChief Executive Officer and CFO,Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d15(f) under the Exchange Act) 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 as of December 31, 2021,2023, 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 our 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 ourits assessment, management has concluded that our internal control over financial reporting was effective as of the end of fiscal 20212023 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP.
The effectiveness of our internal control over financial reporting as of the end of fiscal 20212023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included elsewhere herein.
ITEM 9B -— OTHER INFORMATION
None.(a) Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On February 15, 2024, the Company announced that Gregory Cameron, President and Chief Financial Officer, would be leaving the Company to pursue other opportunities following a transitional period. The Company has begun a search for its next Chief Financial Officer. The Company also announced that effective immediately, Satish Chitoori, age 52, currently the Company’s SVP, Chief of Procurement and Supply Chain, would assume some of Mr. Cameron’s duties, becoming Chief Operations Officer, and leading manufacturing, supply chain, and the customer installation group. Mr. Chitoori will report to KR Sridhar, the Company’s Founder, Chief Executive Officer, Chairman and Director.
(b) Trading Plans
During the fourth quarter ended December 31, 2023, KR Sridhar, Chairman and Chief Executive Officer, adopted a trading arrangement intended to satisfy the affirmative defense provisions of Rule 10b5-1(c). The plan was adopted on December 3, 2023 and the plan ends on December 31, 2024. The aggregate amount of shares that may be sold under the plan is a) up to 220,000 shares, subject to certain pricing conditions, and b) the number of shares necessary to cover withholding taxes resulting from the vesting of RSUs or PSUs in 2024.
ITEM 9C -— DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONINSPECTIONS
Not applicable.
Part III
ITEM 10 -— DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
TheExcept as indicated below, the information required by this Item 10 of Annual Report on Form 10-K is incorporated herein by reference herein to our Proxy Statement for the 20222024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2021.2023 (the “2024 Annual Meeting”), including under the headings “Corporate Governance,” “Information about Our Executive Officers,” “Business Ethics and Compliance,” and “Delinquent Section 16(a) Reports,” if applicable.
We have adopted a Global Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all of our and our subsidiaries’ directors, officers, employees, and contractors, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Conduct is posted on our website located at https://investor.bloomenergy.comunder “Corporate Governance”. We intend to disclose future amendments to certain provisions of the Code of Conduct, and waivers of the Code of Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.
ITEM 11 -— EXECUTIVE COMPENSATION
The information required by this Item 11 of Annual Report on Form 10-K is incorporated herein by reference herein to our Proxy Statement for the 20222024 Annual Meeting, of Stockholders to be filed withincluding under the SEC within 120 days of the year ended December 31, 2021.headings “Executive Compensation”, “Compensation Committee Interlocks and Insider Participation”, and “Compensation Committee Report”.
ITEM 12 -— SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 of Annual Report on Form 10-K is incorporated herein by reference herein to our Proxy Statement for the 20222024 Annual Meeting, including under the headings “Security Ownership of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2021.Certain Beneficial Owners and Management and Related Stockholder Matters” and “Equity Compensation Plan Information”.
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 herein by reference herein to our Proxy Statement for the 20222024 Annual Meeting, of Stockholders to be filed withincluding under the SEC within 120 days of the year ended December 31, 2021.
ITEM 14 -— PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of Annual Report on Form 10-K is incorporated herein by reference herein to our Proxy Statement for the 20222024 Annual Meeting, of Stockholders to be filed withincluding under the SEC within 120 days of the year ended December 31, 2021.heading “Principal Accountant Fees and Services”.
Part IV
ITEM 15 -— EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Financial Statements
See "Index“Index to Consolidated Financial Statements and Supplementary Data"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 |
| | Certificate of Amendment to the Restated Certificate of Incorporation of Bloom Energy Corporation | 10-Q | 001-38598 | 3.1 | 8/9/2022 |
| | Amended and Restated Bylaws, as effective August 9, 2023 | 8-K | 001-38598 | 3.1 | 8/11/2023 |
| | Certificate of Retirement for Class B Common Stock | 10-Q | 001-38598 | 3.2 | 11/8/2023 |
| | Certificate of Elimination of Certificate of Designations of Series B Convertible Preferred Stock | 10-Q | 001-38598 | 3.3 | 11/8/2023 |
| | Certificate of Withdrawal of Certificate of Designation of Series A Redeemable Convertible Preferred Stock | 10-Q | 001-38598 | 3.3 | 5/9/2023 |
| | Form of Common Stock Certificate of the Registrant | S-1/A | 333-225571 | 4.1 | 7/9/2018 |
| | Description of Company’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended | 10-K | 001-38598 | 4.7 | 2/25/2022 |
| | 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 4.1 hereto) | 8-K | 001-38598 | 4.1 | 8/11/2020 |
| | Indenture, dated as of May 16, 2023, between Bloom Energy Corporation and U.S. Bank Trust Company, National Association, as trustee | 8-K | 001-38598 | 4.1 | 5/16/2023 |
| | Form of certificate representing the 3.00% Green Convertible Senior Notes due 2028 (included as Exhibit A to Exhibit 4.1) | 8-K | 001-38598 | 4.1 | 5/16/2023 |
| | Irrevocable Proxy of SK ecoplant Co., LTD. | | | | Filed herewith |
| | | 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 |
| | | | 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 |
| | | ^ | Amended and Restated 2018 Employee Stock Purchase Plan | 8-K | 001-38598 | 10.1 | 5/16/2022 |
| | | ^ | 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 |
| | | | Form of Indemnification Agreement | 10-Q | 001-38598 | 10.1 | 9/7/2018 |
| | | ^ | 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 |
| | | 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 | | * | 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 |
| | ^ | Form of Indemnification Agreement | 10-Q | 001-38598 | 10.1 | 9/7/2018 | | | 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 |
| | ^ | Form of Offer Letter | 10-K | 001-38598 | 10.27 | 3/22/2019 | | | 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 |
| | † | 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 | | * | 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 |
| | † | 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 | | * | 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 |
| | | 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 | | * | Repurchase Agreement between the Company and Diamond State Generation Partners LLC, dated June 14, 2019 | 10-Q | 001-38598 | 10.5 | 8/14/2019 |
| | | 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 | | * | 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 | 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 | | * | 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 |
| | | * | 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 |
| | | * | 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 |
| | 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 | | * | Bloom Energy Corporation 2021 Deferred Compensation Plan | 10-K | 001-38598 | 10.26 | 2/26/2021 |
| | 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 | | * | 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 | 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 | | ^ | 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 | 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 | | * | 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 | 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 | | * | 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 | 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 | | * | 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 |
| | ^ | Bloom Energy Corporation 2021 Deferred Compensation Plan | 10-K | 001-38598 | 10.26 | 2/26/2021 | | * | 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 |
| | 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 | | * | Offer Letter between the Company and Gregory Cameron, dated March 20, 2020 | 8-K | 001-38598 | 10.1 | 4/2/2020 |
| | 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 | | | 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 | 5/11/2020 |
| | 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 | | ^ | 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 | 5/11/2020 |
| | 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 | | | 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 | 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 | | | 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 |
| | | 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 | | * | 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 Company and Chris White, dated April 16, 2019 | 10-K | 001-38598 | 10.38 | 3/31/2020 | | * | 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 |
| | | ^ | 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 |
| | | | 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 |
| | ^ | 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 | | * | Form of Employment, Change in Control and Severance Agreement | 10-Q | 001-38598 | 10.5 | 8/6/2021 |
| | 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 | | * | Form of Preferred Stock Unit Agreement under 2018 Equity Incentive Plan | 10-K | 001-38598 | 10.46 | 2/25/2022 |
| 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 |
| | | ^ | 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 |
| | | 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 | | ^ | 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 |
| | ^ | Offer Letter between the Registrant and Guillermo Brooks dated May 31, 2021 | 10-Q | 001-38598 | 10.1 | 8/6/2021 | | | 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 |
| | | 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 | | * | 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 | 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 | | | Master Supply Agreement, dated December 24, 2021, by and between Registrant and SK E&C BETEK Corporation | 10-K | 001-38598 | 10.51 | 2/25/2022 |
| | 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 Confirmation of Call Option Transaction, between Bloom Energy Corporation and each Option Counterparty | 8-K | 001-38598 | 10.1 | 5/16/2023 |
| | ^ | Form of Employment, Change in Control and Severance Agreement | 10-Q | 001-38598 | 10.5 | 8/6/2021 | | * | Amendments to Securities Purchase Agreement and Investor Agreement, dated March 20, 2023, between the Company and SK ecoplant Co., Ltd. | 8-K | 001-38598 | 10.1 | 3/23/2023 |
| | ^ | Form of Preferred Stock Unit Agreement under 2018 Equity Incentive Plan | | Filed herewith | | | Shareholder’s Loan Agreement dated as of March 20, 2023, between the Company and SK ecoplant Co., Ltd. | 8-K | 001-38598 | 10.2 | 3/23/2023 |
| | | 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 | | | First Amendment to the Amended and Restated Preferred Distributor Agreement dated September 29, 2023 | 8-K | 001-38598 | 10.1 | 12/22/2023 |
| 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 |
| | | * | Second Amendment to the Amended and Restated Preferred Distributor Agreement dated December 21, 2023 | 8-K | 001-38598 | 10.2 | 12/22/2023 |
| | | 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 | | ^ | Offer Letter between the Company and Aman Joshi, dated January 5, 2024 | 8-K | 001-38598 | 10.1 | 1/9/2024 |
| | 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 |
| | | ^ | Separation and General Release Agreement, dated January 8, 2024 | 8-K | 001-38598 | 10.2 | 1/9/2024 |
| | | | List of Subsidiaries | | | | Filed herewith |
| | | | Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP | | | | Filed herewith |
| | | | Certification of Chief Executive Officer pursuant to Rules 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 Rules 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 |
| | | ** | Certifications 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 | | | | Furnished herewith |
| | | | | | | | | | | | | | | | | | | | |
| | Policy on Recoupment and Forfeiture of Incentive Compensation Following a Restatement (Officers) | | 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 Document- 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. |
** | Certain identified information has been omitted by means of marking such information with asterisks in reliance on Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that the registrant treats as private or confidential. |
| ** | 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"“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
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 |
| | | | |
| | | | |
| Date: | February 25, 202215, 2024 | By: | | /s/ KR Sridhar |
| | | | KR Sridhar |
| | | | Founder, President, Chief Executive Officer, Chairman and Director |
| | | | (Principal Executive Officer) |
| | | | |
| Date: | February 25, 202215, 2024 | By: | | /s/ Gregory Cameron |
| | | | Gregory 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 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, 202215, 2024 | | | /s/ KR Sridhar |
| | | | KR Sridhar |
| | | | Founder, President, Chief Executive Officer, Chairman and Director |
| | | | (Principal Executive Officer) |
| | | | |
| Date: | February 25, 202215, 2024 | | | /s/ Gregory Cameron |
| | | | Gregory Cameron |
| | | | Executive Vice President and |
| | | | Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer) |
| | | | |
| Date: | February 25, 202215, 2024 | | | /s/ Michael Boskin |
| | | | Michael Boskin |
| | | | Director |
| | | | |
| Date: | February 25, 202215, 2024 | | | /s/ Mary K. Bush |
| | | | Mary K. Bush |
| | | | Director |
| | | | |
| Date: | February 25, 202215, 2024 | | | /s/ John T. Chambers |
| | | | John T. Chambers |
| | | | Director |
| | | | |
| Date: | February 25, 202215, 2024 | | | /s/ Jeffrey Immelt |
| | | | Jeffrey Immelt |
| | | | Director |
| | | | |
| Date: | February 25, 202215, 2024 | | | /s/ Scott SandellCynthia J. Warner |
| | | | Cynthia J. Warner |
| | | | Scott Sandell |
| | | | Director |
| | | | |
| Date: | February 25, 202215, 2024 | | | /s/ Eddy Zervigon |
| | | | Eddy Zervigon |
| | | | Director |
