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BE Bloom Energy

Filed: 6 Nov 20, 4:02pm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________
FORM 10-Q
________________________________________________________________________
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ____________to ____________
 
Commission File Number 001-38598 
________________________________________________________________________
be-20200930_g1.jpg
BLOOM ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________________________________________
Delaware77-0565408
(Sate or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4353 North First Street, San Jose, California95134
(Address of principal executive offices)(Zip Code)
(408) 543-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class(1)
Trading SymbolName of each exchange on which registered
Class A Common Stock, $0.0001 par valueBENew York Stock Exchange
(1) Our Class B Common Stock is not registered but is convertible into shares of Class A Common Stock at the election of the holder.
________________________________________________________________________

Indicate by check mark 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  ¨     Accelerated filer   þ      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 is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No  þ
The number of shares of the registrant’s common stock outstanding as of October 30, 2020 was as follows:

Class A Common Stock, $0.0001 par value 138,307,369 shares
Class B Common Stock, $0.0001 par value 27,891,011 shares




Bloom Energy Corporation
Quarterly Report on Form 10-Q for the Three and Nine Months Ended September 30, 2020
Table of Contents
 Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Loss
Condensed Consolidated Statements of Redeemable Noncontrolling Interest, Total Stockholders' Deficit and Noncontrolling Interest
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 - Mine Safety Disclosures
Item 5 - Other Information
Item 6 - Exhibits
Signatures

Unless the context otherwise requires, the terms "we," "us," "our," "Bloom Energy," and the "Company" each refer to Bloom Energy Corporation and all of its subsidiaries.



Explanatory Note
As previously disclosed, we restated the relevant unaudited interim condensed consolidated financial statements as of and for the quarterly periods ended September 30, 2019, June 30, 2019, and March 31, 2019. The quarterly restatements are or will be effective with the filing of our 2020 Quarterly Reports on Form 10-Q. See Note 2, Restatement of Previously Issued Condensed Consolidated Financial Statements, in Part I, Item 1, Financial Statements, for additional information related to the restatement of our condensed consolidated financial statements as of and for the three and nine months ended September 30, 2019.



Part I
ITEM 1 - FINANCIAL STATEMENTS

Bloom Energy Corporation
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
September 30,
2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents1
$325,241 $202,823 
Restricted cash1
47,212 30,804 
Accounts receivable1
50,481 37,828 
Inventories131,911 109,606 
Deferred cost of revenue59,627 58,470 
Customer financing receivable1
5,341 5,108 
Prepaid expenses and other current assets1
30,240 28,068 
Total current assets650,053 472,707 
Property, plant and equipment, net1
601,929 607,059 
Customer financing receivable, non-current1
46,725 50,747 
Restricted cash, non-current1
131,916 143,761 
Deferred cost of revenue, non-current3,104 6,665 
Other long-term assets1
40,632 41,652 
Total assets$1,474,359 $1,322,591 
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable1
$64,282 $55,579 
Accrued warranty9,807 10,333 
Accrued expenses and other current liabilities1
77,882 70,284 
Deferred revenue and customer deposits1
95,546 89,192 
Financing obligations12,342 10,993 
Current portion of recourse debt115,657 304,627 
Current portion of non-recourse debt1
14,000 8,273 
Current portion of recourse debt from related parties20,801 
Current portion of non-recourse debt from related parties1
3,882 
Total current liabilities389,516 573,964 
Derivative liabilities1
19,542 17,551 
Deferred revenue and customer deposits, net of current portion1
103,517 125,529 
Financing obligations, non-current451,796 446,165 
Long-term portion of recourse debt227,481 75,962 
Long-term portion of non-recourse debt1
213,209 192,180 
Long-term portion of non-recourse debt from related parties1
31,087 
Other long-term liabilities1
26,618 28,013 
Total liabilities1,431,679 1,490,451 
Commitments and contingencies (Note 14)
Redeemable noncontrolling interest189 443 
Stockholders’ deficit:
Common stock15 12 
Additional paid-in capital3,054,376 2,686,759 
Accumulated other comprehensive income (loss)(9)19 
Accumulated deficit(3,076,800)(2,946,384)
Total stockholders’ deficit(22,418)(259,594)
Noncontrolling interest64,909 91,291 
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest$1,474,359 $1,322,591 
1We have variable interest entities, which represent a portion of the consolidated balances recorded within these financial statement line items in the condensed consolidated balance sheets (see Note 13, Power Purchase Agreement Programs).

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Bloom Energy Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 Three Months Ended
September 30,
Nine Months Ended September 30,
 2020201920202019
 As RestatedAs Restated
Revenue:
Product$131,076 $163,902 $346,832 $398,909 
Installation26,603 21,102 73,060 46,397 
Service26,141 23,665 77,496 70,158 
Electricity16,485 15,638 47,472 56,170 
Total revenue200,305 224,307 544,860 571,634 
Cost of revenue:
Product72,037 91,697 227,653 293,697 
Installation27,872 26,141 86,938 59,586 
Service33,214 36,427 92,836 83,111 
Electricity11,195 27,317 35,266 62,601 
Total cost of revenue144,318 181,582 442,693 498,995 
Gross profit55,987 42,725 102,167 72,639 
Operating expenses:
Research and development19,231 23,389 61,887 82,020 
Sales and marketing11,700 17,649 37,076 56,216 
General and administrative25,428 36,599 79,471 119,335 
Total operating expenses56,359 77,637 178,434 257,571 
Loss from operations(372)(34,912)(76,267)(184,932)
Interest income254 1,214 1,405 4,799 
Interest expense(19,902)(21,323)(55,030)(65,845)
Interest expense to related parties(353)(1,605)(2,513)(4,823)
Other income (expense), net(221)525 (4,142)568 
Gain (loss) on extinguishment of debt1,220 (12,878)0 
Gain (loss) on revaluation of embedded derivatives1,505 (540)2,201 (1,620)
Loss before income taxes(17,869)(56,641)(147,224)(251,853)
Income tax provision136 272 602 
Net loss(17,876)(56,777)(147,496)(252,455)
Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests(5,922)(5,027)(17,081)(13,874)
Net loss attributable to Class A and Class B common stockholders$(11,954)$(51,750)$(130,415)(238,581)
Net loss per share available to Class A and Class B common stockholders, basic and diluted$(0.09)$(0.44)$(1.01)$(2.09)
Weighted average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted138,964 116,330 129,571 113,948 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Bloom Energy Corporation
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended September 30,
 2020201920202019
 As RestatedAs Restated
Net loss$(17,876)$(56,777)$(147,496)$(252,455)
Other comprehensive income (loss), net of taxes:
Unrealized gain (loss) on available-for-sale securities(12)(23)14 
Change in derivative instruments designated and qualifying in cash flow hedges573 (2,444)(8,144)(8,137)
Other comprehensive income (loss), net of taxes573 (2,456)(8,167)(8,123)
Comprehensive loss(17,303)(59,233)(155,663)(260,578)
Less: Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests(5,349)(7,484)(25,219)(21,719)
Comprehensive loss attributable to Class A and Class B stockholders$(11,954)$(51,749)$(130,444)$(238,859)


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Bloom Energy Corporation
Condensed Consolidated Statements of Redeemable Noncontrolling Interest, Total Stockholders' Deficit and Noncontrolling Interest
(in thousands, except Shares) (unaudited)
Three Months Ended September 30, 2020
Redeemable
Noncontrolling 
Interest
Class A and Class B
Common Stock¹
Additional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total Stockholders' DeficitNoncontrolling
Interest
SharesAmount
Balances at June 30, 2020$118 130,238,289 $13 $2,747,890 $(9)$(3,064,846)$(316,951)$66,302 
Conversion of notes— 19,136,313 160,341 — — 160,342 — 
Issuance of convertible note   124,050   124,050  
Issuance of restricted stock awards— 3,203,935 — — — — 
ESPP purchase— 944,979 — 4,323 — — 4,323 — 
Exercise of stock options— 273,056 — 3,235 — — 3,235 — 
Stock-based compensation expense— — — 14,537 — — 14,537 — 
Change in effective portion of interest rate swap agreement— — — — — — — 573 
Distributions to noncontrolling interests(18)— — — — — — (269)
Proceeds from noncontrolling interest— — — — — — — 4,314 
Net income (loss)89 — — — — (11,954)(11,954)(6,011)
Balances at September 30, 2020$189 153,796,572 $15 $3,054,376 $(9)$(3,076,800)$(22,418)$64,909 

Three Months Ended September 30, 2019
Redeemable Noncontrolling
Interest
Class A and Class B
Common Stock
Additional Paid-In CapitalAccumulated Other Comprehensive Gain (Loss)Accumulated
Deficit
Total Stockholders' DeficitNoncontrolling Interest
SharesAmount
Balances at June 30, 2019 (as Restated)$505 113,949,343 $11 $2,604,034 $(148)$(2,828,801)$(224,904)$104,072 
Issuance of restricted stock awards— 2,837,343 — — — — 
ESPP purchase— 1,022,397 — 4,267 — — 4,267 — 
Exercise of stock options— 8,546 — 35 — — 35 — 
Stock-based compensation expense— — — 39,537 — — 39,537 — 
Unrealized loss on available for sale securities— — — — (12)— (12)— 
Change in effective portion of interest rate swap agreement— — — — 13 — 13 (2,457)
Distributions to noncontrolling interests(288)— — — — — — (1,042)
Net income (loss) (as restated)340 — — — — (51,750)(51,750)(5,367)
Balances at September 30, 2019 (as Restated)$557 117,817,629 $12 $2,647,873 $(147)$(2,880,551)$(232,812)$95,206 
 

6


Nine Months Ended September 30, 2020
Redeemable Noncontrolling InterestClass A and Class B
Common Stock¹
Additional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' DeficitNoncontrolling Interest
SharesAmount
Balances at December 31, 2019$443 121,036,289 $12 $2,686,759 $19 $(2,946,384)$(259,594)$91,291 
Conversion of notes— 23,854,441 201,470 — — 201,472 — 
Issuance of convertible note— — — 124,050 — — 124,050 — 
Adjustment of embedded derivative for debt modification— — — (24,071)— — (24,071)— 
Issuance of restricted stock awards— 6,524,088 — — — — 
ESPP purchase— 1,937,825 — 8,500 — — 8,500 — 
Exercise of stock options— 443,929 — 4,243 — — 4,243 — 
Stock-based compensation expense— — — 53,425 — — 53,425 — 
Unrealized loss on available for sale securities— — — — (23)— (23)— 
Change in effective portion of interest rate swap agreement— — — — (5)— (5)(8,139)
Distributions to noncontrolling interests(35)— — — — — — (5,696)
Proceeds from noncontrolling interest— — — — — — — 4,314 
Net income (loss)(219)— — — — (130,415)(130,415)(16,861)
Balances at September 30, 2020$189 153,796,572 $15 $3,054,376 $(9)$(3,076,800)$(22,418)$64,909 


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Nine Months Ended September 30, 2019
Redeemable Noncontrolling InterestClass A and Class B
Common Stock¹
Additional Paid-In CapitalAccumulated Other Comprehensive Gain (Loss)Accumulated DeficitTotal Stockholders' DeficitNoncontrolling Interest
SharesAmount
Balances at December 31, 2018 (as Restated)$57,261 109,421,183 $11 $2,481,352 $131 $(2,624,104)$(142,610)$125,110 
Cumulative effect upon adoption of new accounting standard (Note 3)— — — — — (17,996)(17,996)— 
Issuance of restricted stock awards— 6,341,441 — — — 
ESPP purchase— 1,718,433 — 11,183 — — 11,183 — 
Exercise of stock options— 336,572 — 1,440 — — 1,440 — 
Stock-based compensation expense— — — 153,898 — — 153,898 — 
Unrealized gain on available for sale securities— — — — 14 — 14 — 
Change in effective portion of interest rate swap agreement— — — — (292)— (292)(7,845)
Distributions to noncontrolling interests(3,825)— — — — — — (5,250)
Mandatory redemption of noncontrolling interests(55,684)— — — — — — — 
Cumulative effect of hedge accounting— — — — — 130 130 (130)
Net income (loss) (as restated)2,805 — — — — (238,581)(238,581)(16,679)
Balances at September 30, 2019 (as Restated)$557 117,817,629 $12 $2,647,873 $(147)$(2,880,551)$(232,812)$95,206 


The accompanying notes are an integral part of these condensed consolidated financial statements.
8


Bloom Energy Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Nine Months Ended
September 30,
 20202019
 As Restated
Cash flows from operating activities:
Net loss$(147,496)$(252,455)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization38,888 64,948 
Write-off of property, plant and equipment, net36 2,987 
Impairment of equity method investment4,236 
Write-off of PPA II and PPA IIIb decommissioned assets25,613 
Debt make-whole expense5,934 
Revaluation of derivative contracts(2,339)2,955 
Stock-based compensation57,385 160,233 
Loss on long-term REC purchase contract72 61 
Loss on extinguishment of debt11,785 
Amortization of debt issuance and premium cost, net(195)16,295 
Changes in operating assets and liabilities:
Accounts receivable(12,654)63,426 
Inventories(22,772)(1,775)
Deferred cost of revenue1,562 (2,344)
Customer financing receivable and other3,790 4,142 
Prepaid expenses and other current assets(2,647)8,071 
Other long-term assets(3,217)1,294 
Accounts payable8,704 14,171 
Accrued warranty(525)(4,074)
Accrued expenses and other current liabilities3,866 5,191 
Deferred revenue and customer deposits(15,658)22,252 
Other long-term liabilities(2,811)4,560 
Net cash (used in) provided by operating activities(79,990)141,485 
Cash flows from investing activities:
Purchase of property, plant and equipment(33,066)(39,690)
Payments for acquisition of intangible assets(1,478)
Proceeds from maturity of marketable securities104,500 
Net cash (used in) provided by investing activities(33,066)63,332 
Cash flows from financing activities:
Proceeds from issuance of debt300,000 
Proceeds from issuance of debt to related parties30,000 
Repayment of debt(92,546)(93,263)
Repayment of debt to related parties(2,105)(1,691)
Debt make-whole payment(5,934)
Debt issuance costs(13,247)
Proceeds from financing obligations14,807 20,333 
Repayment of financing obligations(7,828)(6,419)
Proceeds from noncontrolling interest4,314 
Payments to noncontrolling and redeemable noncontrolling interests(43,713)
Distributions to noncontrolling and redeemable noncontrolling interests(6,103)(9,363)
Proceeds from issuance of common stock12,745 12,623 
Net cash provided by (used in) financing activities240,037 (127,427)
Net increase in cash, cash equivalents, and restricted cash126,981 77,390 
Cash, cash equivalents, and restricted cash:
Beginning of period377,388 280,485 
End of period$504,369 $357,875 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$56,607 $53,772 
Cash paid during the period for taxes353 715 
Non-cash investing and financing activities:
Liabilities recorded for property, plant and equipment$350 $2,574 
Liabilities recorded for noncontrolling and redeemable noncontrolling interest11,971 
Equity investment in PPA II assets27,809 
Conversion of 10% convertible promissory notes into Class A common stock150,670 0 
Conversion of 10% convertible promissory notes to related party into Class A common stock50,800 0 
Accrued distributions to Equity Investors288 
Accrued interest for notes30 1,347 
Adjustment of embedded derivative related to debt extinguishment24,071 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9


Bloom Energy Corporation
Notes to Condensed Consolidated Financial Statements
1. Nature of Business, Liquidity, Basis of Presentation and Summary of Significant Accounting Policies
Nature of Business
We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Our Energy Servers utilize an innovative fuel cell technology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence.
Liquidity
We have generally incurred operating losses and negative cash flows from operations since our inception. On March 31, 2020, we extended the maturity of our current debt to reduce our required debt payments in the next 12 months. After the following new debt offerings, debt extensions and conversions to equity were completed, the current portion of our total recourse and non-recourse debt was $129.7 million as of September 30, 2020. Notable elements of our new debt offerings, debt extensions and conversions are as follows:
On March 31, 2020, we entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the beneficial owners of our outstanding 6% Convertible Notes (the “6% Convertible Notes”) due December 1, 2020 pursuant to which the maturity date of the outstanding 6% Convertible Notes was extended to December 1, 2021, the interest rate increased from 6% to 10%, and the strike price on the conversion feature was reduced from $11.25 to $8.00 per share. The Amendment Support Agreement required that we repay at least $70.0 million of these 10% Convertible Notes due 2021 (the “10% Convertible Notes”) on or before September 1, 2020, which we satisfied through a cash payment of $70.0 million on May 1, 2020. The amended terms are reflected in the Amended and Restated Indenture, dated April 20, 2020, between Bloom Energy and U.S. Bank National Association, as trustee (the "Restated Indenture").
In conjunction with entering into the Amendment Support Agreement on March 31, 2020, we also entered into a 10% Convertible Note Purchase Agreement with Foris Ventures, LLC, a new noteholder, and New Enterprise Associates 10, Limited Partnership, an existing noteholder, (both of the noteholders were previously considered related parties) and we issued an additional $30.0 million aggregate principal amount of 10% Convertible Notes. The Restated Indenture was also amended to reflect a new principal amount of $290.0 million to accommodate the additional $30.0 million in new 10% Convertible Notes. In August and September 2020, we called a total of $153.1 million of the 10% Convertible Notes and the noteholders, at their option, converted their notes into 19.1 million shares of our Class B common stock, which were subsequently exchanged for Class A common stock.
On March 31, 2020, we entered into an Amended and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”), pursuant to which Constellation agreed to extend the maturity date to December 31, 2021, increase the interest rate from 5% to 10% and reduce the strike price on the conversion feature from $38.64 to $8.00 per share. On June 18, 2020, Constellation exercised their voluntary conversion feature and exchanged their entire Constellation note at the conversion price of $8.00 per share into 4.7 million shares of Class B common stock, which at Constellation's option was converted into Class A common stock. At the time of this exchange, the unamortized premium of $3.4 million was recognized as an adjustment to additional paid in capital.
On May 1, 2020, we entered into a note purchase agreement pursuant to which certain investors purchased $70.0 million of 10.25% Senior Secured Notes due 2027 (the “10.25% Senior Secured Notes”) in a private placement. The proceeds from this note were used to extinguish the $70.0 million of 10% Convertible Notes on May 1, 2020.
In August 2020, we issued an additional $230.0 million aggregate principal amount of our 2.5% Green Convertible Senior Notes due 2025 (the “Green Notes”). The Green Notes were issued pursuant to, and are governed by, an indenture (the “Green Note Indenture”), dated as of August 11, 2020, between Bloom Energy and U.S. Bank National Association, as trustee.
The impact of the COVID-19 pandemic on our ability to execute our business strategy and on our financial position and results of operations is uncertain. Our future cash flow requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development
10


efforts and other business initiatives, the rate of growth in the volume of system builds, the expansion of sales and marketing activities, market acceptance of our product, our ability to secure financing for customer use, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. However, 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 Quarterly Report on Form 10-Q, but we may access capital markets opportunistically to continue to improve our capital structure if market conditions are favorable.
For additional information, see Note 7, Outstanding Loans and Security Agreements and Note 17, Subsequent Events.
Basis of Presentation
We have prepared the unaudited condensed 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, the condensed consolidated financial statements do not include all disclosures required by generally accepted accounting principles as applied in the United States (“U.S. GAAP”). However, we believe that the disclosures herein are adequate to ensure the information presented is not misleading. The condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 (the latter has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019), and the condensed consolidated statements of operations, of comprehensive loss, of redeemable noncontrolling interest, total stockholders' deficit and noncontrolling interest, and of cash flows for the periods ended September 30, 2020 and 2019, and related notes, should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on March 31, 2020.
We believe that all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to fairly state the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for our fiscal year ending December 31, 2020.
Principles of Consolidation
These condensed consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirement for each of our variable interest entities ("VIEs"), which we refer to as a tax equity partnership (each such VIE, also referred to as our power purchase agreement entities ("PPA Entities")). This approach focuses on determining whether we have the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPA Entities. For all periods presented, we have determined that we are the primary beneficiary in all of our operational PPA Entities, as discussed in Note 13, Power Purchase Agreement Programs. 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 in consolidation.
Use of Estimates 
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed 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, assumptions to compute the fair value of debt financings, lease and non-lease components and related financing obligations such as incremental borrowing rates, estimated output, efficiency and residual value of the Energy Servers, warranty, product performance guaranties and extended maintenance, derivative valuations, estimates for recapture of U.S. Treasury grants and similar grants, estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, and stock-based compensation costs. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, our allowance for doubtful accounts, stock-based compensation, the carrying value of our long-lived assets, inventory, financial assets, and valuation allowances for tax assets, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the COVID-19 pandemic and the actions taken to contain it or treat it, as well as the economic impact on local,
11


regional, national and international customers, suppliers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods as new information becomes available. 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 three and nine months ended September 30, 2020, total revenue in the Asia Pacific region was 24% and 30%, respectively, of our total revenue. In the three and nine months ended September 30, 2019, total revenue in the Asia Pacific region was 16% and 22%, respectively, of our total revenue.
Credit Risk - At September 30, 2020, two customers, CoreSite Realty Corp. and Market Nugget, Inc. accounted for approximately 18%, and 14% of accounts receivable, respectively. At December 31, 2019, two customers, Costco Wholesale Corporation and The Kraft Group LLC, accounted for approximately 19% and 17% of accounts receivable, respectively. At September 30, 2020 and December 31, 2019, we did not maintain any allowances for doubtful accounts as we deemed all of our receivables fully collectible. To date, we have neither provided an allowance for uncollectible accounts nor experienced any credit loss.
Customer Risk - In the quarter ended September 30, 2020, revenue from three customers, Duke Energy Corporation, SK Engineering & Construction Co., Ltd. ("SK E&C"), and Certain Solar, accounted for approximately 25%, 24% and 21%, respectively, of our total revenue. In the nine months ended September 30, 2020, revenue from two customers, SK E&C and Duke Energy, accounted for approximately 29% and 29%, respectively, of our total revenue. In the quarter ended September 30, 2019, revenue from two customers, The Southern Company and SK E&C, accounted for approximately 29% and 16%, respectively, of our total revenue. In the nine months ended September 30, 2019, revenue from two customers, The Southern Company and SK E&C, accounted for approximately 38% and 22%, respectively, of our total revenue. Duke Energy and The Southern Company are each Operating Companies party to their own portfolio of power purchase agreements (each, a “PPA”). Each Operating Company purchased the Energy Servers contemplated by each PPA from us. Operating Companies with a portfolio of PPAs, but which we have no equity interest, is called a “Third-Party PPA Transaction.”
Summary of Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements for the periods ended September 30, 2020 are consistent with those discussed in Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019, except as described below.
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 2020
Fair Value Measurement - In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 was effective for annual and interim periods beginning after December 15, 2019. Early adoption was permitted. We adopted ASU 2018-13 as of January 1, 2020 and the adoption did not have a material effect on our financial statements and related disclosures.
Stock Compensation - In June 2018, FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), which aligns the accounting for share-based payment awards issued to employees and nonemployees. Measurement of equity-classified nonemployee awards will now be valued on the grant date and will no longer be remeasured through the performance completion date. ASU 2018-07 also changes the accounting for nonemployee awards with performance conditions to recognize compensation cost when achievement of the
12


performance condition is probable, rather than upon achievement of the performance condition, as well as eliminating the requirement to reassess the equity or liability classification for nonemployee awards upon vesting, except for certain award types. ASU 2018-07 was effective for us for interim and annual reporting periods beginning after December 15, 2019. Early adoption was permitted. We adopted ASU 2018-07 using a modified retrospective approach on January 1, 2020 and the adoption of ASU 2018-07 did not have a material effect on our financial statements and related disclosures.
Accounting Guidance Not Yet Adopted
We will no longer be an emerging growth company as of December 31, 2020, after which we will not be able to take advantage of the reduced disclosure requirements applicable to emerging growth companies. As a result, we expect to adopt the guidance below regarding Leases and Financial Instruments on a modified retrospective basis on December 31, 2020 and to reflect the adoption as of January 1, 2020 in our annual results for the period ended December 31, 2020.
Leases - In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), as amended (“ASC 842”), which provides new authoritative guidance on lease accounting. Among its provisions, the standard changes the definition of a lease, requires lessees to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet for operating leases and also requires additional qualitative and quantitative disclosures about lease arrangements. All leases in scope will be classified as either operating or financing. Operating and financing leases will require the recognition of an asset and liability to be measured at the present value of the lease payments. ASC 842 also makes a distinction between operating and financing leases for purposes of reporting expenses on the income statement. We are the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases and expect to continue to enter into new such leases.

Additionally, we expect to continue to enter into Managed Services related financing leases in the future and be the lessor of Energy Servers that are subject to power purchase agreements ("PPAs") with customers under our Managed Services Program and our PPA Program that are currently accounted for as leases. ASC 842 provides a number of optional practical expedients in transition. We will elect the package of practical expedients, which permits us to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases.
While we continue to evaluate the effect of adopting ASC 842, we expect that these new standards will not have a material impact to our financial position. We expect to recognize ROU assets and lease liabilities on the consolidated balance sheets with corresponding ROU assets in the range of $24 million to $30 million and lease liabilities in the range of $36 million to $44 million based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. While we do not expect that the adoption of ASC 842 will have a material effect on operating income (loss) and net cash flows, it will however impact the classification between cash flows from operations and cash flows from financing activities on the consolidated statements of cash flows.
Financial Instruments - In June 2016, FASB issued ASU 2016-13, Financial Instruments- Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) as amended, ("ASU 326"), including in February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The pronouncement eliminates the incurred credit loss impairment methodology and replaces it with an expected credit loss concept based on historical experience, current conditions, and reasonable and supportable forecasts. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We do not expect ASU 326 to have a material impact on our financial statements and related disclosures.
Income taxes - In December 2019, FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) ("ASU 2019-12"), wherein the accounting for income taxes is simplified by eliminating certain exceptions and implementing additional requirements, which result in a more consistent application of ASC 740 Income Taxes. ASU 2019-12 is effective as for public business entities, for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We anticipate that we will no longer be an emerging growth company beginning on December 31, 2020, and expect to adopt this guidance on a prospective basis on January 1, 2021. We do not expect ASU 2019-12 to have a material impact on our financial statements and related disclosures.
Cessation of LIBOR - In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the
13


amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We are currently evaluating the impact of the adoption of ASU 2020-04 on our financial statements.
Debt with Conversion Options - In August 2020, FASB issued 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"), which simplifies the accounting for convertible instruments. ASU 2020-06 removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative under ASC 815 or for convertible debt issued at a substantial premium. ASU 2020-06 removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for it. In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2020. We are currently evaluating the impact of the adoption of ASU 2020-06 on our consolidated financial statements.
We do not expect any other new accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.
2. Restatement of Previously Issued Condensed Consolidated Financial Statements
We have restated herein our condensed consolidated financial statements as of and for the three and nine months ended September 30, 2019. We have also restated related amounts within the accompanying footnotes to the condensed consolidated financial statements.
Restatement Background
As previously disclosed in our Annual Report on Form 10-K as filed on March 31, 2020, on February 11, 2020, our management, in consultation with the Audit Committee of our Board of Directors, determined that our previously issued consolidated financial statements as of and for the year ended December 31, 2018, as well as financial statements as of and for the three month period ended March 31, 2019, the three and six month periods ended June 30, 2019 and 2018 and the three and nine month periods ended September 30, 2019 and 2018 should no longer be relied upon due to misstatements related to our Managed Services Agreements and similar arrangements and we would restate such financial statements to make the necessary accounting corrections. The revenue for the Managed Services Agreements and similar transactions will now be recognized over the duration of the contract instead of upfront.
The misstatements impacting as of and for the three and nine months ended September 30, 2019 are described in greater detail below.
Description of Misstatements
Under our Managed Services program, we sell our equipment to a bank financing party under a sale-leaseback transaction, which pays us for the Energy Server and takes title to the Energy Server. We then enter into a service contract with an end customer, who pays the bank a fixed, monthly fee for its use of the Energy Server and pays us for our maintenance and operation of the Energy Server.
The majority of these Managed Services Agreements and similar transactions were originally recognized as sales, subject to an operating lease, in which revenues and associated costs were recognized at the time of installation and acceptance of the Energy Server at the customer site.
In December 2019, in the course of reviewing a Managed Services transaction that closed on November 27, 2019, an issue was identified related to the accounting for our Managed Services transactions. The issue primarily related to whether the terms of our Managed Services Agreements and similar arrangements, including the events of default provisions, satisfied the requirements for sales under the revenue accounting standards. Subsequently, it was determined that the previous accounting for the Managed Services Agreements and similar transactions was misstated, as the Managed Services Agreements and similar transactions should have been accounted for as financing transactions under lease accounting standards.
The impact of the correction of the misstatement is to recognize amounts received from the bank financing party as a financing obligation, and the Energy Server is recorded within property, plant and equipment, net, on our consolidated balance sheets. We recognize revenue for the electricity generated by the systems, based on payments received by the bank from the
customer, and the corresponding financing obligations to the bank is also amortized as these payments are received by the bank from the customer, with interest thereon being calculated on an effective interest rate basis. Depreciation expense is also recognized over the estimated useful life of the Energy Server.
In addition, it was determined that stock-based compensation costs relating to manufacturing employees that were previously expensed as incurred incorrectly, should have been capitalized as a component of Energy Server manufacturing costs to inventory, deferred cost of revenues, construction-in-progress and property, plant and equipment in accordance with SEC Staff Accounting Bulletin Topic 14. These costs will now be expensed on consumption of the related inventory and over the economic useful life of the property, plant and equipment, as applicable.
Also, as part of a review of historical revenue agreements as a result of the above errors, it was noted that we failed to identify embedded derivatives in certain revenue agreements for an escalator price protection (“EPP”) feature given to our customers. As a result, we have recognized a derivative liability, with an offset to product revenue, to account for the fair value of this feature at inception and will record the liability at its then fair value at each period end with any changes in fair value recognized in gain (loss) on revaluation of embedded derivatives.
In addition to the impact of the restatement described above, in preparation of the condensed consolidated financial statements for the three months ended March 31, 2020, errors in our condensed consolidated statements of comprehensive loss were discovered. For the three and nine month periods ended September 30, 2019, the presentation of this statement and other errors identified in this statement have been corrected, which resulted in an additional $5.0 million and $13.9 million increase to comprehensive loss, and an increase of $9.9 million and $29.6 million in comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interests, respectively. In the consolidated statements of comprehensive loss for the years ended December 31, 2019 and 2018, comprehensive loss as previously reported is understated by $5.8 million and overstated by $1.8 million, respectively. In addition, the reconciliation of comprehensive loss to comprehensive loss attributable to Class A and Class B stockholders was erroneously omitted. As it relates to the impact of the errors to the consolidated statements of comprehensive loss for the years ended December 31, 2019 and 2018, management evaluated the impact of the errors to the previously issued financial statements and concluded the impacts were not material. Accordingly, these items for the periods disclosed are corrected herein.
Finally, there were certain other immaterial misstatements identified or which had been previously identified that are also corrected in connection with the restatement of previously issued financial statements.
Description of Restatement Reconciliation Tables
In the following tables, we have presented a reconciliation of our condensed consolidated balance sheet and statements of operations and cash flows from our prior periods as previously reported to the restated amounts as of and for the three and nine months ended September 30, 2019. In addition to the errors to the condensed consolidated statement of comprehensive loss discussed above, that Statement has been restated for the restatement impact to net loss. The condensed consolidated statement of redeemable noncontrolling interest, total stockholders' deficit and noncontrolling interest for the three and nine months ended September 30, 2019 has also been restated for the restatement impact to net loss. See the condensed consolidated statements of operations reconciliation table below for additional information on the restatement impact to net loss.

Bloom Energy Corporation
Condensed Consolidated Balance Sheet
(in thousands)
September 30, 2019
 As Previously ReportedRestatement ImpactsRestatement ReferenceASC 606 Adoption ImpactsAs Restated
 
Assets
Current assets:
Cash and cash equivalents$226,499 $$$226,499 
Restricted cash14,486 14,486 
Accounts receivable26,737 4,216 1(4,600)26,353 
Inventories140,372 (7,765)2132,607 
Deferred cost of revenue50,707 (9,665)341,042 
Customer financing receivable5,919 5,919 
Prepaid expenses and other current assets25,639 2,830 4173 28,642 
Total current assets490,359 (10,384)(4,427)475,548 
Property, plant and equipment, net384,377 243,008 5627,385 
Customer financing receivable, non-current62,615 62,615 
Restricted cash, non-current116,890 116,890 
Deferred cost of revenue, non-current57,286 (53,562)33,724 
Other long-term assets58,400 9,319 63,232 70,951 
Total assets$1,169,927 $188,381 $(1,195)$1,357,113 
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interests
Current liabilities:
Accounts payable$81,060 $$$81,060 
Accrued warranty15,295 (1,159)7(1,274)12,862 
Accrued expenses and other current liabilities82,150 (2,534)879,616 
Financing obligations10,420 910,420 
Deferred revenue and customer deposits88,060 (13,856)103,347 77,551 
Current portion of recourse debt15,678 15,678 
Current portion of non-recourse debt7,983 7,983 
Current portion of non-recourse debt from related parties3,500 3,500 
Total current liabilities293,726 (7,129)2,073 288,670 
Derivative liabilities14,648 5,636 1120,284 
Deferred revenue and customer deposits, net of current portion179,712 (92,390)1034,954 122,276 
Financing obligations, non-current397,272 9397,272 
Long-term portion of recourse debt359,959 359,959 
Long-term portion of non-recourse debt217,334 217,334 
Long-term portion of recourse debt from related parties27,734 27,734 
Long-term portion of non-recourse debt from related parties31,781 31,781 
Other long-term liabilities56,117 (27,264)8(1)28,852 
Total liabilities1,181,011 276,125 37,026 1,494,162 
Redeemable noncontrolling interest557 557 
Stockholders’ deficit:
Preferred stock0 0 
Common stock12 12 
Additional paid-in capital2,647,118 756 122,647,874 
Accumulated other comprehensive loss(147)(147)
Accumulated deficit(2,753,830)(88,500)(38,221)(2,880,551)
Total stockholders’ deficit(106,847)(87,744)(38,221)(232,812)
Noncontrolling interest95,206 95,206 
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest$1,169,927 $188,381 $(1,195)$1,357,113 

1 Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
2 Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation cost of $3.7 million.
3 Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net, for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $7.4 million (short-term) and $53.6 million (long-term), net capitalization of stock-based compensation costs of $0.8 million into current deferred cost of revenue, and the correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $3.1 million.
4 Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.
5 Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $239.3 million. This includes a net capitalization of stock-based compensation cost for these assets of $3.7 million
6 Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
7 Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty, which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements, reducing accrued warranty by $0.1 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued warranty by $1.1 million
8 Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.
9 Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.
10Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
11 Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.
12 Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within other expense, net.
.

Bloom Energy Corporation
Condensed Consolidated Statement of Operations
(in thousands)
 Three Months Ended
September 30, 2019
 As Previously ReportedRestatement ImpactsRestatement ReferenceASC 606 Adoption ImpactsAs Restated
 
Revenue:
Product$182,616 $(1,292)a$(17,422)$163,902 
Installation19,010 (460)a2,552 21,102 
Service23,597 (779)a847 23,665 
Electricity8,248 7,390 a15,638 
Total revenue233,471 4,859 (14,023)224,307 
Cost of revenue:
Product94,056 (2,085)c, d(274)91,697 
Installation26,162 (21)c26,141 
Service36,539 2,073 b, d(2,185)36,427 
Electricity23,249 4,068 c27,317 
Total cost of revenue180,006 4,035 (2,459)181,582 
Gross profit53,465 824 (11,564)42,725 
Operating expenses:
Research and development23,389 23,389 
Sales and marketing18,125 43 e(519)17,649 
General and administrative36,599 36,599 
Total operating expenses78,113 43 (519)77,637 
Loss from operations(24,648)781 (11,045)(34,912)
Interest income1,214 1,214 
Interest expense(15,280)(6,043)f(21,323)
Interest expense to related parties(1,605)(1,605)
Other expense, net525 525 
Loss on revaluation of warrant liabilities and embedded derivatives(540)g(540)
Loss before income taxes(39,794)(5,802)(11,045)(56,641)
Income tax provision136 136 
Net loss(39,930)(5,802)(11,045)(56,777)
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests(5,027)(5,027)
Net loss attributable to Class A and Class B common stockholders$(34,903)$(5,802)$(11,045)$(51,750)

a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in the accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.1 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $1.1 million and installation cost of revenue of $0.6 million, offset by an increase in electricity cost of revenue of $4.0 million together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.6 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $1.0 million, and an increase in service cost of revenue of $2.2 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased in the period, resulting in a loss of $0.5 million.

Bloom Energy Corporation
Condensed Consolidated Statement of Operations
(in thousands)

Nine Months Ended
September 30, 2019
As Previously ReportedRestatement ImpactsRestatement ReferenceASC 606 Adoption ImpactsAs Restated
Revenue:
Product$504,249 $(72,220)a$(33,120)$398,909 
Installation58,553 (17,555)a5,399 46,397 
Service70,546 (1,939)a1,551 70,158 
Electricity34,612 21,558 a56,170 
Total revenue667,960 (70,156)(26,170)571,634 
Cost of revenue:
Product350,008 (56,070)c, d(241)293,697 
Installation72,444 (12,858)c59,586 
Service83,695 4,324 b, d(4,908)83,111 
Electricity50,920 11,681 c62,601 
Total cost of revenue557,067 (52,923)(5,149)498,995 
Gross profit110,893 (17,233)(21,021)72,639 
Operating expenses:
Research and development82,020 82,020 
Sales and marketing56,947 62 e(793)56,216 
General and administrative119,335 119,335 
Total operating expenses258,302 62 (793)257,571 
Loss from operations(147,409)(17,295)(20,228)(184,932)
Interest income4,799 4,799 
Interest expense(47,967)(17,878)f(65,845)
Interest expense to related parties(4,823)(4,823)
Other expense, net568 568 
Loss on revaluation of warrant liabilities and embedded derivatives(1,620)g(1,620)
Loss before income taxes(194,832)(36,793)(20,228)(251,853)
Income tax provision602 602 
Net loss(195,434)(36,793)(20,228)(252,455)
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests(13,874)(13,874)
Net loss attributable to Class A and Class B common stockholders$(181,560)$(36,793)$(20,228)$(238,581)

a Revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.
b Service cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in the accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.3 million.
c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $56.7 million and installation cost of revenue of $15.0 million, offset by an increase in electricity cost of revenue of $11.6 million together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $2.1 million.
d Cost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.6 million, and an increase in service cost of revenue of $4.6 million due to the expensing of stock-based compensation related to field replacement units.
e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.
f Interest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.
g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased in the period, resulting in a loss of $1.6 million.



Bloom Energy Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
 Nine Months Ended
September 30, 2019
 As Previously ReportedRestatement ImpactsRestatement ReferenceASC 606 Adoption ImpactsAs Restated
 
Cash flows from operating activities:
Net loss$(195,434)$(36,793)$(20,228)$(252,455)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization55,816 9,132 A64,948 
Write-off of property, plant and equipment, net2,987 2,987 
Write-off of PPA II decommissioned costs25,613 25,613 
Debt make-whole payment5,934 5,934 
Revaluation of derivative contracts1,335 1,620 B2,955 
Stock-based compensation154,955 5,278 C160,233 
Loss on long-term REC purchase contract61 61 
Amortization of debt issuance cost16,295 16,295 
Changes in operating assets and liabilities:
Accounts receivable58,150 (318)D5,594 63,426 
Inventories(7,896)6,121 E(1,775)
Deferred cost of revenue56,854 (59,198)F(2,344)
Customer financing receivable and other4,142 4,142 
Prepaid expenses and other current assets7,928 176 G(33)8,071 
Other long-term assets3,281 (1,229)H(758)1,294 
Accounts payable14,171 14,171 
Accrued warranty(3,941)109 I(242)(4,074)
Accrued expense and other current liabilities5,029 162 J5,191 
Deferred managed services revenue
Deferred revenue and customer deposits(68,180)74,765 K15,667 22,252 
Other long-term liabilities2,083 2,477 L4,560 
Net cash provided by operating activities139,183 2,302 141,485 
Cash flows from investing activities:
Purchase of property, plant and equipment(23,474)(16,216)M(39,690)
Payments for acquisition of intangible assets(1,478)(1,478)
Proceeds from maturity of marketable securities104,500 104,500 
Net cash provided by investing activities79,548 (16,216)63,332 
Cash flows from financing activities:
Repayment of debt(93,263)(93,263)
Repayment of debt to related parties(1,691)(1,691)
Debt make-whole payment(5,934)(5,934)
Proceeds from financing obligations20,333 N20,333 
Repayment of financing obligations(6,419)N(6,419)
Payments to noncontrolling and redeemable noncontrolling interests(43,713)(43,713)
Distributions to noncontrolling and redeemable noncontrolling interests(9,363)(9,363)
Proceeds from issuance of common stock12,623 12,623 
Net cash used in financing activities(141,341)13,914 (127,427)
Net increase in cash, cash equivalents, and restricted cash77,390 77,390 
Cash, cash equivalents, and restricted cash:
Beginning of period280,485 280,485 
End of period$357,875 $$$357,875 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$35,894 $17,878 N$$53,772 
Cash paid during the period for taxes715 715 

A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under our Managed Services Program and similar arrangements that were previously expensed as product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.
B Revaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as an accrued liability. We now consider the commitments a derivative liability, with the initial value of recorded as a reduction in product revenue and then any changes in the value adjusted through other expense, net, each period thereafter.
C Stock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $5.9 million The correction of this misstatement also resulted in the capitalization of $0.6 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant and equipment, net.
D Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.
E Inventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under our Managed Services Program and similar arrangements now being accounted for as construction in progress within property, plant and equipment, net.
F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby leased Energy Servers of $60.6 million previously classified as deferred cost of revenue is now recorded as construction in progress within property, plant and equipment, net, and the net release of stock-based compensation expenses of $1.4 million.
G Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby prepaid property tax and insurance payments are now classified within prepaid expenses.
H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.
I Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements. The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote. We now maintain a $0.4 million accrual, with the initial value treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.
J Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a financing liability.
K Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.
L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next 12 months are classified as a financing obligation.
M Purchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net, in the cases where the risks of ownership have not completely transferred to the financing party.
N Proceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.

14


3. Revenue Recognition
Deferred Revenue and Customer Deposits
Deferred revenue and customer deposits as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
Deferred revenue$150,144 $168,223 
Deferred incentive revenue6,900 7,397 
Customer deposits42,019 39,101 
Deferred revenue and customer deposits$199,063 $214,721 

Deferred revenue activity during the three and nine months ended September 30, 2020 and 2019 consisted of the following (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
As RestatedAs Restated
Beginning balance$162,186 $157,986 $168,223 $140,130 
Additions166,398 190,168 463,652 497,665 
Revenue recognized(178,440)(198,792)(481,731)(488,433)
Ending balance$150,144 $149,362 $150,144 $149,362 
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 significant 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. These obligations provide customers with material rights over a period that we estimate will be largely commensurate with the period of their expected use of the associated Energy Server. As a result, we expect to recognize these amounts as revenue over a period of up to 21 years, predominantly on a cost-to-cost basis that reflects the cost of providing these services. Deferred revenue also includes performance obligations relating to product acceptance and installation. A significant amount of this deferred revenue is reflected as additions and revenue recognized in the same period and we expect to recognize all amounts within a year. The three and nine months ended September 30, 2020 included $14.2 million of previously deferred revenue that was recognized as revenue in the quarter that was not associated with acceptances or service in the quarter. This was a one-time recognition of deferred revenue related to a specific contract that changed scope.
Revenue by source
We disaggregate revenue from contracts with customers into four revenue categories: (i) product, (ii) installation, (iii) services, and (iv) electricity (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
   As RestatedAs Restated
Revenue from contracts with customers: 
Product revenue $131,076 $163,902 $346,832 $398,909 
Installation revenue 26,603 21,102 73,060 46,397 
Services revenue 26,141 23,665 77,496 70,158 
Electricity revenue 10,840 
Total revenue from contract with customers183,819 208,669 497,388 526,304 
Revenue from contracts accounted for as leases:
Electricity revenue16,485 15,638 47,472 45,330 
Total revenue$200,305 $224,307 $544,860 $571,634 
15


4. Financial Instruments
Cash, Cash Equivalents and Restricted Cash
The carrying value of cash, cash equivalents and restricted cash approximate fair value are as follows (in thousands):
 September 30,
2020
December 31, 2019
As Held:
Cash$66,135 $100,773 
Money market funds438,234 276,615 
$504,369 $377,388 
As Reported:
Cash and cash equivalents$325,241 $202,823 
Restricted cash179,128 174,565 
$504,369 $377,388 
Restricted cash consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
Current:  
Restricted cash$33,240 $28,494 
Restricted cash related to PPA Entities 1
13,972 2,310 
Restricted cash, current47,212 30,804 
Non-current:
Restricted cash252 10 
Restricted cash related to PPA Entities 1
131,664 143,751 
Restricted cash, non-current131,916 143,761 
$179,128 $174,565 
1 We have VIEs that represent a portion of the condensed consolidated balances recorded within the "restricted cash," and other financial statement line items in the condensed consolidated balance sheets (see Note 13, Power Purchase Agreement Programs). In addition, the restricted cash held in the PPA II and PPA IIIb entities as of September 30, 2020, included $12.4 million and $0.5 million of current restricted cash, and $96.3 million and $20.0 million of non-current restricted cash, respectively, and these entities are not considered VIEs. The restricted cash held in the PPA II and PPA IIIb entities as of December 31, 2019, included $108.7 million and $20.0 million of non-current restricted cash, respectively, and these entities are not considered VIEs.
Derivative Instruments
We have derivative financial instruments related to natural gas fixed price forward contracts, embedded derivatives in sales contracts, and interest rate swaps. See Note 8, Derivative Financial Instruments for a full description of our derivative financial instruments.

16


5. Fair Value
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below set forth, by level, our financial assets that were 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
September 30, 2020Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$438,234 $$$438,234 
$438,234 $$$438,234 
Liabilities
Accrued expenses and other current liabilities$$$$
Derivatives:
Natural gas fixed price forward contracts3,245 3,245 
Embedded EPP derivatives3,975 3,975 
Interest rate swap agreements17,272 17,272 
$$17,272 $7,220 $24,492 

 Fair Value Measured at Reporting Date Using
December 31, 2019Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$276,615 $$$276,615 
Interest rate swap agreements
$276,615 $$$276,618 
Liabilities
Accrued expenses and other current liabilities$996 $$$996 
Derivatives:
Natural gas fixed price forward contracts6,968 6,968 
Embedded EPP derivatives6,176 6,176 
Interest rate swap agreements9,241 9,241 
$996 $9,241 $13,144 $23,381 
Money Market Funds - Money market funds are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial assets.
Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified as Level 2 financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on our condensed consolidated balance sheets. As of September 30, 2020, we expect $1.9 million of the loss on the interest rate swaps accumulated in other comprehensive income (loss) to be reclassified into earnings in the next 12 months.
Natural Gas Fixed Price Forward Contracts - Natural gas fixed price forward contracts are valued using a combination of factors including the counterparty's credit rating and estimates of future natural gas prices and therefore, as no observable inputs to support market activity are available, are classified as Level 3 liabilities.
17


The following table provides the number and fair value of our natural gas fixed price forward contracts (in thousands):
 September 30, 2020December 31, 2019
 
Number of
Contracts
(MMBTU)²
Fair
Value
Number of
Contracts
(MMBTU)²
Fair
Value
   
Liabilities¹:
Natural gas fixed price forward contracts (not under hedging relationships)1,112 $3,245 1,991 $6,968 
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 three months ended September 30, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contracts and recorded an unrealized loss of $0.7 million and an unrealized loss of $0.8 million, respectively. For the three months ended September 30, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contracts and recognized a realized gain of $1.2 million and a realized gain of $1.1 million, respectively, on the settlement of these contracts in cost of revenue on our condensed consolidated statements of operations.
For the nine months ended September 30, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contracts and recognized an unrealized loss of $1.5 million in 2019, with no material unrealized gains or losses in 2020. We recorded the fair value of our natural gas fixed price forward contracts and recognized realized gains of $3.7 million and $2.7 million for the nine months ended September 30, 2020 and 2019, respectively, on the settlement of these contracts in cost of revenue on our condensed consolidated statements of operations.
Embedded EPP Derivative Liability in Sales Contracts - We estimated the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo simulation model, which considers various potential electricity price curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. We have classified these derivatives as a Level 3 financial liability.
For the three months ended September 30, 2020 and 2019, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized gain of $1.5 million and an unrealized loss of $0.5 million, respectively, in gain (loss) on revaluation of embedded derivatives on our condensed consolidated statements of operations. For the nine months ended September 30, 2020 and 2019, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized gain of $2.2 million and an unrealized loss of $1.6 million, respectively, in gain (loss) on revaluation of embedded EPP derivatives on our condensed consolidated statements of operations.
There were no transfers between fair value measurement classifications during the three and nine months ended September 30, 2020 and 2019.
The changes in the Level 3 financial liabilities during the three months ended September 30, 2020 were as follows (in thousands):
Natural
Gas
Fixed Price
Forward
Contracts
Embedded
Derivative
Liability
Total
Liabilities at June 30, 2020$5,185 $5,480 $10,665 
Settlement of natural gas fixed price forward contracts(1,214)(1,214)
Changes in fair value(726)(1,505)(2,231)
Liabilities at September 30, 2020$3,245 $3,975 $7,220 



18


The changes in the Level 3 financial liabilities during the nine months ended September 30, 2020 were as follows (in thousands):
Natural
Gas
Fixed Price
Forward
Contracts
Embedded EPP Derivative LiabilityTotal
Liabilities at December 31, 2019$6,968 $6,176 $13,144 
Settlement of natural gas fixed price forward contracts(3,692)(3,692)
Changes in fair value(31)(2,201)(2,232)
Liabilities at September 30, 2020$3,245 $3,975 $7,220 
The following table presents the unobservable inputs related to our Level 3 liabilities:
As of September 30, 2020
Commodity ContractsDerivative LiabilitiesValuation TechniqueUnobservable InputUnitsRangeAverage
(in thousands)($ per Units)
Natural Gas$3,245 Discounted Cash FlowForward basis priceMMBtu$2.86 - $5.50$3.85 
As of December 31, 2019
Commodity ContractsDerivative LiabilitiesValuation TechniqueUnobservable InputUnitsRangeAverage
(in thousands)($ per Units)
Natural Gas$6,968 Discounted Cash FlowForward basis priceMMBtu$2.39 - $5.65$3.23 
The unobservable inputs used in the fair value measurement of the natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas contracts were deemed unobservable.
To estimate the liabilities related to the EPP contracts an option pricing method was implemented through a Monte Carlo simulation. The unobservable inputs were simulated based on the available values for avoided cost and cost of electricity as calculated for September 30, 2020 and December 31, 2019, using an expected growth rate of 7% over the contracts' life and volatility of 20%. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 2020. 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 above 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 derivative liabilities.
Financial Assets and Liabilities 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, whereas the fair value approximates the present value of the receivables (Level 3). The senior secured notes, term loans and convertible promissory notes are based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):
19


 September 30, 2020December 31, 2019
 Net Carrying
Value
Fair ValueNet Carrying
Value
Fair Value
   
Customer receivables
Customer financing receivables$52,066 $43,623 $55,855 $44,002 
Debt instruments
Recourse:
LIBOR + 4% term loan due November 2020278 287 1,536 1,590 
5% convertible promissory Constellation note due December 202136,482 32,070 
10% convertible promissory notes due December 20211
99,379 234,816 273,410 302,047 
10% notes due July 202476,743 71,385 89,962 97,512 
10.25% senior secured notes due March 202768,526 59,747 
2.5% green convertible senior notes due August 202598,212 293,135 — — 
Non-recourse:
7.5% term loan due September 202832,717 36,665 34,969 41,108 
6.07% senior secured notes due March 203077,846 89,079 80,016 87,618 
LIBOR + 2.5% term loan due December 2021117,145 117,457 120,437 120,510 
1The fair value on the 10% convertible notes increased due to the increase in the fair value of the conversion feature.
Long-Lived Assets - Our long-lived assets include property, plant and equipment and Energy Servers capitalized in connection with our Managed Services Financing Program, Purchase Power Agreement Programs 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.

6. Balance Sheet Components
Inventories
The components of inventory consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
Raw materials$77,936 $67,829 
Work-in-progress28,127 21,207 
Finished goods25,848 20,570 
$131,911 $109,606 
We held Energy Server product inventory at customer locations pending installation and acceptance of $20.0 million and $14.6 million as of September 30, 2020 and December 31, 2019, respectively. As this Energy Server inventory was shipped to customer locations as a result of a signed sales contract, but where title has not transferred until acceptance occurs, these balances are recognized as deferred cost of revenues on the consolidated balance sheets. We recognized inventory provisions of $0.3 million and $0.9 million during the three months ended September 30, 2020 and 2019, respectively, and $2.2 million and $2.6 million during the nine months ended September 30, 2020 and 2019, respectively.
20


Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
   
Government incentives receivable$762 $893 
Prepaid maintenance3,780 3,763 
Receivables from employees5,413 6,130 
Other prepaid expenses and other current assets20,285 17,282 
$30,240 $28,068 
Property, Plant and Equipment, Net
Property, plant and equipment, net, consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
   
Energy Servers$657,418 $650,600 
Computers, software and hardware21,278 20,275 
Machinery and equipment105,652 101,650 
Furniture and fixtures8,334 8,339 
Leasehold improvements37,497 35,694 
Building46,686 40,512 
Construction in progress22,935 12,611 
899,800 869,681 
Less: Accumulated depreciation(297,871)(262,622)
$601,929 $607,059 
Construction in progress increased $10.3 million from December 31, 2019, primarily due to an increase of $14.1 million of Energy Servers under our Managed Services sale-leaseback program pending acceptance, partially offset by $3.8 million primarily due to the completion of our Delaware plant expansion.
Property, plant and equipment, net, under operating leases by the PPA Entities was $368.0 million and $371.4 million as of September 30, 2020 and December 31, 2019, respectively. The accumulated depreciation for these assets was $110.1 million and $95.5 million as of September 30, 2020 and December 31, 2019, respectively.
Our depreciation expense includes expense related to property, plant and equipment, plus depreciation expense related to assets held under operating leases held by us and our PPA entities. Depreciation expense related to assets under operating leases was $9.3 million and $9.5 million for the three months ended September 30, 2020 and 2019, respectively, and $28.0 million and $28.3 million for the nine months ended September 30, 2020 and 2019, respectively. Depreciation expense related to property, plant and equipment, net, was $3.7 million and $3.5 million for the three months ended September 30, 2020 and 2019, respectively, and $10.9 million and $10.1 million for the nine months ended September 30, 2020 and 2019, respectively. Additionally, we recorded decommissioning charges related to the PPA II transaction of $14.6 million and $25.6 million in cost of product revenue in the three and nine months ended September 30, 2019, respectively.
21


Customer Financing Receivable
The components of investment in sales-type financing leases consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
Total minimum lease payments to be received$71,020 $76,886 
Less: Amounts representing estimated executory costs(18,164)(19,931)
Net present value of minimum lease payments to be received52,856 56,955 
Estimated residual value of leased assets890 890 
Less: Unearned income(1,680)(1,990)
Net investment in sales-type financing leases52,066 55,855 
Less: Current portion(5,341)(5,108)
Non-current portion of investment in sales-type financing leases$46,725 $50,747 
The future scheduled customer payments from sales-type financing leases were as follows as of September 30, 2020 (in thousands):
 Remainder of 20202021202220232024Thereafter
Future minimum lease payments, less interest$1,319 $5,428 $5,784 $6,155 $6,567 $25,923 
Other Long-Term Assets
Other long-term assets consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
   
Prepaid and other long-term assets$30,173 $29,153 
Deferred commissions6,524 5,007 
Equity-method investments2,040 5,733 
Long-term deposits1,895 1,759 
$40,632 $41,652 
Accrued Warranty
Accrued warranty liabilities consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
   
Product warranty$2,951 $2,345 
Product performance6,749 7,535 
Maintenance services contracts107 453 
$9,807 $10,333 
22


Changes in the product warranty and product performance liabilities were as follows (in thousands):
Balances at December 31, 2019$9,881 
Accrued warranty, net6,049 
Warranty expenditures during period(6,230)
Balances at September 30, 2020$9,700 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
   
Compensation and benefits$18,908 $17,173 
Current portion of derivative liabilities4,949 4,834 
Sales related liabilities521 416 
Accrued installation13,212 10,348 
Sales tax liabilities1,880 3,849 
Interest payable2,841 3,875 
Accrued payables25,035 18,650 
Other10,536 11,139 
$77,882 $70,284 
Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
 September 30,
2020
December 31, 2019
Delaware grant$9,212 $10,469 
Other17,406 17,544 
$26,618 $28,013 
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. We have received $12.0 million of the grant, which is contingent upon us meeting certain milestones related to the construction of the manufacturing facility and the employment of full-time workers at the facility through September 30, 2023. We paid $1.5 million in 2017 for recapture provisions, and no additional amounts have been paid. As of September 30, 2020, we have recorded $1.3 million in current liabilities and $9.2 million in other long-term liabilities for potential repayments. See Note 14, Commitments and Contingencies for a full description of the grant.

23


7. Outstanding Loans and Security Agreements
The following is a summary of our debt as of September 30, 2020 (in thousands):
 Unpaid
Principal
Balance
Net Carrying ValueUnused
Borrowing
Capacity
Interest
Rate
Maturity DatesEntityRecourse
 CurrentLong-
Term
Total
LIBOR + 4% term loan due November 2020$286 $278 $$278 $— LIBOR plus
margin
November 2020CompanyYes
10% convertible promissory notes due December 202196,209 99,379 99,379 — 10.0%December 2021CompanyYes
10% notes due July 202479,000 16,000 60,743 76,743 — 10.0%July 2024CompanyYes
10.25% senior secured notes due March 202770,000 68,526 68,526 — 10.25%March 2027CompanyYes
2.5% green convertible senior notes due August 2025230,000 98,212 98,212 2.5%August 2025CompanyYes
Total recourse debt475,495 115,657 227,481 343,138 — 
7.5% term loan due September 202835,087 2,696 29,522 32,218 — 7.5%September 
2028
PPA IIIaNo
6.07% senior secured notes due March 203078,710 3,695 74,151 77,846 — 6.1%March 2030PPA IVNo
LIBOR + 2.5% term loan due December 2021117,947 7,609 109,536 117,145 — LIBOR plus
margin
December 2021PPA VNo
Letters of Credit due December 2021968 2.25%December 2021PPA VNo
Total non-recourse debt231,744 14,000 213,209 227,209 968 
Total debt$707,239 $129,657 $440,690 $570,347 $968 

The following is a summary of our debt as of December 31, 2019 (in thousands):
 Unpaid
Principal
Balance
Net Carrying ValueUnused
Borrowing
Capacity
Interest
Rate
Maturity DatesEntityRecourse
 CurrentLong-
Term
Total
LIBOR + 4% term loan due November 2020$1,571 $1,536 $$1,536 $— LIBOR
plus margin
November 2020CompanyYes
5% convertible promissory note due December 202033,104 36,482 36,482 — 5.0%December 2020CompanyYes
6% convertible promissory notes due December 2020289,299 273,410 273,410 — 6.0%December 2020CompanyYes
10% notes due July 202493,000 14,000 75,962 89,962 — 10.0%July 2024CompanyYes
Total recourse debt416,974 325,428 75,962 401,390 — 
7.5% term loan due September 202838,337 3,882 31,087 34,969 — 7.5%September 2028PPA IIIaNo
6.07% senior secured notes due March 203080,988 3,151 76,865 80,016 — 6.1%March 2030PPA IVNo
LIBOR + 2.5% term loan due December 2021121,784 5,122 115,315 120,437 — LIBOR plus
margin
December 2021PPA VNo
Letters of Credit due December 20211,220 2.25%December 2021PPA VNo
Total non-recourse debt241,109 12,155 223,267 235,422 1,220 
Total debt$658,083 $337,583 $299,229 $636,812 $1,220 
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. The differences between the unpaid principal balances and the net carrying values apply to debt discounts and deferred financing costs. We were in compliance with all financial covenants as of September 30, 2020 and December 31, 2019.
Recourse Debt Facilities
LIBOR + 4% Term Loan due November 2020 - The weighted average interest rate as of September 30, 2020 and December 31, 2019 was 4.2% and 6.3%, respectively. As of September 30, 2020 and December 31, 2019, the unpaid principal balance of debt outstanding was $0.3 million and $1.6 million, respectively, and we are in compliance with all covenants, respectively.
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10% Constellation Convertible Promissory Note due 2021 - On March 31, 2020, we entered the Constellation Note Modification Agreement, which amended the terms of the 5% Constellation Note to extend the maturity date to December 31, 2021 and increased the interest rate from 5% to 10% ("10% Constellation Note"). We further amended the 10% Constellation Note by reducing the strike price on the conversion feature from $38.64 per share to $8.00 per share.
When we evaluated the Constellation Note Modification Agreement in accordance with ASC 470-60, Debt - Troubled Debt Restructurings by Debtors ("ASC 470-60") and ASC 470-50, Debt - Modifications and Extinguishments ("ASC 470-50"), we concluded that the amendment did not constitute a troubled debt restructuring and, furthermore, the amendment qualified as a substantial modification as a result of the increase in the fair value of the conversion feature due to the reduced strike price. As a result, on March 31, 2020, the 10% Constellation Note, which consisted of $33.1 million in principal and $3.8 million in accrued and unpaid interest, was extinguished and the 10% Constellation Note was recognized at their fair market value, which equaled $40.7 million. The difference between the fair market value of the 10% Constellation Note and the carrying value of the 5% Constellation Note of $3.8 million was recognized as a loss on extinguishment of debt in the condensed consolidated statement of operations.
On June 18, 2020, Constellation exchanged their entire 10% Constellation Note at the conversion price of $8.00 per share into 4.7 million shares of Class A common stock. At the time of this exchange the unamortized premium of $3.4 million was recognized as an adjustment to additional paid-in capital.
10% Convertible Promissory Notes due December 2021 - On March 31, 2020, we entered into an Amendment Support Agreement with the noteholders of our outstanding 6% Convertible Notes pursuant to which such Noteholders agreed to extend the maturity date of the outstanding 6% Convertible Notes to December 1, 2021 and increase the interest rate from 6% to 10%. Additionally, the debt is convertible at the option of the Noteholders into common stock at any time through the maturity date and we further amended the 10% Convertible Notes by reducing the strike price on the conversion feature from $11.25 to $8.00 per share. In conjunction with entering into the Amendment Support Agreement, on March 31, 2020, we also entered into the 10% Convertible Note Purchase Agreement and issued an additional $30.0 million aggregate principal amount of 10% Convertible Notes to Foris Ventures, LLC, a new noteholder, and New Enterprise Associates 10, Limited Partnership, an existing noteholder. The 10% Convertible Notes and the $30.0 million new 10% Convertible Notes were all reflected in the Restated Indenture. The Amendment Support Agreement required that we repay at least $70.0 million of the 10% Convertible Notes on or before September 1, 2020. In return, collateral was released to support the collateral required under the 10.25% Senior Secured Notes, and 50% of the proceeds from the consummation of certain transactions, including equity offerings or additional indebtedness, will be applied to redeem the 10% Convertible Notes at a redemption price equal to 100% of the principal amount of the 10% Convertible Notes, plus accrued and unpaid interest, the aggregate sum of all remaining scheduled interest payments, discounted by a rate equal to the treasury rate plus 50 basis points, multiplied by a certain percentage (“Applicable Percentage”) that ranges from 0% to 100%, which is determined based on the time of redemption. If the redemption were to occur on or before October 21, 2020, the Applicable Percentage would be 0% and therefore, no redemption penalty would be incurred. If the redemption were to happen after October 21, 2020, the Applicable Percentage would be between 25% and 100%, determined based on the time of redemption. On May 1, 2020, we repaid $70.0 million of the 10% Convertible Notes and accrued and unpaid interest and recognized an adjustment to the unamortized debt premium of $4.3 million.
We evaluated the Amendment Support Agreement in accordance with ASC 470-60 and ASC 470-50 and concluded that the amendment did not constitute a troubled debt restructuring and, furthermore, the amendment qualified as a substantial modification as a result of the increase in the fair value of the conversion feature due to the reduced strike price. As a result, on March 31, 2020, we recognized a $10.3 million loss on extinguishment of debt in the condensed consolidated statement of operations, which was calculated as the difference between the reacquisition price of the 6% Convertible Notes and the carrying value of the 6% Convertible Notes. The total carrying value of the 6% Convertible Notes equaled $279.0 million, which consisted of $289.3 million in principal and $1.4 million in accrued and unpaid interest, reduced by $10.7 million in unamortized discount and $1.0 million in unamortized debt issuance costs. The total reacquisition price of the 6% Convertible Notes equaled $289.3 million, which consisted of the $340.7 million fair value of the 10% Convertible Notes, $1.4 million in accrued and unpaid interest, and $1.2 million of fees paid to noteholders as part of the amendment, reduced by $24.0 million, the fair value at March 31, 2020 of the embedded derivative relating to the equity classified conversion feature was reclassified from additional paid-in capital at the time of the debt extinguishment, $20.0 million cash received from the additional 10% Convertible Notes that were issued to New Enterprise Associates 10, Limited Partnership, and the $10.0 million issuance to Foris Ventures, LLC.
The new net carrying amount of the 10% Convertible Notes of $99.4 million, which consists of the $96.2 million principal of the 10% Convertible Notes, $3.2 million net of premium paid for the 10% Convertible Notes and debt issuance
25


costs was classified as current as of September 30, 2020. Furthermore, the $14.1 million deemed premium net of debt issuance costs is being amortized over the term of the 10% Convertible Notes using the effective interest method. The $96.2 million principal balance of 10% Convertible Notes due to the Canada Pension Plan Investment Board ("CPPIB") will be converted to 12.0 million shares of common stock in October 2020, and the unamortized premium of $3.2 million will be an adjustment to additional paid in capital.
10% Senior Secured Notes due July 2024 - The outstanding unpaid principal balance of the 10% Senior Secured Notes due July 2024 (the "10% Notes") of $16.0 million and $14.0 million were classified as current as of September 30, 2020 and December 31, 2019, respectively, and the net carrying amount of the 10% Notes of $60.7 million and $76.0 million were classified as non-current as of September 30, 2020 and December 31, 2019, respectively. The accrued unpaid interest balance on the 10% Notes was $1.3 million and $3.9 million as on September 30, 2020 and December 31, 2019, 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 the Senior Secured Notes Private Placement. The 10.25% Senior Secured Notes are governed by an indenture (the “Senior Secured Notes Indenture”) entered into among us, the guarantors party thereto and U.S. Bank National Association, in its capacity as trustee and collateral agent. The 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. We used the proceeds of this issuance to repay $70.0 million of our 10% Convertible Notes on May 1, 2020. The 10.25% Senior Secured Notes are supported by a $150.0 million indenture between us and U.S. Bank National Association, which contains an accordion feature for an additional $80.0 million of notes that can be issued within the next 18 months.
Interest on the 10.25% Senior Secured Notes is payable on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 2020. The 10.25% Senior Secured Notes Indenture contains customary events of default and covenants relating to, among other things, the incurrence of new debt, affiliate transactions, liens and restricted payments. On or after March 27, 2022, we may redeem all of the 10.25% Senior Secured Notes at a 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. Before March 27, 2022, we may redeem the 10.25% Senior Secured Notes upon repayment of a make-whole premium. If we experience a change of control, we must offer to purchase for cash all or any part of each holder’s 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 outstanding unpaid principal of the 10.25% Senior Secured Notes of $70.0 million was classified as non-current as of September 30, 2020.
2.5% Green Convertible Senior Notes due August 2025 - In August 2020, we issued $230.0 million aggregate principal amount of our Green Notes unless earlier repurchased, redeemed or converted. The Green Notes were issued pursuant to, and are governed by, the Green Note Indenture. The principal amount of the Green Notes are $230.0 million, less initial purchaser's discount of $6.9 million and less other issuance costs of $3.0 million 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. Before the close of business on the business day immediately before May 15, 2025, noteholders will have the right to convert their Green Notes only upon the occurrence of certain events. From and after May 15, 2025, noteholders may convert their Green Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.
At our option, we may settle conversions by paying or delivering, as applicable, cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election.
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 will be 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 in the Green Note Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
In the accounting for the issuance of the Green Notes, we separated the $230.0 million aggregate principal amount into liability and equity components in accordance with ASC 470 – 20, Debt with Conversion and Other Options. The carrying amount of the liability components for the Green Notes of approximately $96.1 million was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature and was classified as non-current debt on the condensed consolidated balance sheet. The carrying amount of the equity components for the Green Notes of approximately $133.9 million, representing the conversion option, was determined by deducting the carrying amount of the liability components from the principal amount of the notes. This difference between the principal amount of the notes and the liability
26


components represents the debt discount, presented as a reduction to the notes on our condensed consolidated balance sheets, and is amortized to interest expense using the effective interest method over the remaining term of the notes. The equity components of the notes are included in additional paid-in capital on our condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

We incurred issuance costs related to the Green Notes of approximately $9.9 million, consisting of the initial purchaser's discount of $6.9 million and other issuance costs of approximately $3.0 million. In accounting for the issuance costs, we allocated the total amount incurred to the liability and equity components using the same proportions determined above for the notes. Transaction costs attributable to the liability components for the Green Notes of approximately $4.3 million were recorded as debt issuance costs, presented as a reduction to the notes on our condensed consolidated balance sheets, and are amortized to interest expense using the effective interest method over the term of the notes. The issuance costs attributable to the equity components for the Green Notes were approximately $5.6 million and were recorded as a reduction to the equity component included in additional paid-in capital.

As of September 30, 2020, the remaining lives of the Green Notes are approximately 4.9 years, and are classified as long-term debt. The effective interest rate of the liability components for the Green Notes is 21.2% and is based on the interest rate of similar debt instruments, at the time of our offering, that do not have associated convertible features. Total interest expense recognized related to the Green Notes for the three and nine months ended September 30, 2020 was $2.9 million, comprised of contractual interest expense of $0.7 million, amortization of debt discount of $2.1 million and amortization of issuance costs of $0.1 million.
Non-recourse Debt Facilities
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreement to help fund the purchase and installation of our Energy Servers. The loan bears a fixed interest rate of 7.5% payable quarterly. The loan requires quarterly principal payments which began in March 2014. The credit agreement requires us to maintain a debt service reserve for all funded systems, the balance of which was $3.8 million and $3.8 million as of September 30, 2020 and December 31, 2019, respectively, which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The loan is secured by all assets of PPA IIIa.
6.07% Senior Secured Notes due March 2025 - 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 notes are secured by all the assets of the PPA IV. The note purchase agreement requires us to maintain a debt service reserve, the balance of which was $8.4 million as of September 30, 2020 and $8.0 million as of December 31, 2019, which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The notes are secured by all the assets of the PPA IV.
LIBOR + 2.5% Term Loan due December 2021 - The outstanding debt balance of the LIBOR + 2.5% Term Loan of $7.6 million and $5.1 million were classified as current and $109.5 million and $115.3 million were classified as non-current as of September 30, 2020 and December 31, 2019, respectively.
In accordance with the credit agreement, PPA V was issued a floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. For the Lenders’ commitments to the loan and the commitments to a letter of credit ("LC") facility, the PPA V also pays commitment fees at 0.50% per annum over the outstanding commitments, paid quarterly. The loan is secured by all the assets of the PPA V and requires quarterly principal payments which began in March 2017. In connection with the floating-rate credit agreement, in July 2015, PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.
Letters of Credit due December 2021 - In June 2015, PPA V entered into a $131.2 million term loan due December 2021. The agreement also included commitments to a LC facility with the aggregate principal amount of $6.4 million, later adjusted down to $6.2 million. The amount reserved under the letter of credit as of September 30, 2020 and December 31, 2019 was $5.2 million and $5.0 million, respectively. The unused capacity as of September 30, 2020 and December 31, 2019 was $1.0 million and $1.2 million, respectively.
Related Party Debt
Portions of the above described recourse and non-recourse debt were held by various related parties. See Note 16, Related Party Transactions for a full description.
27


Repayment Schedule and Interest Expense
The following table presents detail of our outstanding loan principal repayment schedule as of September 30, 2020 (in thousands):
Remainder of 2020$100,063 
2021138,590 
202234,393 
202342,166 
202449,886 
Thereafter342,141 
$707,239 
Total interest expense of $20.3 million and $22.9 million for the three months ended September 30, 2020 and 2019, respectively, was recorded in interest expense on the condensed consolidated statements of operations. Interest expense of $57.5 million and $70.7 million for the nine months ended September 30, 2020 and 2019, respectively, was recorded in interest expense and interest expense to related parties on the condensed consolidated statements of operations.
8. Derivative Financial Instruments
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 September 30, 2020 and December 31, 2019 on our condensed consolidated balance sheets were as follows (in thousands):
 September 30,
2020
December 31, 2019
Assets 
Prepaid expenses and other current assets$$
$$
Liabilities
Accrued expenses and other current liabilities$2,075 $782 
Derivative liabilities15,197 8,459 
$17,272 $9,241 
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 will mature on December 21, 2021 and the remaining 3 will mature on September 30, 2031. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swaps were $182.4 million and $184.2 million as of September 30, 2020 and December 31, 2019, respectively.
We measure 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 three months ended September 30, 2020 and 2019, respectively, and were included in other income (expense), net, in the condensed consolidated statements of operations. We realized a gain of $0.1 million and an immaterial gain attributable to the change in valuation during the nine months ended September 30, 2020 and 2019, respectively, and they were included in other income (expense), net, in the condensed consolidated statements of operations.
28


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 were as follows (in thousands):
Three Months Ended September 30,Nine months ended September 30,
2020201920202019
Beginning balance$17,881 $9,146 $9,238 $3,548 
(Gain) loss recognized in other comprehensive income/loss(72)2,472 9,212 8,062 
Amounts reclassified from other comprehensive loss to earnings(501)(28)(1,068)75 
Net (gain) loss recognized in other comprehensive income/loss(573)2,444 8,144 8,137 
Gain recognized in earnings(36)(48)(110)(143)
Ending balance$17,272 $11,542 $17,272 $11,542 
For the three months ended September 30, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contract and recognized an unrealized gain of $0.7 million and an unrealized loss of $0.8 million, respectively. For the nine months ended September 30, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contract and recognized an immaterial unrealized gain and an unrealized loss of $1.5 million, respectively.
For the three months ended September 30, 2020 and 2019, we recognized a realized gain of $1.2 million and a realized gain of $1.1 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the condensed consolidated statements of operations. For the nine months ended September 30, 2020 and 2019, we recognized a realized gain of $3.7 million and a realized gain of $2.7 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the condensed consolidated statements of operations.
Embedded EPP Derivatives in Sales Contracts
Embedded EPP Derivatives in Sales Contracts - We estimated the fair value of the embedded EPP derivatives in certain sales contracts 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. We recognized an unrealized gain of $1.5 million and an unrealized loss of $0.5 million attributable to the change in fair value for the three months ended September 30, 2020 and 2019, respectively. We recognized an unrealized gain of $2.2 million and an unrealized loss of $1.6 million attributable to the change in fair value for the nine months ended September 30, 2020 and 2019, respectively. These gains and losses were included within loss on revaluation of embedded derivatives in the condensed consolidated statements of operations. The fair value of these derivatives was $4.0 million and $6.2 million as of September 30, 2020 and December 31, 2019, respectively.

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9. Stockholders' Equity
Our capitalization as of September 30, 2020 and December 31, 2019 is described as follows:
AuthorizedSeptember 30, 2020December 31, 2019
Shares issued and outstanding:
Total common stock - Class A1
600,000,000 125,729,561 84,549,511 
Total common stock - Class B1
600,000,000 28,067,011 36,486,778 
Total preferred stock10,000,000 
153,796,572 121,036,289 
Rights to acquire stock
Stock Plans' options and awards outstanding:
2002 stock plan1,595,345 1,856,154 
2012 equity incentive plan10,545,571 16,638,850 
2018 equity incentive plan12,057,826 9,454,578 
24,198,742 27,949,582 
Warrants outstanding:
Common stock warrants 2
494,121 494,121 
24,692,863 28,443,703 
Total diluted shares178,489,435 149,479,992 
Total options/RSUs available for grant - 2018 EIP plan19,987,416 17,233,144 
Total shares available for grant - 2018 ESPP2,587,874 3,030,407 
201,064,725 169,743,543 
1 We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to 1 vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible into 1 share of Class A common stock at the discretion of its holder, or automatically upon 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.
2 As of September 30, 2020 and December 31, 2019, we had Class B common stock warrants outstanding to purchase 481,181 and 12,940 shares of Class B common stock at exercise prices of $27.78 and $38.64, respectively.
10. Stock-Based Compensation and Employee Benefit Plans
Share-based grants are designed to reward employees for their long-term contributions to us and provide incentives for them to remain with us.
2002 Stock Plan
As of September 30, 2020, options to purchase 1,595,345 shares of Class B common stock were outstanding with a weighted average exercise price of $25.52 per share. The 2002 Stock Plan has been canceled; however, it continues to govern outstanding grants under the 2002 Stock Plan.
2012 Equity Incentive Plan
As of September 30, 2020, stock options to purchase 9,191,693 shares of Class B common stock were outstanding with a weighted average exercise price of $27.28 per share and no shares were available for future grant. As of September 30, 2020, we had outstanding restricted stock units ("RSUs") that may be settled for 1,353,878 shares of Class B common stock under the plan. The 2012 Equity Incentive Plan has been canceled; however, it continues to govern outstanding grants under the 2012 Equity Incentive Plan.
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2018 Equity Incentive Plan
As of September 30, 2020, stock options to purchase 5,817,989 shares of Class A common stock were outstanding with a weighted average exercise price of $9.16 per share and 6,239,837 shares of outstanding RSUs that may be settled for Class A common stock which were granted pursuant to the 2018 Equity Incentive Plan (the "2018 EIP").
Stock-Based Compensation Expense
We used the following weighted-average assumptions in applying the Black-Scholes valuation model for determination of option valuation:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
   
Risk-free interest rate0%1.9%- 2.0%0.6%1.9% - 2.6%
Expected term (years)6.4 - 6.76.66.4 - 6.7
Expected dividend yield0000
Expected volatility0%45.7%71.0%45.7% - 50.2%

The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of operations (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
As RestatedAs Restated
   
Cost of revenue$3,568 $7,985 $13,811 $36,835 
Research and development4,103 6,589 14,913 33,037 
Sales and marketing2,234 5,823 8,358 26,270 
General and administrative5,830 20,650 20,303 64,091 
$15,735 $41,047 $57,385 $160,233 
Stock-based Compensation - During the three months ended September 30, 2020 and 2019, we recognized $0.7 million and $5.7 million, respectively, of stock-based compensation expense previously capitalized in inventory and property, plant and equipment. During the nine months ended September 30, 2020 and 2019, we recognized $3.8 million and $22.7 million, respectively, of stock-based compensation expense previously capitalized in inventory and property, plant and equipment.
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Stock Option and RSU 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)
December 31, 201917,837,316 $20.76 6.94$14,964 
Granted200,000 7.30 
Exercised(443,929)9.56 
Cancelled(988,360)23.01 
Balances at September 30, 202016,605,027 20.76 6.2466,358 
Vested and expected to vest at Current period end16,188,459 21.08 6.1862,085 
Exercisable at Current period end10,047,183 27.82 4.715,338 
Stock Options - During the three months ended September 30, 2020 and 2019, we recognized $4.4 million and $8.5 million of stock-based compensation costs for stock options, respectively. During the nine months ended September 30, 2020 and 2019, we recognized $14.9 million and $26.7 million of stock-based compensation costs for stock options, respectively.
We granted 0 and 200,000 options of Class A common stock during the three and nine months ended September 30, 2020 and the weighted average grant-date fair value of those options was $7.30 per share.
As of September 30, 2020 and 2019, we had unrecognized compensation costs related to unvested stock options of $25.1 million and $48.0 million, respectively. This cost is expected to be recognized over the remaining weighted-average period of 2.1 years and 2.6 years, respectively. We had 0 excess tax benefits in the quarters ended September 30, 2020 and 2019. Cash received from stock options exercised totaled $4.2 million and $1.4 million for the nine months ended September 30, 2020 and 2019, respectively.
A summary of our RSUs activity and related information is as follows:
Number of
Awards
Outstanding
Weighted
Average Grant
Date Fair
Value
Unvested Balance at December 31, 201910,112,266 $17.29 
Granted4,421,528 11.73 
Vested(6,524,088)17.59 
Forfeited(415,991)15.05 
Balances at September 30, 20207,593,715 13.92 
Restricted Stock Units - The estimated fair value of RSU awards is based on the fair value of our Class A common stock on the date of grant. For the three months ended September 30, 2020 and September 30, 2019, we recognized $9.6 million and $27.8 million of stock-based compensation costs for RSUs, respectively. For the nine months ended September 30, 2020 and September 30, 2019, we recognized $33.3 million and $118.5 million of stock-based compensation costs for RSUs, respectively.
As of September 30, 2020, we had $62.0 million of unrecognized stock-based compensation cost related to unvested RSUs. This cost is expected to be recognized over a weighted average period of 2.2 years. As of September 30, 2019, we had $76.9 million of unrecognized stock-based compensation cost related to unvested RSUs. This expense was expected to be recognized over a weighted average period of 1.1 years.
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The following table presents the stock activity and the total number of RSUs available for grant under our stock plans as of September 30, 2020:
 Plan Shares Available
for Grant
  
Balances at December 31, 201917,233,144 
Added to plan6,928,556 
Granted(4,621,528)
Cancelled1,396,524 
Expired(949,280)
Balances at September 30, 202019,987,416 
2018 Employee Stock Purchase Plan
During the three months ended September 30, 2020 and 2019, we recognized $0.5 million and $3.2 million of stock-based compensation costs under our 2018 Employee Stock Purchase Plan (the "2018 ESPP"), respectively. During the nine months ended September 30, 2020 and 2019, we recognized $5.2 million and $8.4 million of stock-based compensation costs for the 2018 ESPP, respectively. We issued 1,937,825 shares in the nine months ended September 30, 2020. During the first nine months of 2020, we added an additional 1,494,819 shares and there were 2,587,401 shares available for issuance as of September 30, 2020.
As of September 30, 2020, we had $2.6 million of unrecognized stock-based compensation costs. This cost is expected to be recognized over a weighted average period of 0.5 years.
We used the following weighted-average assumptions in applying the Black-Scholes valuation model for determination of the ESPP share valuation:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Risk-free interest rate0.12% - 0.14%1.90% - 2.00%0.12% - 1.51%1.9% - 2.6%
Expected term (years)0.5 - 2.00.5 - 2.00.5 - 2.00.6 - 2.1
Expected dividend yield0000
Expected volatility98.9% - 119.2%45.7%61.0% - 119.2%47.0% - 50.2%
2019 and 2020 Executive Awards
In November 2019, the Board approved stock options ("2019 Executive Awards") to certain executive staff. The 2019 Executive Awards were granted pursuant to the 2018 EIP and consist of 3 vesting tranches with a vesting schedule based on the attainment of market conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2019 Executive Awards are recognized over the service period, even though no tranches of the 2019 Performance Awards vest unless a market condition is achieved. The grant date fair value of the options is determined using a Monte Carlo simulation.
In June 2020, the Board approved stock awards ("2020 Executive Awards") to certain executive staff. The 2020 Executive Awards were granted pursuant to the 2018 EIP 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.
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11. Income Taxes
For the three months ended September 30, 2020 and 2019, we recorded provisions for income taxes of an immaterial amount and $0.1 million on pre-tax losses of $17.9 million and $56.6 million for effective tax rates of 0.0% and (0.2)%, respectively. For the nine months ended September 30, 2020 and 2019, we recorded provisions for income taxes of $0.3 million and $0.6 million on pre-tax losses of $147.2 million and $251.9 million for effective tax rates of (0.2)%, and (0.2)%, respectively.
The effective tax rate for the three and nine months ended September 30, 2020 and 2019 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.
12. Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of our net loss per share attributable to common stockholders, basic and diluted (in thousands, except per share amounts):
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
  As RestatedRestated
Numerator:
Net loss attributable to Class A and Class B common stockholders$(11,954)$(51,750)$(130,415)$(238,581)
Denominator:
Weighted average shares of common stock, basic and diluted138,964 116,330 129,571 113,948 
Net loss per share available to Class A and Class B common stockholders, basic and diluted$(0.09)$(0.44)$(1.01)$(2.09)

The following common stock equivalents (in thousands) were excluded from the computation of our net loss per share attributable to common stockholders, diluted, for the periods presented as their inclusion would have been antidilutive:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
   
Convertible notes$32,957 $27,264 $31,765 $27,264 
Stock options and awards6,321 4,571 5,518 4,990 
$39,278 $31,835 $37,283 $32,254 


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13. Power Purchase Agreement Programs
Overview
In mid-2010, we began offering our Energy Servers through our Bloom Electrons program, which we denote as our PPA Program, financed via investment entities (each, an "Investment Company") with our tax equity investors ("Equity Investors"). For additional information, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
PPA Entities' Activities Summary
The table below shows the details of the three Investment Company VIEs that were active during the nine months ended September 30, 2020 and their cumulative activities from inception to the periods indicated (dollars in thousands):
PPA IIIaPPA IVPPA V
Overview:
Maximum size of installation (in megawatts)102140
Installed size (in megawatts)101937
Term of power purchase agreements (in years)151515
First system installedFeb-13Sep-14Jun-15
Last system installedJun-14Mar-16Dec-16
Income (loss) and tax benefits allocation to Equity Investor99%90%99%
Cash allocation to Equity Investor99%90%90%
Income (loss), tax and cash allocations to Equity Investor after the flip date5%No flipNo flip
Equity Investor 1
US BankExelon CorporationExelon Corporation
Put option date 2
1st anniversary of flip pointN/AN/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 September 30, 2020:
Distributions to Equity Investor$4,837 $8,582 $74,397 
Debt repayment—principal$9,882 $20,290 $13,289 
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 
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 September 30, 2020 and December 31, 2019. At September 30, 2020 and December 31, 2019, the carrying value of redeemable noncontrolling interests of $0.2 million and $0.4 million, respectively, exceeded the maximum redemption value.
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PPA Entities’ Aggregate Assets and Liabilities
Generally, the assets of an Operating Company owned by an Investment Company can be used to settle only the Operating Company obligations, and the Operating Company creditors do not have recourse to us. Following are the aggregate carrying values of our VIEs' assets and liabilities in our condensed consolidated balance sheets, after eliminations of intercompany transactions and balances, including each of the PPA Entities in the PPA IIIa transaction, the PPA IV transaction, and the PPA V transaction (in thousands):
 September 30,
2020
December 31, 2019
   
Assets
Current assets:
Cash and cash equivalents$1,221 $1,894 
Restricted cash1,095 2,244 
Accounts receivable4,158 4,194 
Customer financing receivable5,341 5,108 
Prepaid expenses and other current assets3,942 3,587 
Total current assets15,757 17,027 
Property and equipment, net257,907 275,481 
Customer financing receivable, non-current46,725 50,747 
Restricted cash15,327 15,045 
Other long-term assets248 607 
Total assets$335,964 $358,907 
Liabilities
Current liabilities:
Accrued expenses and other current liabilities$2,311 $1,391 
Deferred revenue and customer deposits662 662 
Current portion of debt13,999 12,155 
Total current liabilities16,972 14,208 
Derivative liabilities15,197 8,459 
Deferred revenue6,239 6,735 
Long-term portion of debt213,209 223,267 
Other long-term liabilities2,862 2,355 
Total liabilities$254,479 $255,024 
As of January 1, 2020, the flip date, we are the majority owner shareholder in PPA IIIa receiving 95% of all cash distributions and profits and losses. In addition, we consolidated each PPA Entity as VIEs in the PPA IV transaction and PPA V transaction, as we remain the minority shareholder in each of these transactions but have determined that we are the beneficial owner of these VIEs. These PPA Entities contain debt that is non-recourse to us and own Energy Server assets for which we do not have title. Although we will continue to offer customers the ability to purchase electricity without the purchase of our Energy Servers, we do not intend to be a minority investor in any new PPA Entities.
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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 Bloom Energy's stand-alone assets and liabilities, those of the PPA Entities combined, and our consolidated balances as of September 30, 2020 and December 31, 2019 (in thousands):
 September 30, 2020December 31, 2019
 Bloom EnergyPPA EntitiesConsolidatedBloom EnergyPPA EntitiesConsolidated
Assets
Current assets$634,296 $15,757 $650,053 $455,680 $17,027 $472,707 
Long-term assets504,099 320,207 824,306 508,004 341,880 849,884 
Total assets$1,138,395 $335,964 $1,474,359 $963,684 $358,907 $1,322,591 
Liabilities
Current liabilities$256,886 $2,973 $259,859 $234,328 $2,053 $236,381 
Current portion of debt115,658 13,999 129,657 325,428 12,155 337,583 
Long-term liabilities577,175 24,298 601,473 599,709 17,549 617,258 
Long-term portion of debt227,481 213,209 440,690 75,962 223,267 299,229 
Total liabilities$1,177,200 $254,479 $1,431,679 $1,235,427 $255,024 $1,490,451 


14. Commitments and Contingencies
Commitments
Facilities Leases
We lease most of our facilities, office buildings and equipment under operating leases that expire at various dates through December 2028. Our headquarters is used for administration, research and development and sales and marketing.
Additionally, we lease various manufacturing facilities in Sunnyvale, Fremont and Mountain View, California. Our current lease for our Sunnyvale manufacturing facilities, was entered into in April 2005, and expires in December 2021. Our current lease for our manufacturing facilities at Mountain View, was entered into in December 2011, and expired in December 2019, but was extended on a month to month arrangement. In June 2020, we signed a lease in Fremont to replace the manufacturing facility in Mountain View that will expire in 2027. The existing leased plants together comprise approximately 370,601 square feet of space. We lease additional office space as field offices in the United States and around the world including in India, the Republic of Korea, China and Taiwan.
During the three months ended September 30, 2020 and 2019, rent expense for all occupied facilities was $2.8 million and $1.9 million, respectively. During the nine months ended September 30, 2020 and 2019, rent expense for all occupied facilities was $6.8 million and $5.7 million, respectively.
Equipment Leases
We are a party to master lease agreements that provide for the sale of our Energy Servers to third parties and the simultaneous leaseback of the systems which we then sublease to customers. The lease agreements expire on various dates through 2025 and there was no recorded rent expense for the three and nine months ended September 30, 2020 and 2019.
At September 30, 2020, future minimum lease payments under operating leases and financing obligations were as follows (in thousands):
Operating Leases ObligationsFinancing Obligations
Sublease Payments1
Remainder of 2020$2,292 $9,843 $(9,843)
20219,848 39,898 (39,898)
20226,076 40,878 (40,878)
20236,195 41,806 (41,806)
20246,380 39,693 (39,693)
Thereafter23,931 122,376 (122,376)
Total lease payments$54,722 294,494 $(294,494)
Less: imputed interest(172,699)
Total lease obligations121,795 
Less: current obligations(12,342)
Long-term lease obligations$109,453 
1 Sublease Payments primarily represents the fees received by the bank from our end customer for the electricity generated by our Energy Servers leased under our Managed Services and other similar arrangements, which also pay down our financing obligation to the bank.
Managed Services Financing Obligations - Our Managed Services arrangements are classified as capital leases and are recognized as financing transactions, while the sublease arrangements with the end customer are classified as operating leases. Payments received from the financier are recognized as financing obligations. These obligations are included in each agreements' contract value and are recognized as short-term or long-term liabilities based on the estimated payment dates. The long-term financing obligations were $451.8 million and $446.2 million as of September 30, 2020 and December 31, 2019, respectively. The difference between these obligations and the principal obligations in the table above will be offset against the carrying value of the related Energy Servers at the end of the lease and the remainder recognized as a gain at that point. We recognize revenue for the electricity generated by allocating the total proceeds of the sublease payments based on the relative standalone selling prices to electricity revenue and to service revenue.
Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and to ensure an adequate supply of inventories, we have agreements with our component suppliers and contract manufacturers to allow long lead-time component inventory procurement based on a rolling production forecast. We are contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with our forecasts. We can generally give notice of order cancellation at least 90 days prior to the delivery date. However, we issue purchase orders to our component suppliers and third-party manufacturers that may not be cancellable. As of September 30, 2020 and December 31, 2019, we had no material open purchase orders with our component suppliers and third-party manufacturers that are not cancellable.
Power Purchase Agreement Program - 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 on the Bloom Electrons program, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Note 13, Power Purchase Agreement Programs.
We guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. The PPA Entities monitor the need for any accruals arising from such guaranties, which are calculated as the difference between committed and actual power output or between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by the contractual rates with the customer. Amounts payable under these guaranties are accrued in periods when the guaranties are not met and are recorded in cost of service revenue in the condensed consolidated statements of operations. We paid $5.7 million and $3.5 million for the nine months ended September 30, 2020 and 2019, respectively.
Letters of Credit - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of our Energy Servers. The lenders have commitments to a LC facility with the aggregate principal amount of $6.2
million. The LC facility is to fund the debt service reserve account. The amount reserved under the LC as of September 30, 2020, was $5.2 million.
In 2019, pursuant to the PPA II upgrade of Energy Servers, we agreed to indemnify SPDS for losses that may be incurred in the event of certain regulatory, legal or legislative development and established a cash-collateralized letter of credit for this purpose. As of September 30, 2020, the balance of this cash-collateralized LC was $108.7 million, of which $12.4 million and $96.3 million is recognized as short-term and long-term restricted cash, respectively.
Pledged Funds - In 2019, pursuant to the PPA IIIb upgrade of Energy Servers, we have restricted cash of $20.0 million, which has been pledged for a seven-year period to secure our operations and maintenance obligations with respect to the totality of our obligations to the financier. All or a portion of such funds would be released if we meet certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within the first five-year period, the funds would still be released to us over the following two years as long as the Energy Servers continue to perform in compliance with our warranty obligations.
Contingencies
Indemnification Agreements - We enter into standard indemnification agreements with our customers and certain other business partners in the ordinary course of business. Our exposure under these agreements is unknown because it involves future claims that may be made against us but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.
Delaware Economic Development Authority - In March 2012, we entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 million to us as an incentive to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. The grant contains two types of milestones that we must complete to retain the entire amount of the grant proceeds. The first milestone was to provide employment for 900 full time workers in Delaware by the end of the first recapture period of September 30, 2017. The second milestone was to pay these full-time workers a cumulative total of $108.0 million in compensation by September 30, 2017. There are two additional recapture periods at which time we must continue to employ 900 full time workers and the cumulative total compensation paid by us is required to be at least $324.0 million by September 30, 2023. As of September 30, 2020, we had 396 full time workers in Delaware and paid $144.5 million in cumulative compensation. As of December 31, 2019, we had 323 full time workers in Delaware and paid $120.1 million in cumulative compensation. We have so far received $12.0 million of the grant, which is contingent upon meeting the milestones through September 30, 2023. In the event that we do not meet the milestones, we may have to repay the Delaware Economic Development Authority, up to $2.2 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. As of September 30, 2020, we paid $1.5 million for recapture provisions and have recorded $1.3 million in current liabilities and $9.2 million in other long-term liabilities for potential recapture.
Investment Tax Credits ("ITCs") - Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction of the incentives. Energy Servers are purchased by the PPA Entities, other financial sponsors, or customers and, therefore, these bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future although in certain limited circumstances we do provide indemnification for such risk.
Legal Matters - We are involved in various legal proceedings that arise in the ordinary course of business. We review all legal matters at least quarterly and assess whether an accrual for loss contingencies needs to be recorded. We record an accrual for loss contingencies when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so the actual liability in any such matters may be materially different from our estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on our consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.
In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a statement of claim with the American Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27, 2014 (the
“Confidential Agreement”). On May 7, 2019, KPCB and NEA were dismissed with prejudice. On June 15, 2019, a second amended statement of claim was filed against us alleging securities fraud, fraudulent inducement, a breach of the Confidential Agreement, and violation of the California unfair competition law. On July 16, 2019, we filed our answering statement and affirmative defenses. On September 27, 2019, we filed a motion to dismiss the statement of claim. On March 24, 2020, the Tribunal denied our motion to dismiss in part, and ordered that claimant’s relief is limited to rescission of the Confidential Agreement or remedies consistent with rescission, and not expectation damages. On September 14, 2020, the Tribunal issued an interim order dismissing the Claimant’s remaining claims. On July 30, 2020, claimants notified us that they intend to file a complaint in the Northern District of California seeking to stay the arbitration, and disqualify the arbitration panel on procedural grounds. We believe claimants have no basis to bring this complaint and that doing so will breach the Confidential Agreement. Claimants have not yet filed such complaint.
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 has been stayed pending the outcome of the arbitration. As the arbitration has now been dismissed, on October 2, 2020, plaintiffs filed a motion to lift the stay and on October 20, 2020, over our objection, the motion was granted. We intend to file a motion to dismiss the complaint. We believe the complaint to be without merit and the issues previously tried and dismissed in the arbitration. We have recorded no loss contingency related to this claim.
In March 2019, the Lincolnshire Police Pension Fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara, against us, certain members of our senior management, certain of our directors and the underwriters in our July 25, 2018 initial public offering ("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 our IPO. Two related class action cases were subsequently filed in the Santa Clara County Superior Court against the same defendants containing the same allegations; Rodriquez vs Bloom Energy et al. was filed on April 22, 2019 and Evans vs Bloom Energy et al. was filed on May 7, 2019. These cases have been consolidated. Plaintiffs' consolidated amended complaint was filed with the court on September 12, 2019. On October 4, 2019, defendants moved to stay the lawsuit pending the federal district court action discussed below. On December 7, 2019, the Superior Court issued an order staying the action through resolution of the parallel federal litigation mentioned below. We believe the complaint to be without merit and we intend to defend this action vigorously.
In May 2019, Elissa Roberts filed a class action complaint in the federal district court for the Northern District of California against us, certain members of our senior management team, and certain of our directors alleging violations under Section 11 and 15 of the Securities Act for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with our IPO. On September 3, 2019, James Hunt was appointed as lead plaintiff and Levi & Korsinsky was appointed as plaintiff’s counsel. On November 4, 2019, plaintiffs filed an amended complaint adding the underwriters in our initial public offering, claims under Sections 10b and 20a of the Securities Exchange Act of 1934, as amended (the Exchange Act"), and extending the class period to September 16, 2019. On April 21, 2020, plaintiffs filed a second amended complaint adding claims under the Securities Act. The second amended complaint also adds allegations pertaining to the restatement and, as to claims under the Exchange Act, extends the class period through February 12, 2020. On July 1, 2020, we filed a motion to dismiss the second amended complaint. We believe the complaint to be without merit and we intend to defend this action vigorously. Because this action is in the early stages, we are unable to predict the outcome of this litigation at this time.
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 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. A trial date for this matter has been set for December 7, 2020. We believe the complaint to be without merit.
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. We are still investigating the plaintiff's allegations and intend to vigorously defend against the complaint, but any range of potential loss is not currently estimable.
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15. Segment Information
Segment and the Chief Operating Decision Maker
Our chief operating decision makers ("CODMs"), our CEO and the CFO, review financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The CODMs allocate resources and make operational decisions based on direct involvement with our operations and product development efforts. We are managed under a functionally-based organizational structure with the head of each function reporting to the Chief Executive Officer. The CODMs assess performance, including incentive compensation, based upon consolidated operations performance and financial results on a consolidated basis. As such, we have a single operating unit structure and are a single reporting segment.

16. Related Party Transactions
Our operations included the following related party transactions (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Total revenue from related parties$742 $66,658 $2,672 $149,012 
Interest expense to related parties353 1,605 2,513 4,823 
Bloom Energy Japan Limited
In May 2013, we entered into a joint venture with Softbank Corp., which is accounted for as an equity method investment. Under this arrangement, we sell Energy Servers and provide maintenance services to the joint venture. For the three months ended September 30, 2020 and September 30, 2019, we recognized related party total revenue of $0.7 million and $1.0 million, respectively. For the nine months ended September 30, 2020 and September 30, 2019, we recognized related party total revenue of $2.7 million and $2.5 million, respectively. Accounts receivable from this joint venture was immaterial as of September 30, 2020 and $2.4 million as of December 31, 2019.
Debt to Related Parties
We had no debt or convertible notes from investors considered to be related parties as of September 30, 2020.
The following is a summary of our debt and convertible notes from investors considered to be related parties as of December 31, 2019 (in thousands):
 Unpaid
Principal
Balance
Net Carrying Value
 CurrentLong-
Term
Total
Recourse debt from related parties:
6% convertible promissory notes due December 2020 from related parties$20,801 $20,801 $$20,801 
Non-recourse debt from related parties:
7.5% term loan due September 2028 from related parties38,337 3,882 31,088 34,970 
Total debt from related parties$59,138 $24,683 $31,088 $55,771 
In November 2019, one related-party note holder exchanged $6.9 million of their 6% Convertible Notes at the conversion price of $11.25 per share into 616,302 shares of Class A common stock. On March 31, 2020, we issued $30.0 million of new 10% Convertible Notes to two related-party note holders. In May 2020, the 7.5% term loan note holder ceased to be considered a related party. We made 0 payments to this note holder prior to them terminating their related party relationship with us in the three months ended September 30, 2020, and we paid $0.5 million on this non-recourse 7.5% term loan principal
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balance in the three months ended September 30, 2019. We paid 0 interest and $0.8 million of interest in the three months ended September 30, 2020 and September 30, 2019, respectively. We repaid $2.1 million and $1.7 million of the non-recourse 7.5% term loan principal balance in the nine months ended September 30, 2020 and September 30, 2019, respectively, and we paid $0.7 million and $2.3 million of interest in the nine months ended September 30, 2020 and September 30, 2019, respectively. In August 2020, NEA, Foris Ventures, LLC, and KPCB converted their notes of $33.9 million, $10.0 million and $6.9 million, plus accrued and unpaid interest, into 4.2 million, 1.3 million and 0.9 million shares of Class B common stock respectively. All of the noteholders subsequently converted their shares into Class A common stock during August and September 2020. The unamortized premium of $2.3 million was reclassified to additional paid in capital. See Note 7, Outstanding Loans and Security Agreements for additional information on our debt facilities.

17. Subsequent Events
On October 7, 2020, the remaining $96.2 million principal balance of the 10% Convertible Notes due to CPPIB were converted to 12.0 million shares of our Class B common stock that were subsequently converted into our Class A common stock. The unamortized premium of $3.2 million will be reclassified to additional paid in capital.
On October 8, 2020, we sent a notice of redemption for the 10% Notes. The redemption price for the 10% Notes being called is 104% of the principal amount thereof, amounting to $82.2 million plus accrued and unpaid interest of $2.1 million. The redemption date is expected to occur on November 8, 2020.
Other Events
There have been no other subsequent events that occurred during the period subsequent to the date of these financial statements that would require adjustment to our disclosure in the financial statements as presented.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products, services, business strategies, and the sufficiency of our cash and our liquidity. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. These statements are based on the beliefs and assumptions of our management based on information currently available to management at the time they are made. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on March 31, 2020. Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview
Restatement of Previously Issued Condensed Consolidated Financial Statements
We have restated our previously reported financial information as of and for the three and nine months ended September 30, 2019, in this Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within Results of Operations and Liquidity and Capital Resources sections.
See Note 2, Restatement of Previously Issued Condensed Consolidated Financial Statements, in Part I, Item 1, Financial Statements, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our condensed consolidated financial statements.
Description of Bloom Energy
Our solution, the Bloom Energy Server, is a stationary power generation platform built for the digital age and capable of delivering highly reliable, uninterrupted, 24x7 constant power that is also clean and sustainable. The Bloom Energy Server converts standard low-pressure natural gas, biogas or hydrogen into electricity through an electrochemical process without combustion, resulting in very high conversion efficiencies and lower harmful emissions than conventional fossil fuel generation. A typical configuration produces 250 kilowatts of power in a footprint roughly equivalent to that of half of a standard thirty-foot shipping container, or approximately 125 times more space-efficient than solar power generation. 250 kilowatts of power is roughly equivalent to the constant power requirement of a typical big box retail store. Any number of our Energy Server systems can be clustered together in various configurations to form solutions from hundreds of kilowatts to many tens of megawatts. We currently primarily target commercial and industrial customers.
We market and sell our Energy Servers primarily through our direct sales organization in the United States, and also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a material financial commitment, we have developed a number of financing options to support sales of our Energy Servers to customers who lack the financial capability to purchase our Energy Servers directly, who prefer to finance the acquisition using third-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 recently expanded our product and financing options to the below-investment-grade customers and have also expanded internationally to target customers with deployments on a wholesale grid. Given that our
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customers are typically large institutions with multi-level decision making processes, we generally experience a lengthy sales process.

COVID-19 Pandemic
General
We have been and will continue monitoring and adjusting as appropriate our operations in response to the COVID-19 pandemic. As a technology company that supplies resilient, reliable and clean energy, we have been able to conduct the majority of operations as an “essential business” in California and Delaware, where we manufacture and perform many of our R&D activities, as well as in other states and countries where we are installing or maintaining our Energy Servers, notwithstanding government “shelter in place” orders. For the safety of our employees and others, many of our employees are still working from home unless they are directly supporting essential manufacturing production operations, installation work, service and maintenance activities and R&D. We have established protocols to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning, and temperature screenings upon entry. In addition, all individuals entering our facilities are required to wear face coverings and are directed not to enter if they have COVID-19-like symptoms. We follow all CDC guidelines when notified of possible exposures. For more information regarding the risks posed to our company by the COVID-19 pandemic, refer to Risk Factors – Risks Related to Our Products and Manufacturing – Our business has been and will continue to be adversely affected by the COVID-19 pandemic.
Liquidity and Capital Resources
In March 2020, we successfully extended the maturity of our 10% Convertible Notes due 2021 (the “10% Convertible Notes”), our 10% Constellation Note to December 2021 (the “10% Constellation Note”), and additionally entered into a note purchase agreement to issue $70.0 million of 10.25% Senior Secured Notes due 2027 (the “10.25% Senior Secured Notes”) in a private placement that was subsequently completed on May 1, 2020. Since then, the 10% Convertible Notes and the 10% Constellation Note were converted into equity and the potential liabilities associated with these notes have been extinguished. In August 2020, we issued $230,000,000 aggregate principal amount of our 2.50% Green Convertible Senior Notes due 2025 (the “Green Notes”). In October 2020, we sent a notice of redemption for the 10% Senior Secured Notes due 2024 (the “10% Notes”) and the redemption date is expected to occur on November 8, 2020.
Now that debt with a maturity prior to 2024 has been extinguished and/or converted, we do not expect it will be necessary to access capital markets for cash to operate our business over the next 12 months unless the impact of COVID-19 to our business is more extensive than expected. Capital markets have been volatile and there is no assurance that we would have access to capital markets at a reasonable cost, or at all, at times when capital was needed. We continue to be conservative with our working capital spend, maintaining as much flexibility as possible around the timing of taking and paying for inventory and manufacturing our product while managing potential changes or delays in installations. Please refer to Note 7, Outstanding Loans and Security Agreements; Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources; and Risk Factors – Risks Related to Our Liquidity – Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities’ outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, and We may not be able to generate sufficient cash to meet our debt service obligations, for more information regarding the terms of and risks associated with our debt.
Sales
In some markets, we have experienced an increase in the time necessary to obtain new business as our customers deal with the impact of the COVID-19 pandemic. Decision makers in organizations such as education and entertainment have shifted their focus to the immediate needs of the pandemic, thus delaying their purchase decisions and capital outlays. While there may ultimately be a reduction in electricity needs due to decrease in economic activity, the current impact generally equates to a longer transaction cycle.
Our ability to continue to expand our business both domestically and internationally and develop customer relationships also has been negatively impacted by current travel restrictions. Our marketing efforts historically have often involved customer visits to our manufacturing centers in California or Delaware, which we have suspended.
On the other hand, a significant portion of our customers are hospitals, healthcare companies, retailers and data centers. These industries are composed of essential businesses that still need the resiliency and reliability offered by our products. We
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have seen an increase in demand for our products in these sectors where the COVID-19 pandemic has highlighted the benefits of always-on, on-site power in times of disaster and uncertainty though tempered by the issues noted above. In addition, the pandemic has had no significant effect on our business in the Republic of Korea.
We have also had some unique opportunities to deploy our systems on an emergency basis to support temporary hospitals. We believe deploying clean electrical power with no oxides of nitrogen (NOx) or sulfur (SOx) emissions, especially as atmospheric pollutants, is important for facilities preparing to treat a respiratory disease like COVID-19. As a result of this opportunity to introduce our products to more healthcare providers, demand for our products at some permanent hospitals has also increased.
Customer Financing
COVID-19 has not yet had any significant impact on our ability to obtain financing for our customers’ use of our products, but we are finding it more difficult to find financiers who are able to monetize tax credit. A majority of the installations we have planned in the United States in 2020 have obtained financing. We are actively working with new sources of capital that could finance projects for our 2021 installations. We have experienced in the current environment an increase in the time needed to solidify new relationships, which may negatively impact the time required to achieve funding. In addition, our ability to obtain financing for our Energy Servers partly depends on the creditworthiness of our customers. Some of our customers’ credit ratings have recently fallen, which may make it difficult for us to obtain financing for their use of an Energy Server. Our recent experience has been that financing parties have capital to deploy and are interested in financing our Energy Servers and, at present, cash flow and results of operations including revenue have not been impacted by our inability to obtain financing for customer installations.
Installations of Energy Servers
The COVID-19 pandemic has caused delays that affected nearly all of our installations with varying degrees of severity. Since we do not recognize revenue on the sales of our products until installation and acceptance, installation delays have a negative impact on our results of operations including revenue. Since we generally earn cash as we progress through the installation process, delays to installation activity also adversely affects our cash flows.
While our installation activity has been deemed “essential business” and allowed to proceed in many jurisdictions, the essential business designations for our activities (and those of our suppliers and other third-party organizations that are critical to our success) has been inconsistent from region to region and across the various third parties upon whom we are critically dependent to complete our installations.
In addition, we have experienced delays and interruptions to our installations where customers have shut down or otherwise limited access to their facilities.
Some of our backlog can only be deployed when the customer brings on sufficient load for our systems. Facility closings and diminished economic activity delay that load coming online, leading customers to postpone the completion of installations.
We use general contractors and sub-contractors, and need supplies of various types of ancillary equipment, for our installations. Some of our suppliers have had COVID-19 outbreaks among their workforces, which have caused installation delays. In addition, the availability and productivity of contractors, sub-contractors, and suppliers has generally been negatively impacted by social distancing requirements and other safety measures.
Nearly all of our installations completed in the quarter ended September 30, 2020 were impacted by COVID-19 to some extent and some installations were unable to achieve acceptance in light of the delays due to COVID-19, further compounded by weather-related events, which impacted our cash flows and results of operation including revenue for the quarter ended September 30, 2020.
Supply Chain
In the second quarter, we experienced COVID-19 related delays from certain vendors and suppliers, however, we were able to find and qualify alternative suppliers and our production to date has not been impacted. During the third quarter, our supply chain stabilized; however, if spikes in COVID-19 occur in regions in which our supply chain operates we could experience a delay in materials, which could in turn impact production and installations and our cash flow and results of operations, including revenue.
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Manufacturing
As an essential business, we have continued to manufacture Energy Servers, but have adopted strict measures to keep our employees safe. These measures have decreased productivity to an extent, but our deployments, maintenance and installations have not yet been constrained by our current pace of manufacturing. As described above, we have established protocols to minimize the risk of COVID-19 transmission within our manufacturing facilities and follow all CDC guidelines when notified of possible exposures. We also instituted testing of anyone who comes into any of our facilities. Even with these precautions, it is possible an asymptomatic individual could enter our facilities and transmit the virus to others. We have had positive tests and in such cases, we have followed CDC Guidelines. To date, it has not impacted our production.
If we become aware of any cases of COVID-19 among any of our employees, we notify those with whom the person is known to have been in contact, send the exposed employees home for at least 14 days and require each employee to be tested negative before returning to work. Certain roles within our facilities involve greater mobility throughout our facilities and potential exposure to more employees. In the event one of such employees suffers from COVID-19, or if we otherwise believe that a significant number of employees have been exposed and sent home, particularly in our manufacturing facilities, our production could be significantly impacted. Furthermore, since our manufacturing process requires tasks performed at both our California facility and Delaware facility, significant exposure at either facility would have a substantial impact on our overall production, and could adversely affect our cash flow and results of operations including revenue.
Purchase and Lease Options
Initially, we only offered our Energy Servers on a direct purchase basis, in which the customer purchases the product directly from us. In order to expand our offerings to customers who lack the financial capability to purchase our Energy Servers directly (including customers who are unable to monetize the tax credits available to purchasers of our Energy Servers) and/or who prefer to lease the product or contract for our services on a pay-as-you-go model, we subsequently developed the traditional lease ("Traditional Lease") option, Managed Services Financing option, and our power purchase agreement program ("PPA Program"), including our Third-Party PPA Transactions, each as described below.
Our capacity to offer our Energy Servers through any of these financed arrangements depends in large part on the ability of the financing party or parties involved to monetize the related investment tax credits, accelerated tax depreciation and other incentives. Interest rate fluctuations may also impact the attractiveness of any financing offerings for our customers, and currency exchange fluctuations may also impact the attractiveness of international offerings. Each of these financings is limited by the creditworthiness of the customer. Additionally, the Traditional Lease and Managed Services Financing options, as with all leases, are also limited by the customer’s willingness to commit to making fixed payments regardless of the performance of our obligations under the customer agreement.
In each of our purchase options, we typically perform the functions of a project developer, including identifying end customers and financiers, leading the negotiations of the customer agreements and financing agreements, securing all necessary permitting and interconnections approvals, and overseeing the design and construction of the project up to and including commissioning the Energy Servers.
Under each option above, we provide warranties and performance guaranties regarding our Energy Servers’ efficiency and output. We refer to a “warranty” as a commitment where the failure of the Energy Servers to satisfy the stated performance level obligates us to repair or replace the Energy Servers as necessary to improve performance. If we fail to complete such repair or replacement, or if repair or replacement is impossible, we may be obligated to repurchase the Energy Servers from the customer or financier. We refer to a “guaranty” as a commitment where the failure of the Energy Servers to satisfy the stated performance level obligates us to make a payment to compensate the beneficiary of such guaranty for the resulting increased cost or diminution in benefits resulting from such failure. Our obligation to make payments under the guaranty is always contractually capped and represents a contingency linked to our services obligation with no economic incentive for us to default and force an exercise of the payment obligation.
These performance guarantees are negotiated on a case-by-case basis, but we typically provide an output guaranty of 95% measured annually and an efficiency guaranty of 52% measured cumulatively from the date the Energy Server is commissioned. In each case, underperformance obligates us to make a payment to the owner of the applicable Energy Server. As of September 30, 2020, our obligation to make payments for underperformance on the direct purchase projects was capped at an aggregate total of approximately $78.7 million (including payments both for low output and for low efficiency). As of September 30, 2020, our aggregate remaining potential liability under this cap was approximately $60.4 million.
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Under the direct purchase and Traditional Lease options, the warranties and guaranties are typically included in the price of our Energy Server for the first year. The warranties and guaranties may be renewed annually at the customer’s option, as an operations and maintenance services agreement, at predetermined prices for a period of up to 30 years. Historically, our customers and financiers have almost always exercised their option to renew the warranties and guaranties under these operations and maintenance services agreements.
Under the Managed Services Financing option, the warranties and guaranties are included for the fixed period specified in the customer agreement. This period is typically 10 years, which may be extended at the option of the parties for additional years.
Under the PPA Program, we typically provide warranties and guaranties regarding our Energy Servers’ efficiency to the customer (i.e., the end user of the electricity generated by our Energy Servers, who is also responsible for the purchase of the fuel required for our Energy Servers’ operations), and we provide warranties and guaranties regarding our Energy Servers’ output to the financier(s) that purchases our Energy Servers. The warranties and guaranties are typically included in the price of our Energy Server for the first year and may be renewed annually at the financier’s option, as an operations and maintenance services agreement, at predetermined prices for a period of up to 30 years. Historically, our financiers have almost always exercised their option to renew the warranties and guaranties under these operations and maintenance services agreements. We also provide a fixed schedule of prices for each year of the term of our agreements with our customers and none of our customers have failed to renew our operations and maintenance agreements.
The substantial majority of bookings made in recent periods have been made through our Managed Services Financing option and our PPA Program.
Each of our financing structures is described in further detail below.

Traditional Lease
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Under the Traditional Lease option the customer enters into a lease directly with a financier, which pays us for our Energy Servers purchased pursuant to a sales agreement (the "Financing Agreement"). We recognize product and installation revenue upon acceptance. After the standard one-year warranty period, our customers have almost always exercised the option to enter into operations and maintenance services agreements with us, under which we receive annual service payments from the customer. The price for the annual operations and maintenance services is set at the time we enter into the Financing Agreement. The term of a lease in a Traditional Lease option ranges from five to eight years.
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Under a Financing Agreement, we are generally paid the full price of our Energy Servers as if sold as a purchase by the customer based on four milestones. The four payment milestones are typically as follows: (i) 15% upon execution of the financier's entry into the lease with a customer, (ii) 25% on the day that is 180 days prior to delivery of the Energy Servers, (iii) 40% upon shipment of the Energy Servers, and (iv) 20% upon acceptance of the Energy Servers. The financier receives title to the Energy Servers upon installation at the customer site and the financier has risk of loss while our Energy Server is in operation on the customer’s site.
The Financing Agreement provides for the installation of our Energy Servers and includes a standard one-year warranty, to the financier, which includes the performance guaranties described below, with the warranty offered on an annually renewing basis at the discretion of, and to, the customer. The customer must provide fuel for the Bloom Energy Servers to operate.
This option typically provide for warranties and guaranties of both the efficiency and output of our Energy Servers, all of which are written in favor of the customer and contained in the operations and maintenance services agreement. These warranties and guaranties may be measured on a monthly, annual, cumulative or other basis. As of September 30, 2020, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these warranties. Our obligation to make payments for underperformance against the performance guaranties for Traditional Lease projects was capped contractually under the sales agreement between us and each customer at an aggregate total of approximately $6.0 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately $3.8 million.
Remarketing at Termination of Lease
In the event the customer does not renew or purchase our Energy Servers to the end of any customer lease, we may remarket any such Energy Servers to a third party. Any proceeds of such sale would be allocated between us and the applicable financing partner as agreed between them at the time of such sale.

Managed Services Financing

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Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer, pursuant to which the customer is able to use the Energy Server for a certain term. Under the Managed Services Agreement, the customer makes a monthly payment for the use of the Energy Server. The customer payment typically has two components: (i) a fixed monthly capacity-based payment and (ii) a performance-based payment based on the output of electricity that month from the Energy Server. The fixed capacity-based payments made by the customer under the Managed Services Agreement are applied toward our obligation to pay down our liability under the master lease with the financier. The performance payment is transferred to us as compensation for operations and maintenance services and recognized as services revenue within the
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condensed consolidated statements of operations. In some cases, the customer’s monthly payment consists solely of the first component, a fixed monthly capacity-based payment.
Once a financier is identified and the Energy Server’s installation is complete, we sell the Energy Server contemplated by the Managed Services Agreement directly to a financier and the financier, as lessor, leases it back to us, as lessee, pursuant to a master lease in a sale-leaseback transaction. The proceeds from the sale are recognized as a financing obligation within the condensed consolidated balance sheets. Any ongoing operations and maintenance service payments are scheduled in the Managed Services Agreement in the form of the performance-based payment described above. The financier typically pays the financing proceeds for the Energy Server contemplated by the Managed Services Agreement on or shortly after acceptance.
The fixed capacity payments made by the customer under the Managed Services Agreement are recognized as electricity revenue when billed and applied toward our obligation to pay the financing obligation under the master lease. Managed Services Financings have historically shifted customer credit risk to the financier, as lessor, by providing in the master lease agreement that we have no liability for payment of rent except in certain enumerated circumstances, including in the event we are in breach of the Managed Services Agreement between us and the customer.
The duration of the master lease in a Managed Services Financing is typically 10 years. The term of the master lease is typically the same as the term of the related Managed Services Agreement, but in some cases the term of the master lease is shorter than that of the Managed Services Agreement.
Our Managed Services deployments typically provide only for warranties of both the efficiency and output of the Energy Server, all of which are written in favor of the customer and contained in the operations and maintenance services agreement. These warranties may be measured on a monthly, annual, cumulative or other basis. Managed Services projects typically do not include guaranties above the warranty commitments, but in projects where the customer agreement includes a service payment for our operations and maintenance, that payment is typically proportionate to the output generated by the Energy Server(s) and our pricing assumes service revenues at the 95% output level. This means that our service revenues may be lower than expected if output is less than 95% and higher if output exceeds 95%. As of September 30, 2020, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these warranties and the fleet of our Energy Servers deployed pursuant to the Managed Services Program was performing at a lifetime average output of approximately 87%.
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Power Purchase Agreement Programs, including Third-Party PPA Transactions
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*Under the Third-Party PPA arrangements, there is no link with an investment company, as we do not have an equity investment in these arrangements.
A power purchase agreement is an agreement pursuant to which the owner of an Energy Server sells electricity to an end customer on a dollar-per-kilowatt-hour basis (a “PPA”). We finance PPAs through two types of transactions under our PPA Program. In one transaction, we finance a portfolio of PPAs pursuant to a tax equity partnership in which we hold a managing member interest (such partnership, a “PPA Entity”). We sell the portfolio of Energy Servers to a single member limited liability project company (an “Operating Company”). The Operating Company sells the electricity generated by the Energy Servers contemplated by the PPAs to the ultimate end customers. As these transactions included an equity investment by us in the PPA Entity for which we were the primary beneficiary and consolidated the entities, we recognized revenue as the electricity was produced. We also finance PPAs through our Third-Party PPA Transactions in which we do not have an equity interest, pursuant to which we recognize revenue on acceptance. For further discussion on our Bloom Electrons Programs, see Note 13, Power Purchase Agreement Programs, in Part I, Item 1, Financial Statements.
In our PPA Program, we enter into an Energy Server sales, operations and maintenance agreement ("EPC and O&M Agreement") with the Operating Company that will own the Energy Servers. The Operating Company then enters into the PPA with the end customer which purchases electricity generated by the Energy Servers. The Operating Company receives all cash flows generated under the PPAs, in addition to all investment tax credits, all accelerated tax depreciation benefits, and any other cash flows generated by the operation of the Energy Servers not allocated to the end customer under the PPA.
The sales of our Energy Servers to the Operating Company in connection with the various PPA Programs have many of the same terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery of the Energy Server, and upon acceptance of the Energy Server. Acceptance typically occurs when the Energy Server is installed and running at full power as defined in the applicable EPC and O&M Agreement. A one-year service warranty is provided with the initial sale. After the expiration of the initial standard one-year warranty, the Operating Company has the option to extend our operations and maintenance services under the EPC and O&M Agreement on an annual basis at a price determined at the time of purchase of our Energy Server, which may be renewed annually for each Energy Server for up to 30 years. After the standard one-year
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warranty period, the Operating Company has almost always exercised the option to renew our operations and maintenance services under the EPC and O&M Agreement.
We typically provide output warranties and output guaranties to the Operating Company pursuant to the applicable EPC and O&M Agreement with the Operating Company. The end customer agreement between the Operating Company and the end customer also provides efficiency warranties and efficiency guaranties to the end user, and we provide a backstop of all of the Operating Company’s obligations under those agreements, including both the repair or replacement obligations pursuant to the warranties and any payment liabilities under the guaranties.
As of September 30, 2020, we had incurred no liabilities due to failure to repair or replace Energy Servers pursuant to these warranties. Our obligation to make payments for underperformance against the performance guaranties for PPA Program projects was capped at an aggregate total of approximately $110.6 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately $105.5 million.
Obligations to Operating Companies
In addition to our obligations to the end customers, our PPA Programs involve many obligations to the Operating Company that purchases our Energy Servers. These obligations are set forth in the applicable EPC and O&M Agreement, and may include some or all of the following obligations:
designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Operating Company,
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 and O&M Agreements,
operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations,
satisfying the efficiency and output warranties set forth in such EPC and O&M Agreements and the PPAs ("performance warranties"), and
complying with any specific requirements contained in the PPAs with individual end-customers.
The EPC and O&M Agreements obligate us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the performance warranties and in the event we otherwise breach the terms of the applicable EPC and O&M Agreements and we fail to remedy such failure or breach after a cure period, or in the event that a PPA terminates as a result of any failure by us to comply with the applicable EPC and O&M Agreements. In some PPA Program projects, our obligation to repurchase Energy Servers extends to the entire fleet of Energy Servers sold pursuant to the applicable EPC and O&M Agreement in the event such failure affects more than a specified number of Energy Servers.
In some PPA Programs, we have also agreed to pay liquidated damages to the applicable Operating Company in the event of delays in the manufacture and installation of our Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Servers.
Both the upfront purchase price for our Energy Servers and the ongoing fees for our operations and maintenance are paid on a fixed dollar-per-kilowatt basis.
Indemnification of Performance Warranty Expenses Under PPAs - In addition to the performance warranties and guaranties in the EPC and O&M Agreements, we also have agreed to indemnify certain Operating Companies for any expenses they incur to any of the end customers resulting from failures of the applicable Energy Servers to satisfy any of the performance warranties and guaranties set forth in the applicable PPAs.
Administration of Operating Companies - In each of our PPA Entities, we perform certain administrative services on behalf of the applicable Operating Company, including invoicing the end customers for amounts owed under the PPAs, administering the cash receipts of the Operating 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.
The Operating Company in each of our PPA Entities (other than PPA I) has incurred debt in order to finance the acquisition of Energy Servers. The lenders for these projects are a combination of banks and/or institutional investors. In each
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case, the debt is secured by all of the assets of the applicable Operating Company, such assets being primarily comprised of the Energy Servers and a collateral assignment of each of the contracts to which the Operating Company is a party, including the O&M Agreement entered into with us and the off take agreements entered into with the Operating Company’s customers, and is senior to all other debt obligations of the Operating Company. As further collateral, the lenders receive a security interest in 100% of the membership interest of the Operating Company. However, as is typical in structured finance transactions of this nature, although the project debt is secured by all of the Operating Company’s assets, the lenders have no recourse to us or to any of the other tax equity investors (the "Equity Investors") in the project. The applicable debt agreements include provisions that implement a customary “payment waterfall” that dictates the priority in which the Operating Company will use its available funds to satisfy its payment obligations to us, the lenders, the Equity Investors and other third parties.
We have determined that we are the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions (see Note 13, Power Purchase Agreement Programs, in Part I, Item 1, Financial Statements.) Accordingly, we consolidate 100% of the assets, liabilities and operating results of these entities, including the Energy Servers and lease income, in our condensed consolidated financial statements. We recognize the Equity Investors’ share of the net assets of the investment entities as noncontrolling interests in subsidiaries in our condensed consolidated balance sheet. We recognize the amounts that are contractually payable to these investors in each period as distributions to noncontrolling interests in our condensed consolidated statements of redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest. Our condensed consolidated statements of cash flows reflect cash received from these investors as proceeds from investments by noncontrolling interests in subsidiaries. Our condensed consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling interests in subsidiaries. We reflect any unpaid distributions to these investors as distributions payable to noncontrolling interests in subsidiaries on our condensed consolidated balance sheets. However, the Operating Companies are separate and distinct legal entities, and Bloom Energy Corporation may not receive cash or other distributions from the Operating Companies 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 rate of return to the Equity Investors, or otherwise.
For further information about our PPA Programs, see Note 13, Power Purchase Agreement Programs, in Part I, Item 1, Financial Statements.
Delivery and Installation
The timing of delivery and installations of our products have a significant impact on the timing of the recognition of product and installation revenue. Many factors can cause a lag between the time that a customer signs a purchase order and our recognition of product revenue. These factors include the number of Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, and customer facility construction schedules. Many of these factors are unpredictable and their resolution is often outside of our or our customers’ control. Customers may also ask us to delay an installation for reasons unrelated to the foregoing, including delays in their obtaining financing. Further, due to unexpected delays, deployments may require unanticipated expenses to expedite delivery of materials or labor to ensure the installation meets the timing objectives. These unexpected delays and expenses can be exacerbated in periods in which we deliver and install a larger number of smaller projects. In addition, if even relatively short delays occur, there may be a significant shortfall between the revenue we expect to generate in a particular period and the revenue that we are able to recognize. For our installations, revenue and cost of revenue can fluctuate significantly on a periodic basis depending on the timing of acceptance and the type of financing used by the customer.
International Channel Partners
Prior to 2018, we consummated a small number of sales outside the United States, including in India and Japan.
India. In India, sales activities are currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly-owned indirect subsidiary; however, we are currently evaluating 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 are conducted pursuant to a Japanese joint venture established between us and subsidiaries of SoftBank Corp, called Bloom Energy Japan Limited ("Bloom Energy Japan"). Under this arrangement, we sell Energy Servers to Bloom Energy Japan and we recognize revenue once the Energy Servers leave the port in the United States. Bloom Energy Japan enters into the contract with the end customer and performs all installation work as well as some of the operations and maintenance work.
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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 with SK Engineering & Construction Co., Ltd. ("SK E&C") to enable us to sell directly into the Republic of Korea.
Under our agreement with SK E&C, SK E&C has a right of first refusal during the term of the agreement, with certain exceptions, to serve as distributor of Energy Servers for any fuel cell generation project in the Republic of Korea, and we have the right of first refusal to serve as SK E&C’s supplier of generation equipment for any Bloom Energy fuel cell project in the Republic of Korea. Under the terms of each purchase order, title, risk of loss and acceptance of the Energy Servers pass from us to SK E&C upon delivery at the named port of lading for shipment in the United States for the Energy Servers shipped in 2018 and thereafter, upon delivery at the named port of unlading in the Republic of Korea, prior to unloading subject to final purchase order terms. The Preferred Distributor Agreement has an initial term expiring on December 31, 2021, and thereafter will automatically be renewed for three-year renewal terms unless either party terminates this agreement by prior written notice under certain circumstances.
Under the terms of the Preferred Distributor Agreement, 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 E&C Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK E&C 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 controlled and managed by us, with the facility, which became operational in July 2020. Other than a nominal initial capital contribution by Bloom, the joint venture will be funded by SK E&C. SK E&C, who currently acts as a distributor for our Energy Servers for the stationary utility and commercial and industrial market in the Republic of Korea, will be the primary customer for the products assembled by the joint venture.
Community Distributed Generation Programs
In July 2015, the state of New York introduced its Community Distributed Generation ("CDG") program, which extends New York’s net metering program in order to allow utility customers to receive net metering credits for electricity generated by distributed generation assets located on the utility’s grid but not physically connected to the customer’s facility. This program allows for the use of multiple generation technologies, including fuel cells. Since then the state of Connecticut has instituted a similar program and we expect that other states may adopt similar programs in the future.
We have entered into sales, installation, operations and maintenance agreements with two developers for the deployment of our Energy Servers pursuant to the New York CDG program, and we subsequently recognized revenue associated with 75 systems in the three months ended September 30, 2020. In June 2020, the New York Public Service Commission issued an Order that limited the CDG compensation structure for “high capacity factor resources,” including fuel cells, in a way that will make the economics for these types of projects more challenging in the future. However, the projects that were already under contract were grandfathered into the program under the previous compensation structure. Irrespective of this development, we believe that these types of subscriber-based programs could be a source of future revenue and will continue to look to generate future sales through these programs.

Key Operating Metrics
In addition to the measures presented in the condensed consolidated financial statements, we use the following key operating metrics to evaluate business activity, to measure performance, to develop financial forecasts and to make strategic decisions:
Product accepted - the number of customer acceptances of our Energy Servers in any period. We recognize revenue when an acceptance is achieved. We use this metric to measure the volume of deployment activity. We measure each Energy Server manufactured, shipped and accepted in terms of 100 kilowatt equivalents.
Billings for product accepted in the period - the total contracted dollar amount of the product component of all Energy Servers that are accepted in a period. We use this metric to gauge the dollar value of the product acceptances and to evaluate the change in dollar amount of acceptances between periods.
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Billings for installation on product accepted in the period - the total contracted dollar amount billable with respect to the installation component of all Energy Servers that are accepted. We use this metric to gauge the dollar value of the installations of our product acceptances and to evaluate the change in dollar value associated with the installation of our product acceptances between periods.
Billings for annual maintenance service agreements - the dollar amount billable for one-year service contracts that have been initiated or renewed. We use this metric to measure the cumulative billings for all service contracts in any given period. As our installation base grows, we expect our billings for annual maintenance service agreements to grow, as well.
Product costs of product accepted in the period (per kilowatt) - the average unit product cost for the Energy Servers that are accepted in a period. We use this metric to provide insight into the trajectory of product costs and, in particular, the effectiveness of cost reduction activities.
Period costs of manufacturing expenses not included in product costs - the manufacturing and related operating costs that are incurred to procure parts and manufacture Energy Servers that are not included as part of product costs. We use this metric to measure any costs incurred to run our manufacturing operations that are not capitalized (i.e., absorbed, such as stock-based compensation) into inventory and therefore, expensed to our condensed consolidated statement of operations in the period that they are incurred.
Installation costs on product accepted (per kilowatt) - the average unit installation cost for Energy Servers that are accepted in a given period. This metric is used to provide insight into the trajectory of install costs and, in particular, to evaluate whether our installation costs are in line with our installation billings.
Comparison of the Three and Nine Months Ended September 30, 2020 and 2019
Acceptances
We use acceptances as a key operating metric to measure the volume of our completed Energy Server installation activity from period to period. We typically define an acceptance as when an Energy Server is installed and running at full power as defined in the customer contract or the financing agreements. For orders where a third party performs the installation, acceptances are generally achieved when the Energy Servers are shipped.
The product acceptances in the periods were as follows:
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 20202019Amount %20202019Amount %
   
Product accepted during the period
(in 100 kilowatt systems)
314 302 12 4.0 %876 808 68 8.4 %
Product accepted increased by 12 systems and 68 systems, or 4.0% and 8.4%, for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, respectively. Acceptance volume increased as demand increased for our Energy Servers.
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As discussed in the Purchase and Lease Options section above, our customers have several purchase options for our Energy Servers. The portion of acceptances attributable to each purchase option in the three and nine months ended September 30, 2020 and 2019 was as follows:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
   
Direct Purchase (including Third Party PPAs and International Channels)92 %100 %97 %97 %
Managed Services%— %%%
100 %100 %100 %100 %
As discussed in the Purchase and Lease Options section above, our customers have several purchase options for our Energy Servers. The portion of total revenue attributable to each purchase option in the period was as follows:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
   
Direct Purchase (including Third Party PPAs and International Channels)88 %89 %87 %85 %
Traditional Lease%%%%
Managed Services%%%%
Bloom Electrons%%%%
100 %100 %100 %100 %
Billings Related to Our Products
Total billings attributable to each revenue classification for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands, except percentages):
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 20202019Amount%20202019Amount %
Billings for product accepted in the period$130,363 $181,227 $(50,864)(28.1)%$359,617 $453,037 $(93,420)(20.6)%
Billings for installation on product accepted in the period27,672 18,376 9,296 50.6 %70,124 46,008 24,116 52.4 %
Billings for annual maintenance services agreements19,477 20,681 (1,204)(5.8)%58,611 53,459 5,152 9.6 %

Billings for product accepted decreased by approximately $50.9 million, or 28.1%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The decrease is primarily due to a higher average selling price mix in the three months ended September 30, 2019, driven mainly by the PPA II upgrade that occurred in the three months ended September 30, 2019. Billings for installation on product accepted increased $9.3 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Although product acceptances in the period increased only 4.0%, billings for installation on product accepted increased 50.6%, primarily due to the mix in installation billings driven by site complexity, site size, personalized applications, and the customer's option to complete the installation of our Energy Servers themselves. Billings for annual maintenance service agreements decreased $1.2 million, or 5.8%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This decrease was driven primarily by the timing of annual maintenance service agreement renewals, as compared to the prior year.
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Billings for product accepted decreased by approximately $93.4 million, or 20.6%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The decrease is primarily due to a higher average selling price mix in the nine months ended September 30, 2019, driven mainly by the PPA II upgrade that occurred in the nine months ended September 30, 2019. Billings for installation on product accepted increased $24.1 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Although product acceptances in the period increased only 8.4%, billings for installation on product accepted increased 52.4%, primarily due to the mix in installation billings driven by site complexity, site size, personalized applications, and the customer's option to complete the installation of our Energy Servers themselves. Billings for annual maintenance service agreements increased $5.2 million, or 9.6%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This increase was driven primarily by the increase in our installed base.
Costs Related to Our Products
Total product related costs for the three and nine months ended September 30, 2020 and 2019 was as follows:
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
20202019Amount%20202019Amount%
   
Product costs of product accepted in the period$2,292 /kW$2,850 /kW$(558) /kW(19.6)%$2,398 /kW$3,019 /kW$(621) /kW(20.6)%
Period costs of manufacturing related expenses not included in product costs (in thousands)$4,000 $1,969 $2,031 103.1 %$15,267 $12,227 $3,040 24.9 %
Installation costs on product accepted in the period$926 /kW$733 /kW$193 /kW26.3 %$980/kW$681/kW$299/kW43.9 %
Product costs of product accepted decreased by approximately $558 per kilowatt, or 19.6%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The product cost reduction was driven generally by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through improved processes and automation at our manufacturing facilities.
Product costs of product accepted decreased by approximately $621 per kilowatt, or 20.6%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The product cost reduction was driven generally by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through improved processes and automation at our manufacturing facilities.
Period costs of manufacturing related expenses increased by approximately $2.0 million, or 103.1%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The increase in period costs for the period was primarily driven by a lower capitalization of stock-based compensation overhead costs to inventory in the current year.
Period costs of manufacturing related expenses increased by approximately $3.0 million, or 24.9%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The increase in period costs for the period was primarily driven by a lower capitalization of stock-based compensation overhead costs to inventory in the current year.
Installation costs on product accepted increased by approximately $193 per kilowatt, or 26.3%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, personalized applications, and the customer's option to complete the installation of our Energy Servers themselves. As such, installation on a per kilowatt basis can vary significantly from period-to-period.
Installation costs on product accepted increased by approximately $299 per kilowatt, or 43.9%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, personalized applications, and the customer's option to complete the installation of our Energy Servers themselves. As such, installation on a per kilowatt basis can vary significantly from period-to-period.

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Results of Operations
A discussion regarding the comparison of our financial condition and results of operations for the three and nine months ended September 30, 2020 and 2019 is presented below (in thousands, except percentage data).
Comparison of the Three and Nine Months Ended September 30, 2020 and 2019
Revenue
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 20202019Amount %20202019Amount %
As RestatedAs Restated
 
Product$131,076 $163,902 $(32,826)(20.0)%$346,832 $398,909 $(52,077)(13.1)%
Installation26,603 21,102 5,501 26.1 %73,060 46,397 26,663 57.5 %
Service26,141 23,665 2,476 10.5 %77,496 70,158 7,338 10.5 %
Electricity16,485 15,638 847 5.4 %47,472 56,170 (8,698)(15.5)%
Total revenue$200,305 $224,307 $(24,002)(10.7)%$544,860 $571,634 $(26,774)(4.7)%
Total Revenue
Total revenue decreased approximately $24.0 million, or 10.7%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This decrease was driven primarily by the decrease in product revenue for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, offset partially by an increase in installation revenue. The product revenue decrease was primarily due to a higher average selling price mix in the three months ended September 30, 2019, driven mainly by the PPA II upgrade that occurred in the three months ended September 30, 2019, and due to weather and COVID-19 related delays in product acceptances. Product revenue for the three months ended September 30, 2020 also included $14.2 million of previously deferred revenue that was recognized in the quarter that was not associated with acceptances or services in the quarter. This was a one-time recognition of deferred revenue related to a specific contract that changed scope.
Total revenue decreased approximately $26.8 million, or 4.7%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This decrease was primarily driven by the decrease in product revenue and electricity revenue for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, offset partially by an increase in installation revenue. The product revenue decrease was primarily due to a higher average selling price mix in the nine months ended September 30, 2019, driven mainly by the PPA II upgrade that occurred in the nine months ended September 30, 2019, and due to weather and COVID-19 related delays in product acceptances. Product revenue for the nine months ended September 30, 2020 also included $14.2 million of previously deferred revenue that was recognized in the quarter that was not associated with acceptances or services in the quarter. This was a one-time recognition of deferred revenue related to a specific contract that changed scope.
Product Revenue
Product revenue decreased approximately $32.8 million, or 20.0%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The product revenue decrease was primarily due to a higher average selling price mix in the three months ended September 30, 2019, driven mainly by the PPA II upgrade that occurred in the three months ended September 30, 2019, and due to weather and COVID-19 related delays in product acceptances, offset by $14.2 million of previously deferred revenue that was recognized in the three months ended September 30, 2020 that was not associated with acceptances or services in the quarter. This was a one-time recognition of deferred revenue related to a specific contract that changed scope.
Product revenue decreased approximately $52.1 million, or 13.1%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The product revenue decrease was, again, primarily due to a higher average selling price mix in the nine months ended September 30, 2019, driven mainly by the PPA II upgrade that occurred in the nine months ended September 30, 2019, and due to weather and COVID-19 related delays in product acceptances, offset by $14.2 million of previously deferred revenue that was recognized in the three months ended September 30, 2020 that was not associated with acceptances or services in the quarter. This was a one-time recognition of deferred revenue related to a specific contract that changed scope.
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Installation Revenue
Installation revenue increased approximately $5.5 million, or 26.1%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This increase was driven by the increase in product acceptances of approximately 12 systems, or 4.0%, for the three months ended September 30, 2020 and due to the change in mix of installations driven by site complexity, site size, and the customer's option to complete the installation of our Energy Servers themselves.
Installation revenue increased approximately $26.7 million, or 57.5%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This increase was driven by the increase in product acceptances of approximately 68 systems, or 8.4%, for the nine months ended September 30, 2020 and due to the change in mix of installations driven by site complexity, site size, and the customer's option to complete the installation of our Energy Servers themselves.
Service Revenue
Service revenue increased approximately $2.5 million, or 10.5%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This was primarily due to the increase in the number of annual maintenance contract renewals driven by our growing fleet of installed Energy Servers.
Service revenue increased approximately $7.3 million, or 10.5% for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This was primarily due to the increase in the number of annual maintenance contract renewals driven by our growing fleet of installed Energy Servers.
Electricity Revenue
Electricity revenue increased approximately $0.8 million, or 5.4%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, due to the addition of Managed Service agreements, partially offset by a reduction in electricity revenues resulting from the decommissioning and upgrade of PPA II in the three months ended September 30, 2019. Electricity revenue is driven by our Bloom Electrons program, which included PPA II, as well as from our Managed Services Agreements. When the PPA Entities associated with our Bloom Electrons Program are decommissioned, we no longer recognize electricity revenue for them.
Electricity revenue decreased approximately $8.7 million, or 15.5%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, due to a reduction in electricity revenues resulting from the decommissioning and an upgrade of PPA II in the nine months ended September 30, 2019. Electricity revenue is driven by our Bloom Electrons Program, which included PPA II, as well as from our Managed Services Agreements. When the PPA Entities associated with our Bloom Electrons Program are decommissioned, we no longer recognize electricity revenue for them.
Cost of Revenue
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 20202019Amount %20202019Amount %
As RestatedAs Restated
 (dollars in thousands)(dollars in thousands)
Cost of revenue:
Product$72,037 $91,697 $(19,660)(21.4)%$227,653 $293,697 $(66,044)(22.5)%
Installation27,87226,1411,731 6.6 %86,938 59,586 27,352 45.9 %
Service33,214 36,427 (3,213)(8.8)%92,836 83,111 9,725 11.7 %
Electricity11,19527,317(16,122)(59.0)%35,266 62,601 (27,335)(43.7)%
Total cost of revenue$144,318 $181,582 $(37,264)(20.5)%$442,693 $498,995 $(56,302)(11.3)%
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Total Cost of Revenue
Total cost of revenue decreased approximately $37.3 million, or 20.5%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Included as a component of total cost of revenue, stock-based compensation decreased approximately $4.4 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. In addition, cost of revenue for the three months ended September 30, 2019 included $14.6 million of one-time expenses associated with the PPA II upgrade. Total cost of revenue, excluding stock-based compensation and the one-time expenses, decreased approximately $18.3 million, or 11.5%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, despite a 4.0% increase in product acceptances, due to ongoing cost reduction efforts to reduce material, labor and overhead costs.
Total cost of revenue decreased approximately $56.3 million, or 11.3%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Included as a component of total cost of revenue, stock-based compensation decreased approximately $23.0 million, or 62.5%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. In addition, cost of revenue for the nine months ended September 30, 2019 included $48.3 million of one-time expenses associated with the PPA II upgrade. Total cost of revenue, excluding stock-based compensation and the one-time expenses, increased approximately $15.0 million, or 3.6%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019 due to the 8.4% increase in product acceptances and higher cost of installation revenue due to the change in mix of installations.
Cost of Product Revenue
Cost of product revenue decreased approximately $19.7 million, or 21.4%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Stock-based compensation, which is included as a component of cost of product revenue, decreased approximately $3.0 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Cost of product revenue, excluding stock-based compensation decreased approximately $16.7 million, or 19.3%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, despite a 4.0% increase in product acceptances, due to ongoing cost reduction efforts to reduce material, labor and overhead costs.
Cost of product revenue decreased approximately $66.0 million, or 22.5%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Stock-based compensation, which is included as a component of cost of product revenue, decreased approximately $18.8 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. In addition, cost of product revenue for the nine months ended September 30, 2019 included $25.6 million of one-time expenses associated with the PPA II upgrade. Cost of product revenue, excluding stock-based compensation and the one-time expenses, decreased approximately $21.6 million, or 9.0%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, despite an 8.4% increase in product acceptances, due to ongoing cost reduction efforts to reduce material, labor and overhead costs.
Cost of Installation Revenue
Cost of installation revenue increased approximately $1.7 million, or 6.6%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, primarily due to the increase in product acceptances of approximately 12 systems, or 4.0%, for the three months ended September 30, 2020 and due to the change in mix of installations driven by site complexity, size, local ordinance requirements, location of utility interconnect, and the customer's option to complete the installation of our Energy Servers themselves.
Cost of installation revenue increased approximately $27.4 million, or 45.9%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, primarily due to the increase in product acceptances of approximately 68 systems, or 8.4%, for the nine months ended September 30, 2020 and due to the change in mix of installations driven by site complexity, size, local ordinance requirements, location of utility interconnect and, the customer's option to complete the installation of our Energy Servers themselves.
Cost of Service Revenue
Cost of service revenue decreased approximately $3.2 million, or 8.8%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This improvement was primarily due to a lower number of required power module replacements as a result of the longer lives of our Energy Servers.
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Cost of service revenue increased approximately $9.7 million, or 11.7%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This increase in service cost was primarily due to more power module replacements required in the fleet as our fleet of installed Energy Servers grows with acceptances and additional extended service contracts are executed and renewed.
Cost of Electricity Revenue
Cost of electricity revenue decreased approximately $16.1 million, or 59.0%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, mainly due to the $14.6 million of one-time expenses associated with the PPA II upgrade recognized in the three months ended September 30, 2019.
Cost of electricity revenue decreased approximately $27.3 million, or 43.7%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, mainly due to the $22.7 million of one-time expenses associated with the PPA II upgrade recognized in the nine months ended September 30, 2019.
Gross Profit (Loss)
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 2020201920202019
As RestatedAs Restated
 (dollars in thousands)
Gross profit:
Product$59,039$72,205$(13,166)$119,179$105,212$13,967 
Installation(1,269)(5,039)3,770 (13,878)(13,189)(689)
Service(7,074)(12,762)5,688 (15,340)(12,953)(2,387)
Electricity5,290(11,679)16,969 12,207(6,431)18,638 
Total gross profit$55,987$42,725$13,262 $102,167$72,639$29,528 
Gross margin:
Product45 %44 %34 %26 %
Installation(5)%(24)%(19)%(28)%
Service(27)%(54)%(20)%(18)%
Electricity32 %(75)%26 %(11)%
Total gross margin28 %19 %19 %13 %
Total Gross Profit
Gross profit improved $13.3 million in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Stock-based compensation, which is included as a component of total cost of revenue, decreased approximately $4.4 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Total gross profit, excluding stock-based compensation, increased approximately $8.9 million, or 17.5%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019 due to the improvement in the service losses and $14.2 million of previously deferred revenue that was recognized in the three months ended September 30, 2020, which was not associated with acceptances or services in the quarter. This improvement was partially offset by the higher margin site mix of installations driven primarily by the PPA II upgrade in the three months ended September 30, 2019.
Gross profit improved $29.5 million in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Stock-based compensation, which is included as a component of total cost of revenue, decreased approximately $23.0 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Total gross profit, excluding stock-based compensation, improved approximately $6.5 million, or 5.9%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, despite an 8.4% increase in product acceptances due to the higher margin site mix of installations driven primarily by the PPA II upgrade in the nine months ended September 30, 2019, partially offset by $14.2 million of previously deferred revenue that was recognized in the nine months ended September 30, 2020, which was not associated with acceptances or services in the period.
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Product Gross Profit
Product gross profit decreased $13.2 million in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Excluding stock-based compensation, product gross profit decreased $16.2 million, or 20.8%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The product gross profit decrease in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019 was primarily due to a higher margin site mix in the three months ended September 30, 2019, driven primarily by the PPA II upgrade that occurred in the three months ended September 30, 2019, partially offset by $14.2 million of previously deferred revenue that was recognized in the three months ended September 30, 2020, which was not associated with acceptances or services in the quarter.
Product gross profit increased $14.0 million in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Excluding stock-based compensation, product gross profit decreased $4.9 million, or 3.7%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This was primarily due to a higher margin site mix in the nine months ended September 30, 2019, driven by the PPA II upgrade that occurred in the nine months ended September 30, 2019, partially offset by $14.2 million of previously deferred revenue that was recognized in the nine months ended September 30, 2020, which was not associated with acceptances or services in the quarter.
Installation Gross Loss
Installation gross loss decreased $3.8 million in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Excluding stock-based compensation, install gross loss decreased $2.9 million, or 83.3%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019 driven by the change in mix of installations driven by site complexity, size, local ordinance requirements, location of utility interconnect and, the customer's option to complete the installation of our Energy Servers themselves.
Installation gross loss increased $0.7 million in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Excluding stock-based compensation, install gross loss increased $3.8 million, or 48.2%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, driven by the change in mix of installations driven by site complexity, size, local ordinance requirements, location of utility interconnect and, the customer's option to complete the installation of our Energy Servers themselves.
Service Gross Profit (Loss)
Service gross loss decreased $5.7 million in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This improvement was due to an increase in service revenue and reduction in cost driven primarily by the timing of our service schedule for power module replacements required in our fleet of installed Energy Servers.
Service gross loss increased $2.4 million in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This increase was primarily due to an increase in service cost driven primarily by the timing of our service schedule for power module replacements required in our fleet of installed Energy Servers.
Electricity Gross Profit (Loss)
Electricity gross profit (loss) improved $17.0 million, or 145.3%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, mainly due to the $14.6 million of one-time expenses associated with the PPA II upgrade recognized in the three months ended September 30, 2019.
Electricity gross profit (loss) improved $18.6 million, or 289.8%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, mainly due to the $22.7 million of one-time expenses associated with the PPA II upgrade recognized in the nine months ended September 30, 2019.
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Operating Expenses
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 20202019Amount %20202019Amount %
As RestatedAs Restated
 (dollars in thousands)(dollars in thousands)
Research and development$19,231 $23,389 $(4,158)(17.8)%$61,887 $82,020 $(20,133)(24.5)%
Sales and marketing11,700 17,649 (5,949)(33.7)%37,076 56,216 (19,140)(34.0)%
General and administrative25,428 36,599 (11,171)(30.5)%79,471 119,335 (39,864)(33.4)%
Total operating expenses$56,359 $77,637 $(21,278)(27.4)%$178,434 $257,571 $(79,137)(30.7)%
Total Operating Expenses
Total operating expenses decreased $21.3 million, or 27.4%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Included as a component of total operating expenses, stock-based compensation expenses decreased approximately $20.9 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The decrease in stock-based compensation expense was primarily attributable to lower stock-based compensation expenses attributed to a one-time employee grant of restricted stock units ("RSUs") awarded prior to our initial public offering (the "IPO") with a performance condition of an IPO of our securities. These RSUs had a two-year vesting period starting on the day of our IPO and were issued as an employee retention vehicle to bring our stock-based compensation in line with our peer group. These RSUs completed their vesting in July of 2020, and stock-based compensation expenses associated with these RSUs decreased quarter-over-quarter until the final vesting date. In addition to the one-time grant, stock-based compensation expense includes some previously granted RSUs with vesting beginning upon the completion of our IPO. Total operating expenses, excluding stock-based compensation, decreased approximately $0.4 million, or 0.9%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.
Total operating expenses decreased $79.1 million, or 30.7%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Included as a component of total operating expenses, stock-based compensation expenses decreased approximately $79.8 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The decrease in stock-based compensation expense was primarily attributable to lower stock-based compensation expenses attributed to a one-time employee grant of RSUs awarded prior to our IPO with a performance condition of an IPO of our securities. These RSUs had a two-year vesting period starting on the day of our IPO and were issued as an employee retention vehicle to bring our stock-based compensation in line with our peer group. These RSUs completed their vesting in July of 2020, and the stock-based compensation expenses associated with these RSUs decreased quarter-over-quarter until the final vesting date. In addition to the one-time grant, the stock-based compensation expenses include some previously granted RSUs with vesting beginning upon the completion of our IPO. Total operating expenses, excluding stock-based compensation, increased approximately $0.7 million, or 0.5%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This increase was primarily due to compensation related expenses associated with hiring new employees, investments for next generation technology, and fees for restatement related expenses in 2020, offset by a $5.9 million one-time expense in the nine months ended September 30, 2019 associated with the PPA II upgrade.
Research and Development
Research and development expenses decreased approximately $4.2 million, or 17.8%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Included as a component of research and development expenses, stock-based compensation expenses decreased by approximately $2.5 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Total research and development expenses, excluding stock-based compensation expenses, decreased by approximately $1.7 million, or 10.0%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. This decrease was primarily due to timing of investments made in our next generation technology development, sustaining engineering projects for the current Energy Server platform, and investments made for customer personalized applications, such as microgrids, and new fuel solutions utilizing biogas.
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Research and development expenses decreased by approximately $20.1 million, or 24.5%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Included as a component of research and development expenses, stock-based compensation expenses decreased by approximately $18.1 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Total research and development expenses, excluding stock-based compensation, decreased by approximately $2.0 million, or 4.1%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This decrease was primarily due to timing of investments made in our next generation technology development, sustaining engineering projects for the current Energy Server platform, and investments made for customer personalized applications, such as microgrids, and new fuel solutions utilizing biogas.
Sales and Marketing
Sales and marketing expenses decreased by approximately $5.9 million, or 33.7%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Included as a component of sales and marketing expenses, stock-based compensation expenses decreased by approximately $3.6 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Total sales and marketing expenses, excluding stock-based compensation, decreased by approximately $2.4 million, or 19.9%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.
Sales and marketing expenses decreased by approximately $19.1 million, or 34.0%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Included as a component of sales and marketing expenses, stock-based compensation expenses decreased by approximately $17.9 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Total sales and marketing expenses, excluding stock-based compensation, decreased by approximately $1.2 million, or 4.1%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.
General and Administrative
General and administrative expenses decreased by approximately $11.2 million, or 30.5%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Included as a component of general and administrative expenses, stock-based compensation expenses decreased by approximately $14.8 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Total general and administrative expenses, excluding stock-based compensation, increased by approximately $3.6 million, or 22.9%, for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. The increase in general and administrative expenses was mainly due to increased personnel costs and fees for SOX compliance activities and debt refinancing.
General and administrative expenses decreased by approximately $39.9 million, or 33.4%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Included as a component of general and administrative expenses, stock-based compensation expenses decreased by approximately $43.8 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Total general and administrative expenses, excluding stock-based compensation, increased by approximately $3.9 million, or 7.1%, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. The increase in general and administrative expenses was mainly due to increased personnel costs and fees for restatement related expenses, debt refinancing and SOX compliance activities in 2020, offset by a $5.9 million one-time expense in the nine months ended September 30, 2019 associated with the PPA II upgrade.
Stock-Based Compensation
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 20202019Amount%20202019Amount %
As RestatedAs Restated
 (dollars in thousands)
Cost of revenue$3,568 $7,985 $(4,417)(55.3)%$13,811 $36,835 $(23,024)(62.5)%
Research and development4,103 6,589 (2,486)(37.7)%14,913 33,037 (18,124)(54.9)%
Sales and marketing2,234 5,823 (3,589)(61.6)%8,358 26,270 (17,912)(68.2)%
General and administrative5,830 20,650 (14,820)(71.8)%20,303 64,091 (43,788)(68.3)%
Total stock-based compensation$15,735 $41,047 $(25,312)(61.7)%$57,385 $160,233 $(102,848)(64.2)%
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Total stock-based compensation decreased $25.3 million, or 61.7%, in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Of the $15.7 million in stock-based compensation for the three months ended September 30, 2020, approximately $1.5 million was related to one-time employee grants of RSUs that were issued at the time of our IPO and that had a two-year vesting period. These RSUs provided us an employee retention vehicle to bring our stock-based compensation in line with our peer group. In addition, the stock-based compensation included some previously granted RSUs that vested upon the completion of our IPO.
Total stock-based compensation decreased $102.8 million, or 64.2%, in the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. Of the $57.4 million in stock-based compensation for the nine months ended September 30, 2020, approximately $13.0 million was related to one-time employee grants of RSUs that were issued at the time of our IPO and that had a two-year vesting period. These RSUs provided us an employee retention vehicle to bring our stock-based compensation in line with our peer group. In addition, the stock-based compensation included some previously granted RSUs that vested upon the completion of our IPO.
Other Income and Expense
 Three Months Ended
September 30,
ChangeNine Months Ended
September 30,
Change
 2020201920202019
As RestatedAs Restated
 (in thousands)
Interest income$254 $1,214 $(960)$1,405 $4,799 $(3,394)
Interest expense(19,902)(21,323)1,421 (55,030)(65,845)10,815 
Interest expense, related parties(353)(1,605)1,252 (2,513)(4,823)2,310 
Other income (expense), net(221)525 (746)(4,142)568 (4,710)
Loss on extinguishment of debt