ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Description of Bloom Energy
We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform that provides clean and resilient power to businesses, essential services, and critical infrastructure. Our technology, invented in the United States, is the most advanced thermal electric generation technology on the market today. Our fuel-flexible Bloom Energy Servers can use biogas and hydrogen, in addition to natural gas, to create electricity at significantly higher efficiencies than traditional, combustion-based resources. In addition, our fuel cell technology can be used to create hydrogen, which is increasingly recognized as a critically important tool necessary for the full decarbonization of the energy economy. Our enterprise customers are among the largest multi-national corporations who are leaders in adopting new technologies. We also have strong relationships with some of the largest utility companies in the United States and the Republic of Korea.
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 customers are typically large institutions with multi-level decision making processes, we generally experience a lengthy sales process.
This section includes comparisons of certain 2020 financial information to the same information for 2019. Additional information about results for 2018 and certain year-on-year comparisons between 2019 and 2018 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in our Annual Report on Form 10-K for the year ended December 31, 2019.
COVID-19 Pandemic
General
We continue to monitor and adjust 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 our policy is to direct them not to enter if they have COVID-19-like symptoms. We follow CDC and local guidelines when notified of possible exposures. For more information regarding the risks posed to our company by the COVID-19 pandemic, refer to Part I, Item 1A, Risk Factors – Risks Related to Our Products and Manufacturing – Our business has been and 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 Promissory Notes due December 2021 (the “10% Convertible Notes”), our 10% Constellation Promissory Note to December 2021 (the “10% Constellation Note”), and additionally entered into a note purchase agreement to issue $70.0 million of the 10.25% 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 the Green Notes. In November 2020, we redeemed our 10% Senior Secured Notes due July 2024 (the “10% Notes”).
Although, COVID-19 created disruptions throughout various aspects of our business as noted herein, it had a limited impact on our results of operation throughout 2020. This is in part due to the fact that throughout 2020, we continued 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. We also improved our liquidity in light of the issuance of the Green Notes and conversion of 10% Convertible Notes and the 10% Constellation Notes. As we exited 2020, we do have expansion needs for our manufacturing facilities to meet anticipated demand in 2022. We are also expanding our selling territories both domestically and internationally, and anticipate an increase in the necessary resources to expand into new geographies. Although, we believe we have the sufficient capital for these activities over the next 12 months, we may enter the equity market for additional expansion capital. Please refer to Note 7 - Outstanding Loans and Security Agreements in Part II, Item 8, Financial Statements and Supplementary Data; and Part I, Item 1A, Risk Factors – Risks Related to Our Liquidity – Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities’ outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, and We may not be able to generate sufficient cash to meet our debt service obligations, for more information regarding the terms of and risks associated with our debt.
Sales
Our selling activity was impacted by COVID-19 in the first half of 2020. In some industries, such as education and entertainment, decision makers shifted their focus to the immediate needs of the pandemic, thus delaying their purchase decisions and capital outlays. In other industries, we have experienced an increase in the time necessary to obtain new business as our customers address the impact of the COVID-19 pandemic and assess their facility and electricity needs. While there may ultimately be a reduction in electricity needs due to a decrease in economic activity, to date the impact has generally equated to a longer transaction cycle. Although sales in these sectors and others were impacted in the first half of 2020, a more typical demand and purchasing cycle returned in the second half of 2020.
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 suspended throughout 2020 and have so far continued to do so. To the extent COVID-19 continues throughout 2021 and these travel restrictions remain, our expansion efforts may be impacted.
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. Throughout 2020, we saw a moderate 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 or sulfur 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 moderately increased.
Customer Financing
COVID-19 has resulted in a significant drop in the ability of many financiers (particularly financing institutions) to monetize tax credits. This is due to a drop in their taxable income stemming from losses due to the COVID-19 pandemic. We were able to obtain financing for our 2020 installations, but are still in the process of securing financing for our 2021 installations. 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. The travel restrictions and limited ability for financiers to conduct due diligence at our facilities has increased the timeline to reach closure with new financiers. 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 is impacting financing for their use of an Energy Server.
As of the end of 2020, all our customers were able to meet their payment obligations and the pandemic had no impact on the current financing instruments we had in place. Our recent experience has been that financing parties have capital to
deploy and are interested in financing our Energy Servers. However, with the limited availability of tax credits, the difficulty for new potential financing parties to conduct due diligence in light of the pandemic and the drop in credit rating of some customers, it is taking longer to secure financing than in the past. If we are unable to secure financing for our 2021 installations, our revenue, cash flow and liquidity will be materially impacted.
Installations and Maintenance of Energy Servers
Our installation and maintenance operations have been, and may continue to be, adversely impacted by the COVID-19 pandemic. Our installation projects have experienced delays and may continue to experience delays relating to, among other things, shortages in available labor for design, installation and other work; the inability or delay in our ability to access customer facilities due to shutdowns or other restrictions; the decreased productivity of our general contractors, their sub-contractors, medium-voltage electrical gear suppliers, and the wide range of engineering and construction related specialist suppliers on whom we rely for successful and timely installations; the stoppage of work by gas and electric utilities on which we are critically dependent for hook ups; and the unavailability of necessary civil and utility inspections as well as the review of our permit submissions and issuance of permits by multiple authorities that have jurisdiction over our activities.
We are not the only business impacted by these shortages and delays, which means that we may in the future face increased competition for scarce resources, which may result in continuing delays or increases in the cost of obtaining such services, including increased labor costs and/or fees to expedite permitting. In addition, while construction activities have to date been deemed “essential business” and allowed to proceed in many jurisdictions, we have experienced interruptions and delays caused by confusion related to exemptions for “essential business” among our suppliers and their sub-contractors and the relevant permitting utilities. Future changes in applicable government orders or regulations, or changes in the interpretation of existing orders or regulations, could result in reductions in the scope of permitted construction activities or prohibitions on such activities. An inability to install our Energy Servers would negatively impact our acceptances, and thereby impact our cash flows and results of operations, including revenue.
Throughout 2020, 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 and potentially material 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 has an adverse and potentially materially affect on our cash flows. Our installations completed in the quarter ended December 31, 2020 were minimally impacted by COVID-19 and given mitigation strategies, we were able to complete our planned installations.
As to maintenance, if we are delayed in or unable to perform scheduled or unscheduled maintenance, our previously-installed Energy Servers will likely experience adverse performance impacts including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may be subject to increased costs in the future.
Supply Chain
We have experienced COVID-19 related delays from certain vendors and suppliers, which, in turn, could cause delays in the manufacturing and installation of our Energy Servers and adversely impact our cash flows and results of operations including revenue. We have a global supply chain and obtain components from Asia, Europe and India. In many cases, the components we obtain are jointly developed with our suppliers and unique to us, which makes it difficult to obtain and qualify alternative suppliers should our suppliers be impacted by COVID-9. In the second quarter, we experienced COVID-19 related delays from certain vendors and suppliers, however, these suppliers were not supplying discrete components to us and we were able to find and qualify alternative suppliers and our production was not impacted. During the third and fourth quarter, our supply chain stabilized; however, we still experienced supply chain disruptions due to COVID-19 with respect to logistics and container shortages. We put actions in place to mitigate the disruptions by booking alternate sea routes, creating virtual hubs and consolidating shipments coming form the same region
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.
Manufacturing
As an essential business in both the states of California and Delaware, we have continued to manufacture Energy Servers, but have adopted strict measures to help keep our employees safe. These measures have decreased productivity to a limited 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 CDC and local guidelines when notified of possible exposures. We also instituted testing of individuals who comes into 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 a few positive tests and in such cases, we have followed CDC and local guidelines.
If we become aware of cases of COVID-19 among our employees, we notify those with whom the person is known to have been in contact, send the exposed employees home for at least 10 days and require employees to test 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.
To date, COVID-19 has not impacted our production given the safety protocols we have put in place augmented by our ability to increase our shifts and obtain a contingent work force for some of the manufacturing activities. If COVID-19 materially impacts our supply chain or if we experience a significant COVID-19 outbreak that affects our manufacturing workforce, our production could be adversely impacted which could adversely impact our cash flow and results of operation, including revenue.
Purchase and Lease Options
Overview
Initially, we only offered our Energy Servers on a direct purchase basis, in which the customer purchases the product directly from us. We learned that while interested in our Energy Servers, some customers lacked the interest or financial capability to purchase our Energy Servers directly. Some of these customers were not in a position to optimize the use of federal tax benefits like the investment tax credit and accelerated depreciation.
In order to expand our offerings to those unable or those who prefer to not directly purchase our Energy Servers and/or who prefer to contract for our services on a pay-as-you-go model, we subsequently developed three financing options that enabled customers' use of the Energy Servers without a direct purchase through third-party ownership financing arrangements.
Under the ‘Traditional Lease’ option, a customer may lease one or more Energy Servers from a financial institution that purchases such Energy Servers. In most cases, the financial institution completes its purchase from us immediately after commissioning. We both (i) facilitate this financing arrangement between the financial institution and the customer and (ii) provide ongoing operations and maintenance services for the Energy Servers (such arrangement, a “Traditional Lease”).
Alternatively, a customer may enter into one of two major types of service contracts with us for the purchase of electricity generated by the Energy Servers. The first type of services contract has a fixed monthly payment component that is required regardless of the Energy Servers’ performance, and in some cases also includes a variable payment based on the Energy Server's performance (a “Managed Services Agreement”). Managed Services Agreements are then financed pursuant to a sale-leaseback with a financial institution (a “Managed Services Financing”). The second type of services contract requires the customer to pay for each kilowatt-hour produced by the Energy Servers (a “Power Purchase Agreement” or "PPA"). PPAs have been financed through tax equity partnerships, acquisition financings, and direct sales to investors (each, a “Portfolio Financing”).
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 optimize the federal tax benefits associated with a fuel cell, like the investment tax credit or accelerated depreciation. 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.
Warranties and Guaranties
We typically provide warranties and guaranties regarding our Energy Servers’ performance (efficiency and output) to both the customer and in the case of Portfolio Financings, the investor. We refer to a “performance 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 “performance 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 decreased benefits resulting from the failure to meet the guaranteed level. Our obligation to make payments under the performance guaranty is always contractually capped.
In most cases, we include the first year of performance warranties and guaranties in the sale price of the Energy Server. Typically, performance warranties and guaranties made for the benefit of the Customer are in the Managed Services Agreement or PPA, as the case may be. In a Portfolio Financing, the performance warranties and guaranties made for the benefit of the investors are in an O&M Agreement. In a Traditional Lease or direct purchase option, the performance warranties and guaranties are in an extended maintenance service agreement.
Overview of Financing and Lease Options
The substantial majority of bookings made in recent periods have been Managed Services Agreements and PPAs. Each of our financing and lease options is described in further detail below.
Managed Services Financing
Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer for a certain term. In exchange for the use of the Energy Server and its generated electricity the customer makes a monthly payment. The monthly payment always includes a fixed monthly capacity-based payment, and in some cases also includes a performance-based payment based on the performance of the Energy Server. The fixed capacity-based payments made by the customer under the Managed Services Agreement are applied toward our obligation to pay down our periodic rent liability under a sale-leaseback transaction with an investor. The performance payment is transferred to us as compensation for operations and maintenance services and recognized as electricity revenue within the consolidated statements of operations.
Under a Managed Services Financing, once we enter into a Managed Services Agreement with the customer, a financier is identified, we sell the Energy Server to such financier, as lessor, and the financier, as lessor, leases it back to us, as lessee, pursuant to a sale-leaseback transaction. The proceeds from the sale are recognized as a financing obligation within the 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 purchase price for an 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 applied towards our obligation to pay periodic rent under the sale-leaseback transaction. We assign all our rights to such fixed payments made by the customer to the financier, as lessor.
The duration of the master lease in a Managed Services Financing is currently between five and ten years.
Our Managed Services Agreements typically provide only for performance warranties of both the efficiency and output of the Energy Server, all of which are written in favor of the customer. These types of 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 December 31, 2020, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties and the fleet of our Energy Servers deployed pursuant to the Managed Services Financings was performing at a lifetime average output of approximately 86%.
Portfolio Financings
*Under a Portfolio Financing, pursuant to which we sell an operating company to an investor or tax-equity partnership, we have no equity in the purchaser, also referred to as Third-Party PPA.
A PPA 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 pursuant to a power purchase agreement. We have financed PPAs through two types of Portfolio Financings.
In one type of 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 include an equity investment by us in the PPA Entity for which we are the primary beneficiary and therefore consolidate the entities, we recognize revenue as the electricity is produced. Our future plans to raise capital no longer contemplate these types of transactions.
We also finance PPAs through a second type of Portfolio Financing pursuant to which we sell an entire Operating Company to an investor or tax equity partnership in which we do not have an equity interest (a “Third-Party PPA”). We recognize revenue on the sale of each Energy Server purchased by the Operating Company on acceptance. For further discussion, see Note 13 - Portfolio Financings in Part II, Item 8, Financial Statements and Supplementary Data.
When we finance a portfolio of Energy Servers and PPAs through a Portfolio Financing, we enter into a sale, engineering and procurement and construction agreement (“EPC Agreement”) and an O&M Agreement, in each case with the Operating Company that both is counter-party to the portfolio of PPAs and that will eventually own the Energy Servers. As counter-party to the portfolio of PPAs, the Operating Company, as owner of the Energy Servers, receives all customer payments generated under the PPAs, all investment tax credits, all accelerated tax depreciation benefits, and any other available state or local
benefits arising out of the ownership or operation of the Energy Servers, to the extent not already allocated to the end customer under the PPA.
The sales of our Energy Servers to the Operating Company in connection with a Portfolio Financing have many of the same terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery 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 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 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 warranty period, the Operating Company has almost always exercised the option to renew our operations and maintenance services under the O&M Agreement.
We typically provide performance warranties and guaranties related to output and efficiency or a combination of the two to the Operating Company under the O&M Agreement. We also backstop all of the Operating Company’s obligations under the portfolio of PPAs, including both the repair or replacement obligations pursuant to the performance warranties and any payment liabilities under the guaranties.
As of December 31, 2020, we had incurred no liabilities to investors in Portfolio Financings due to failure to repair or replace Energy Servers pursuant to these performance warranties. Our obligation to make payments for underperformance against the performance guaranties was capped at an aggregate total of approximately $114.3 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately $108.9 million.
Obligations to Operating Companies
In addition to our obligations to the end customers, our Portfolio Financings involve many obligations to the Operating Company that purchases our Energy Servers. These obligations are set forth in the applicable EPC Agreement 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 Agreements and O&M Agreements;
•operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations;
•satisfying the performance warranties and guaranties set forth in the applicable O&M Agreements;
•satisfying the performance warranties and guaranties in each of the applicable PPAs on behalf of the Operating Company; and
•complying with any other specific requirements contained in the PPAs with individual end-customers.
The EPC Agreement obligates us to repurchase the Energy Server in the event of certain IP Infringement claims. The O&M Agreement obligates us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the performance warranties and guaranties in the O&M Agreement and we do not cure such failure in the applicable time period, or that a PPA terminates as a result of any failure by us to perform the obligations in the O&M Agreement. In some of our Portfolio Financings, our obligation to repurchase Energy Servers under the O&M extends to the entire fleet of Energy Servers sold in the event a systemic failure affects more than a specified number of Energy Servers.
In some Portfolio Financings, 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.
Administration of Operating Companies.
In each of our Portfolio Financings in which we hold an interest in the tax equity partnership, we perform certain administrative services as managing member 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 (with the exception of one PPA Entity) 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 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 and the PPAs. As further collateral, the lenders receive a security interest in 100% of the membership interest of the Operating Company. The lenders have no recourse to us or to any of the other equity investors (the "Equity Investors") in the Operating Company for liabilities arising out of the portfolio.
We have determined that we are the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions. Accordingly, we consolidate 100% of the assets, liabilities and operating results of these entities, including the Energy Servers and lease income, in our consolidated financial statements. We recognize the Equity Investors’ share of the net assets of the investment entities as noncontrolling interests in subsidiaries in our consolidated balance sheet. We recognize the amounts that are contractually payable to these investors in each period as distributions to noncontrolling interests in our consolidated statements of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest. Our consolidated statements of cash flows reflect cash received from these investors as proceeds from investments by noncontrolling interests in subsidiaries. Our consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling interests in subsidiaries. We reflect any unpaid distributions to these investors as distributions payable to noncontrolling interests in subsidiaries on our 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 Portfolio Financings, see Note 13 - Portfolio Financings in Part II, Item 8, Financial Statements and Supplementary Data.
Traditional Lease
Under the Traditional Lease option, the customer enters into a lease directly with a financier (the "Lease"), which pays us for our Energy Servers purchased pursuant to a direct sales 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 service agreement for operations and maintenance work 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 Lease. The term of a lease in a Traditional Lease option ranges from five to ten years.
The direct sales agreement provides for sale and the installation of our Energy Servers and includes a standard one-year warranty, to the financier as purchaser. The services agreement with the customer provides certain performance warranties and guaranties, with the services term 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.
The direct sales agreement in a Traditional Lease arrangement typically provides for performance warranties and guaranties of both the efficiency and output of our Energy Servers, all of which are written in favor of the customer. As of December 31, 2020, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties. Our obligation to make payments for underperformance against the performance guaranties for projects financed pursuant to a Traditional Lease 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 its 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.
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.
Our product sales backlog was $1.0 billion, equivalent to 1,994 systems, or 199.4 megawatts, as of December 31, 2020. Our product sales backlog was $1.1 billion, equivalent to 1,983 systems, or 198.3 megawatts, as of December 31, 2019.
We define product sales backlog as signed customer product sales orders received prior to the period end, but not yet accepted, excluding site cancellations. The timing of the deployment of our backlog depends on the factors described above. However, as a general matter, at any point in time, we expect at least 50% of our backlog to be deployed within the next 12 months. The portion of our backlog in the year ended December 31, 2020 attributable to each payment option was as follows: direct purchase (including Third Party PPAs) 90% and Managed Services Agreements 10%. The portion of our backlog in the year ended December 31, 2019 attributable to each payment option was as follows: direct purchase (including Third Party PPAs) 93% and Managed Services Agreements 7%.
International Channel Partners
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.
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 three 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 during 2021.
Key Operating Metrics
In addition to the measures presented in the 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.
•Billings for installation on product accepted in the period - the total contracted dollar amount billable with respect to the installation component of all Energy Servers that are accepted. We use this metric to gauge the dollar value of the installations of our product acceptances and to evaluate the change in dollar value associated with the installation of our product acceptances between periods.
•Billings for annual maintenance service agreements - the dollar amount billable for one-year service contracts that have been initiated or renewed. We use this metric to measure the cumulative billings for all service contracts in any given period. As our installation base grows, we expect our billings for annual maintenance service agreements to grow, as well.
•Product costs of product accepted in the period (per kilowatt) - the average unit product cost for the Energy Servers that are accepted in a period. We use this metric to provide insight into the trajectory of product costs and, in particular, the effectiveness of cost reduction activities.
•Period costs of manufacturing expenses not included in product costs - the manufacturing and related operating costs that are incurred to procure parts and manufacture Energy Servers that are not included as part of product costs. We use this metric to measure any costs incurred to run our manufacturing operations that are not capitalized (i.e., absorbed, such as stock-based compensation) into inventory and therefore, expensed to our consolidated statement of operations in the period that they are incurred.
•Installation 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 Years Ended December 31, 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 years ended December 31, 2020 and 2019 were as follows:
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|
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|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product accepted during the period
(in 100 kilowatt systems)
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|
|
|
|
|
|
|
|
|
1,326
|
|
|
1,194
|
|
|
132
|
|
|
11.1
|
%
|
Product accepted increased by 132 systems, or 11.1%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Acceptance volume increased as demand increased for our Energy Servers.
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 years ended December 31, 2020 and 2019 was as follows:
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Years Ended
December 31,
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|
|
|
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|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
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|
|
|
Direct Purchase (including Third Party PPAs and International Channels)
|
|
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|
|
|
96
|
%
|
|
93
|
%
|
|
|
Traditional Lease
|
|
|
|
|
|
—
|
%
|
|
—
|
%
|
|
|
Managed Services
|
|
|
|
|
|
4
|
%
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
The portion of total revenue attributable to each purchase option in the years ended December 31, 2020 and 2019 was as follows:
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|
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|
|
|
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|
|
|
|
|
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|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Direct Purchase (including Third Party PPAs and International Channels)
|
|
|
|
|
|
88
|
%
|
|
85
|
%
|
Traditional Lease
|
|
|
|
|
|
1
|
%
|
|
1
|
%
|
Managed Services
|
|
|
|
|
|
5
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
Portfolio Financings
|
|
|
|
|
|
6
|
%
|
|
9
|
%
|
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
Billings Related to Our Products
Total billings attributable to each revenue classification for the years ended December 31, 2020 and 2019 was as follows:
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|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Billings for product accepted in the period
|
|
|
|
|
|
|
|
|
|
$
|
543,868
|
|
|
$
|
681,034
|
|
|
$
|
(137,166)
|
|
|
(20.1)
|
%
|
Billings for installation on product accepted in the period
|
|
|
|
|
|
|
|
|
|
99,580
|
|
|
61,270
|
|
|
38,310
|
|
|
62.5
|
%
|
Billings for annual maintenance services agreements
|
|
|
|
|
|
|
|
|
|
82,692
|
|
|
76,852
|
|
|
5,840
|
|
|
7.6
|
%
|
Billings for product accepted decreased by approximately $137.2 million, or 20.1%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The decrease was primarily due to a higher average selling price mix in the year ended December 31, 2019, driven mainly by the one-time PPA II upgrade that occurred in the year ended December 31, 2019. Billings for installation on product accepted increased $38.3 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Although product acceptances in the period increased only 11.1%, billings for installation on product accepted increased 62.5%, 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 $5.8 million, or 7.6%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was driven primarily by the increase in our installed base.
Costs Related to Our Products
Total product related costs for the years ended December 31, 2020 and 2019 was as follows:
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs of product accepted in the period
|
|
|
|
|
|
|
|
|
|
$2,368/kW
|
|
$2,881 /kW
|
|
$(513)/kW
|
|
(17.8)
|
%
|
Period costs of manufacturing related expenses not included in product costs (in thousands)
|
|
|
|
|
|
|
|
|
|
$
|
19,573
|
|
|
$
|
16,989
|
|
|
$
|
2,584
|
|
|
15.2
|
%
|
Installation costs on product accepted in the period
|
|
|
|
|
|
|
|
|
|
$900/kW
|
|
$644/kW
|
|
$256/kW
|
|
39.8
|
%
|
Product costs of product accepted decreased by approximately $513 per kilowatt, or 17.8%, for the year ended December 31, 2020, as compared to the year ended December 31, 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 $2.6 million, or 15.2%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The increase in period costs for the period was primarily driven by a lower benefit from capitalization of stock-based compensation overhead costs to inventory in the current year offset by higher utilization of inventory materials.
Installation costs on product accepted increased by approximately $256 per kilowatt, or 39.8%, for the year ended December 31, 2020, as compared to the year ended December 31, 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.
Results of Operations
A discussion regarding the comparison of our financial condition and results of operations for the years ended December 31, 2020 and 2019 is presented below (in thousands, except percentage data).
Comparison of the Years Ended December 31, 2020 and 2019
Revenue
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Product
|
|
|
|
|
|
|
|
|
|
$
|
518,633
|
|
$
|
557,336
|
|
$
|
(38,703)
|
|
(6.9)
|
%
|
Installation
|
|
|
|
|
|
|
|
|
|
101,887
|
|
60,826
|
|
41,061
|
|
67.5
|
%
|
Service
|
|
|
|
|
|
|
|
|
|
109,633
|
|
95,786
|
|
13,847
|
|
14.5
|
%
|
Electricity
|
|
|
|
|
|
|
|
|
|
64,094
|
|
71,229
|
|
(7,135)
|
|
(10.0)
|
%
|
Total revenue
|
|
|
|
|
|
|
|
|
|
$
|
794,247
|
|
$
|
785,177
|
|
$
|
9,070
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
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|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
Total revenue increased approximately $9.1 million, or 1.2%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was primarily driven by an 11.1% increase in acceptances, offset by the favorable impact of the PPA II upgrade that occurred in the year ended December 31, 2019.
Product Revenue
Product revenue decreased approximately $38.7 million, or 6.9%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The product revenue decrease was driven by the one-time favorable impact of the PPA II upgrade on revenue in the year ended December 31, 2019, partially offset by the increase in product revenue from the 11.1% increase in acceptances and $14.2 million of previously deferred revenue that was recognized in the year ended December 31, 2020 that was not associated with acceptances or services in the year. This was a one-time recognition of deferred revenue related to a specific contract that changed scope.
Installation Revenue
Installation revenue increased approximately $41.1 million, or 67.5%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was driven by the increase in product acceptances of approximately 132 systems, or 11.1%, for the year ended December 31, 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 $13.8 million, or 14.5% for the year ended December 31, 2020, as compared to the year ended December 31, 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 decreased approximately $7.1 million, or 10.0%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, due to a reduction in electricity revenue resulting from the decommissioning and an upgrade of PPA II in the year ended December 31, 2019. Electricity revenue was primarily driven by the PPA Entities, which included PPA II, and, to a lesser extent, our Managed Services Agreements. When the PPA Entities are decommissioned, we no longer recognize electricity revenue for them.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
|
|
$
|
332,724
|
|
|
$
|
435,479
|
|
|
$
|
(102,755)
|
|
|
(23.6)
|
%
|
Installation
|
|
|
|
|
|
|
|
|
|
116,542
|
|
|
76,487
|
|
|
40,055
|
|
|
52.4
|
%
|
Service
|
|
|
|
|
|
|
|
|
|
132,329
|
|
|
100,238
|
|
|
32,091
|
|
|
32.0
|
%
|
Electricity
|
|
|
|
|
|
|
|
|
|
46,859
|
|
|
75,386
|
|
|
(28,527)
|
|
|
(37.8)
|
%
|
Total cost of revenue
|
|
|
|
|
|
|
|
|
|
$
|
628,454
|
|
|
$
|
687,590
|
|
|
$
|
(59,136)
|
|
|
(8.6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
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|
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|
|
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|
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenue
Total cost of revenue decreased approximately $59.1 million, or 8.6%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Included as a component of total cost of revenue, stock-based compensation decreased approximately $28.0 million, or 61.5%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. In addition, cost of revenue for the year ended December 31, 2019 included $94.8 million of one-time expenses associated with the PPA upgrade. Total cost of revenue, excluding stock-based compensation and the one-time expenses, increased approximately $63.6 million, or 11.6%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019 due to the 11.1% increase in product acceptances.
Cost of Product Revenue
Cost of product revenue decreased approximately $102.8 million, or 23.6%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Stock-based compensation, which is included as a component of cost of product revenue, decreased approximately $22.7 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. In addition, cost of product revenue for the year ended December 31, 2019 included $70.5 million of one-time expenses associated with the PPA upgrade. Cost of product revenue, excluding stock-based compensation and the one-time expenses, decreased approximately $9.5 million, or 2.9%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, despite an 11.1% 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 $40.1 million, or 52.4%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, due to the increase in product acceptances of approximately 132 systems, or 11.1%, for the year ended December 31, 2020 and due to the change in mix of installations driven by site complexity, size, local ordinance requirements, location of the utility interconnect and, the customer's option to complete the installation of our Energy Servers themselves.
Cost of Service Revenue
Cost of service revenue increased approximately $32.1 million, or 32.0%, for the year ended December 31, 2020, as compared to the year ended December 31, 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 $28.5 million, or 37.8%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, mainly due to the $24.4 million of one-time expenses associated with the PPA upgrade recognized in the year ended December 31, 2019.
Gross Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
$
|
185,909
|
|
$
|
121,857
|
|
$
|
64,052
|
|
|
|
Installation
|
|
|
|
|
|
|
|
(14,655)
|
|
(15,661)
|
|
1,006
|
|
|
|
Service
|
|
|
|
|
|
|
|
(22,696)
|
|
(4,452)
|
|
(18,244)
|
|
|
|
Electricity
|
|
|
|
|
|
|
|
17,235
|
|
(4,157)
|
|
21,392
|
|
|
|
Total gross profit
|
|
|
|
|
|
|
|
$
|
165,793
|
|
$
|
97,587
|
|
$
|
68,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
36
|
%
|
|
22
|
%
|
|
|
|
|
Installation
|
|
|
|
|
|
|
|
(14)
|
%
|
|
(26)
|
%
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
(21)
|
%
|
|
(5)
|
%
|
|
|
|
|
Electricity
|
|
|
|
|
|
|
|
27
|
%
|
|
(6)
|
%
|
|
|
|
|
Total gross margin
|
|
|
|
|
|
|
|
21
|
%
|
|
12
|
%
|
|
|
|
|
Total Gross Profit
Gross profit improved $68.2 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Stock-based compensation, which is included as a component of total cost of revenue, decreased approximately $28.0 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Total gross profit, excluding stock-based compensation, improved approximately $40.2 million, or 28.1%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily driven by the improvement in product gross profit as our product cost reductions outpaced average selling price ("ASP") reductions.
Product Gross Profit
Product gross profit increased $64.1 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Excluding stock-based compensation, product gross profit increased $41.3 million, or 26.5%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. This was primarily due to our product cost reductions outpacing our ASP reductions.
Installation Gross Loss
Installation gross loss improved $1.0 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Excluding stock-based compensation, install gross loss worsened $2.6 million, or 29.2%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019, driven by the change in mix of installations driven by site complexity, size, local ordinance requirements, location of the utility interconnect and, the customer's option to complete the installation of our Energy Servers themselves.
Service Gross Profit (Loss)
Service gross loss decreased by $18.2 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. This change 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 growing fleet of installed Energy Servers.
Electricity Gross Profit (Loss)
Electricity gross profit (loss) improved $21.4 million, or 514.6%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019, mainly due to charges related to the decommissioning and deconsolidation of Energy Servers associated with the PPA II and PPA IIIb upgrades of Energy Servers in the year ended December 31, 2019.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
$
|
83,577
|
|
|
$
|
104,168
|
|
|
$
|
(20,591)
|
|
|
(19.8)
|
%
|
Sales and marketing
|
|
|
|
|
|
|
|
|
|
55,916
|
|
|
73,573
|
|
|
(17,657)
|
|
|
(24.0)
|
%
|
General and administrative
|
|
|
|
|
|
|
|
|
|
107,085
|
|
|
152,650
|
|
|
(45,565)
|
|
|
(29.8)
|
%
|
Total operating expenses
|
|
|
|
|
|
|
|
|
|
$
|
246,578
|
|
|
$
|
330,391
|
|
|
$
|
(83,813)
|
|
|
(25.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
Total operating expenses decreased $83.8 million, or 25.4%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Included as a component of total operating expenses, stock-based compensation expenses decreased approximately $94.4 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The decrease in stock-based compensation expense was primarily attributable to a one-time employee grant of RSUs awarded prior to our IPO that completed their vesting in July of 2020. Total operating expenses, excluding stock-based compensation, increased approximately $10.6 million, or 5.9%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was primarily driven by our investment in our technology roadmap, initiatives to enable market and customer financing expansion, and debt restructuring related expenses.
Research and Development
Research and development expenses decreased by approximately $20.6 million, or 19.8%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Included as a component of research and development expenses, stock-based compensation expenses decreased by approximately $21.9 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Total research and development expenses, excluding stock-based compensation, increased by approximately $1.3 million, or 2.1%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was primarily due to the investments made in our next generation technology development, sustaining engineering projects for the current Energy Server platform, investments made for customer personalized applications, such as microgrids, marine solutions and new fuel solutions utilizing biogas and hydrogen.
Sales and Marketing
Sales and marketing expenses decreased by approximately $17.7 million, or 24.0%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Included as a component of sales and marketing expenses, stock-based compensation expenses decreased by approximately $21.5 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Total sales and marketing expenses, excluding stock-based compensation, increased by approximately $3.8 million, or 9.3%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was driven by our expanded efforts to increase demand and raise market awareness of our Energy Server solutions, expanding outbound communications, as well as efforts to attract new customer financing partners.
General and Administrative
General and administrative expenses decreased by approximately $45.6 million, or 29.8%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Included as a component of general and administrative expenses, stock-based compensation expenses decreased by approximately $51.1 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. Total general and administrative expenses, excluding stock-based compensation, increased by approximately $5.5 million, or 7.3%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The increase in general and administrative expenses was mainly due to debt refinancing and SOX compliance activities for the year ended December 31, 2020, offset by a $5.9 million one-time expense in the year ended December 31, 2019 associated with the PPA II upgrade.
Stock-Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
$
|
17,475
|
|
|
$
|
45,429
|
|
|
$
|
(27,954)
|
|
|
(61.5)
|
%
|
Research and development
|
|
|
|
|
|
|
|
|
|
19,037
|
|
|
40,949
|
|
|
(21,912)
|
|
|
(53.5)
|
%
|
Sales and marketing
|
|
|
|
|
|
|
|
|
|
10,997
|
|
|
32,478
|
|
|
(21,481)
|
|
|
(66.1)
|
%
|
General and administrative
|
|
|
|
|
|
|
|
|
|
26,384
|
|
|
77,435
|
|
|
(51,051)
|
|
|
(65.9)
|
%
|
Total stock-based compensation
|
|
|
|
|
|
|
|
|
|
$
|
73,893
|
|
|
$
|
196,291
|
|
|
$
|
(122,398)
|
|
|
(62.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation decreased $122.4 million, or 62.4%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Of the $73.9 million in stock-based compensation for the year ended December 31, 2020, approximately $59.8 million was related to RSUs and PSUs, of which $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, expensed using a graded vesting method.
Other Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Interest income
|
|
|
|
|
|
|
|
$
|
1,475
|
|
|
$
|
5,661
|
|
|
$
|
(4,186)
|
|
Interest expense
|
|
|
|
|
|
|
|
(76,276)
|
|
|
(87,480)
|
|
|
11,204
|
|
Interest expense - related parties
|
|
|
|
|
|
|
|
(2,513)
|
|
|
(6,756)
|
|
|
4,243
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
(8,318)
|
|
|
706
|
|
|
(9,024)
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
(12,878)
|
|
|
—
|
|
|
(12,878)
|
|
Gain (loss) on revaluation of embedded derivatives
|
|
|
|
|
|
|
|
464
|
|
|
(2,160)
|
|
|
2,624
|
|
Total
|
|
|
|
|
|
|
|
$
|
(98,046)
|
|
|
$
|
(90,029)
|
|
|
$
|
(8,017)
|
|
Total Other Expense
Total other expense increased $8.0 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase was primarily due to the loss on extinguishment of debt of $12.9 million.
Interest Income
Interest income decreased $4.2 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. This decrease was primarily due to the decrease in the rates of interest earned on our cash balances.
Interest Expense
Interest expense decreased $11.2 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. This decrease was primarily due to lower interest expense as a result of refinancing our notes at a lower interest rate and the debt buy-out due to PPA II and PPA IIIb upgrades, offset by an increase from new Managed Services transactions completed in the year.
Interest Expense - Related Parties
Interest expense - related parties decreased $4.2 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019 due to the conversion of the related party notes during the year.
Other Income (Expense), net
Other income (expense), net worsened $9.0 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019, due to an impairment in our investment in the Bloom Energy Japan joint venture and changes in foreign currency translation expense.
Loss on Extinguishment of Debt
Loss on extinguishment of debt of $12.9 million was recorded in the year ended December 31, 2020 resulting from our debt restructuring and we had no similar debt extinguishment in the year ended December 31, 2019.
Gain (Loss) on Revaluation of Embedded Derivatives
Gain (loss) on revaluation of embedded derivatives improved $2.6 million in the year ended December 31, 2020, as compared to the year ended December 31, 2019. This improvement was primarily due to the change in fair value of our sales contracts of embedded EPP derivatives valued using historical grid prices and available forecasts of future electricity prices to estimate future electricity prices.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
$
|
256
|
|
|
$
|
633
|
|
|
$
|
(377)
|
|
|
(59.6)
|
%
|
Income tax provision decreased in the year ended December 31, 2020, as compared to the year ended December 31, 2019, and was primarily due to fluctuations in the effective taxes payable on income earned by international entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
|
|
|
|
|
|
|
|
|
|
$
|
(21,534)
|
|
|
$
|
(19,052)
|
|
|
$
|
(2,482)
|
|
|
13.0
|
%
|
Total loss attributable to noncontrolling interests increased $2.5 million, or 13.0%, in the year ended December 31, 2020, as compared to the year ended December 31, 2019. The net loss increased due to increased losses in our PPA Entities, which are allocated to our noncontrolling interests.
Liquidity and Capital Resources
As of December 31, 2020, we had an accumulated deficit of approximately $3.1 billion. We have financed our operations, including the costs of acquisition and installation of our Energy Servers, mainly through a variety of financing arrangements and PPA Entities, credit facilities from banks, sales of our common stock, debt financings and cash generated from our operations. As of December 31, 2020, we had $168.0 million of total outstanding recourse debt, $222.9 million of non-recourse debt and $12.3 million of other long-term liabilities. See Note 7 - Outstanding Loans and Security Agreements in Part II, Item 8, Financial Statements and Supplementary Data for a complete description of our outstanding debt. As of December 31, 2020 and December 31, 2019, we had cash and cash equivalents of $246.9 million and $202.8 million, respectively.
We expect a certain current portion of the non-recourse debt would be refinanced by the PPA Entity prior to maturity. The combination of our existing cash and cash equivalents are expected to be sufficient to meet our anticipated cash flow needs for the next 12 months and thereafter for the foreseeable future. If these sources of cash are insufficient to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, in particular, our manufacturing capacity, product development and market expansion requirements, to timely respond to competitive market pressures or strategic opportunities, or otherwise. In addition, we are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We may, from time to time, engage in a variety of financing transactions for such purposes. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. As of December 31, 2020, the current portion of our total debt is $120.8 million.
Our future cash flow requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, and overall economic conditions including the impact of COVID-19 on our future operations, as described in the COVID-19 Pandemic section above. For further discussion on our PPA Entities, see Note 13 - Portfolio Financings in Part II, Item 8, Financial Statements and Supplementary Data.
Cash Flows
A summary of our sources and uses of cash, cash equivalents and restricted cash is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(98,796)
|
|
|
$
|
163,770
|
|
|
|
|
|
|
|
Investing activities
|
|
(37,913)
|
|
|
53,447
|
|
|
|
|
|
|
|
Financing activities
|
|
176,031
|
|
|
(120,314)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) our PPA Entities, which are incorporated into the consolidated statements of cash flows was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPA Entities ¹
|
|
|
|
|
|
|
|
|
Net cash provided by PPA operating activities
|
|
$
|
26,039
|
|
|
$
|
279,402
|
|
|
|
|
|
|
|
Net cash used in PPA financing activities
|
|
(23,784)
|
|
|
(167,259)
|
|
|
|
|
|
|
|
Net cash used in PPA financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The PPA Entities' operating and financing cash flows are a subset of our consolidated cash flows and represents the stand-alone cash flows prepared in accordance with U.S. GAAP. Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase of Energy Servers from us and principal reductions in loan balances. Financing activities consist primarily of changes in debt carried by our PPAs, and payments from and distributions to noncontrolling partnership interests. We believe this presentation of net cash provided by (used in) PPA activities is useful to provide the reader with the impact to consolidated cash flows of the PPA Entities in which we have only a minority interest.
Operating Activities
Net cash used in operating activities for the year ended December 31, 2020 was $98.8 million and was primarily the result of net cash loss of $25.5 million plus the net increase in working capital of $73.3 million. Net cash loss is primarily comprised of a net loss of $179.1 million, adjusted for non-cash benefit items including: (i) depreciation and amortization of $52.3 million; (ii) non-cash lease expense of $5.3 million; (iii) impairment of equity method investment of $4.2 million; (iv) stock-based compensation of $73.9 million; (v) net loss on extinguishment of debt of $11.8 million; and (vi) amortization of debt issuance and premium cost, net, of $6.5 million; net of (vii) a gain on revaluation of derivative contracts of $0.5 million. Net cash used by changes in working capital consisted primarily of increases in: (i) accounts receivable of $61.7 million; (ii) inventories of $33.0 million; and (iii) prepaid expenses and other current assets of $3.1 million; plus decreases in: (iv) accounts payable of $0.6 million; (v) deferred revenue and customer deposits of $13.0 million; (vi) operating lease liability of $2.9 million and (vii) other long-term liabilities of $4.5 million. These uses of cash from working capital were partially offset by decreases in: (i) deferred cost of revenue of $19.9 million; and (ii) customer financing receivable and other of $5.2 million, and (iii) other long-term assets of $2.9 million; plus increases in: (iv) accrued expenses and other current liabilities of $17.8 million.
Net cash provided by operating activities for the year ended December 31, 2019 was $163.8 million and was the result of net cash earnings of $67.3 million plus net decrease in working capital of $96.5 million. Net cash earnings is primarily comprised of a net loss of $323.5 million, adjusted for non-cash benefit items including: (i) depreciation and amortization of approximately $78.6 million; (ii) PPA II and PPA IIIb decommissioning costs of $70.5 million; (iii) write-off of property, plant and equipment, net of $3.1 million; (iv) impairment of assets of $11.3 million; (v) a loss on revaluation of derivatives contracts of $2.8 million; (vi) stock-based compensation of $196.3 million; (vii) amortization of debt issuance cost of $22.1 million; plus (viii) an expense reclass to financing activities related to a debt make-whole payment reclassification of $5.9 million. Net cash provided by changes in working capital consisted primarily of decreases in: (i) accounts receivable of $52.0 million; (ii) inventory of $18.4 million; (iii) customer financing receivable and other of $5.5 million; (iv) prepaid expenses and other current assets of $8.6 million; and (v) other long-term assets of $3.6 million; plus increases in: (vi) accrued expenses and other current liabilities of $6.7 million; (vii) other long term liabilities of $4.4 million; and (viii) deferred revenue and contract liabilities of $37.1 million. These sources of cash from working capital were partially offset by increases in: (i) deferred cost of revenue of $22.0 million; and decreases in: (ii) accounts payable of $11.3 million and (iii) accrued warranty of $6.6 million.
Investing Activities
Net cash used in investing activities in the year ended December 31, 2020 was $37.9 million, which was entirely related to the purchase of long-lived assets.
Net cash provided by investing activities in the year ended December 31, 2019 was $53.4 million, which was primarily the result of net proceeds from maturities of marketable securities of $104.5 million, partially offset by $51.1 million used for the purchase of long-lived assets. Our use of cash in the year ended December 31, 2019 for the purchase of property, plant and equipment increased due to completing a move to our new corporate headquarters which is used for administration, research and development, and sales and marketing.
Financing Activities
Net cash provided by financing activities in the year ended December 31, 2020 was $176.0 million, which included borrowings from issuance of debt of $300.0 million, borrowings from issuance of debt to related parties of $30.0 million, proceeds from financing obligations of $26.3 million, contribution from noncontrolling interest of $6.5 million, and proceeds from issuance of common stock of $23.5 million. This was partially offset by repayment of debt of $178.6 million, debt issuance costs of $13.2 million, repayment of financing obligations of $10.8 million, and distributions paid to noncontrolling and redeemable noncontrolling interests of $7.6 million.
Net cash used in financing activities in the year ended December 31, 2019 was $120.3 million, which included payments to noncontrolling and redeemable noncontrolling interest of $56.5 million, distributions paid to our PPA Entity Investors of $12.5 million, repayments of debt of $121.5 million, and a the debt make-whole payment of $5.9 million related to our PPA II upgrade of Energy Servers, partially offset by proceeds from the issuance of common stock of $12.7 million.
Outstanding Loans and Security Agreements
The following is a summary of our debt as of December 31, 2020 (in thousands):
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
Net Carrying Value
|
|
Unused
Borrowing
Capacity
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Long-
Term
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.25% notes due March 2027
|
|
$
|
70,000
|
|
|
$
|
—
|
|
|
$
|
68,614
|
|
|
$
|
68,614
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
2.5% Green Notes
|
|
230,000
|
|
|
—
|
|
|
99,394
|
|
|
99,394
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total recourse debt
|
|
300,000
|
|
|
—
|
|
|
168,008
|
|
|
168,008
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5% Term Loan due September 2028
|
|
34,456
|
|
|
2,826
|
|
|
28,920
|
|
|
31,746
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.07% Senior Secured Notes due March 2030
|
|
77,837
|
|
|
3,882
|
|
|
73,125
|
|
|
77,007
|
|
|
—
|
|
|
|
|
|
|
|
|
|
LIBOR + 2.5% Term Loan due December 2021
|
|
114,761
|
|
|
114,138
|
|
|
—
|
|
|
114,138
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Letters of Credit due December 2021
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
968
|
|
|
|
|
|
|
|
|
|
Total non-recourse debt
|
|
227,054
|
|
|
120,846
|
|
|
102,045
|
|
|
222,891
|
|
|
968
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
527,054
|
|
|
$
|
120,846
|
|
|
$
|
270,053
|
|
|
$
|
390,899
|
|
|
$
|
968
|
|
|
|
|
|
|
|
|
|
In August 2020, we issued the Green Notes. The Green Notes had a face value of $200.0 million and included a Greenshoe option of up to $30.0 million, which was fully exercised by the initial purchaser, resulting in net proceeds to us after offering expenses of $220.1 million and resulted in new debt totaling $230.0 million. The primarily purpose and use of the proceeds from the Green Notes was to call and retire earlier issued notes that were priced at higher rates of interest and with other consideration.
In August 2020, we called a portion of the 10% Convertible Notes and the holders of those notes subsequently chose to convert those notes to equity in lieu of receiving cash. With the holders exercising this option, in September 2020, we then issued 19.1 million shares of our Class B common stock, which was subsequently converted to Class A common stock.
In September 2020, we called the remaining portion of the 10% Convertible Notes due 2021. In October 2020, the holder of those remaining notes chose to convert to equity in lieu of receiving cash. With the holder exercising this option, in October 2020, we issued 12.0 million shares of our Class B common stock, which was subsequently converted to Class A common stock.
In October 2020, we called our 10% Notes, with a face value of $70.0 million. After redemption fees, accrued and unpaid interest, we paid $84.3 million during November 2020.
These transactions improve our overall financial condition and our working capital, while reducing interest expense. The changes in our overall debt structure are expected to reduce our debt service from more than $59.7 million to under $12.9 million annually, resulting in an improved working capital position.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations and the debt of our consolidated PPA Entities that is non-recourse to Bloom as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
Total
|
|
Less than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than
5 Years
|
|
|
(in thousands)
|
Contractual Obligations and Other Commitments:
|
|
|
|
|
|
|
|
|
|
|
Recourse debt1
|
|
$
|
300,000
|
|
|
$
|
—
|
|
|
$
|
21,063
|
|
|
$
|
259,415
|
|
|
$
|
19,522
|
|
Non-recourse debt2
|
|
227,054
|
|
|
121,469
|
|
|
17,496
|
|
|
23,493
|
|
|
64,596
|
|
Operating leases
|
|
64,556
|
|
|
11,388
|
|
|
16,503
|
|
|
16,802
|
|
|
19,863
|
|
Financing leases
|
|
392
|
|
|
95
|
|
|
185
|
|
|
112
|
|
|
—
|
|
Service arrangements
|
|
1,857
|
|
|
1,297
|
|
|
560
|
|
|
—
|
|
|
—
|
|
Financing obligations
|
|
292,130
|
|
|
40,589
|
|
|
84,110
|
|
|
79,808
|
|
|
87,623
|
|
Natural gas fixed price forward contracts
|
|
2,574
|
|
|
2,351
|
|
|
223
|
|
|
—
|
|
|
—
|
|
Grant for Delaware facility
|
|
10,469
|
|
|
1,257
|
|
|
9,212
|
|
|
—
|
|
|
—
|
|
Interest rate swap
|
|
15,989
|
|
|
2,076
|
|
|
5,602
|
|
|
4,176
|
|
|
4,135
|
|
Supplier purchase commitments
|
|
616
|
|
|
—
|
|
|
616
|
|
|
—
|
|
|
—
|
|
Renewable energy credit obligations
|
|
367
|
|
|
325
|
|
|
42
|
|
|
—
|
|
|
—
|
|
Asset retirement obligations
|
|
500
|
|
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
916,504
|
|
|
$
|
181,347
|
|
|
$
|
155,612
|
|
|
$
|
383,806
|
|
|
$
|
195,739
|
|
1 Our 10% Convertible Notes and our credit agreements related to the building of our facility in Newark, Delaware each contain cross-default or cross-acceleration provisions. See “Recourse Debt Facilities” above for more details.
2 Each of the debt facilities entered into by PPA IIIa, PPA IV and PPA V contain cross-default provisions. See “Non-recourse Debt Facilities” above for more details.
Off-Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities and results of operations of our PPA Entities that we have entered into and over which we have substantial control. For additional information, see Note 13 - Portfolio Financings in Part II, Item 8, Financial Statements and Supplementary Data.
We have not entered into any other transactions that have generated relationships with unconsolidated entities or financial partnerships or special purpose entities. Accordingly, as of December 31, 2020 and December 31, 2019, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S. GAAP") The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations below are based on our audited results of operations, which we have prepared in accordance with U.S. GAAP. In preparing these consoldiated financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material
differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating the consolidated financial condition and results of operations.
The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, include:
Revenue Recognition
We apply Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. We recognize revenue as we satisfy our performance obligations and transfer control of our products and services to our customers. Most of our contracts with customers contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate the total transaction price to each performance obligation based on the relative standalone selling price.
We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance which is when the system has been installed and is running at full power or, in the case of sales to our international channel providers, based upon shipment terms.
We recognize installation revenue when the system has been installed and is running at full power.
Service revenue is recognized ratably over the term of the first or renewed one-year service period. Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price may be less than the standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right. We estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Given that we typically sell an Energy Server with a maintenance service agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for maintenance service arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable historical industry service margins. As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance service agreements based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred.
Valuation of 2.5% Green Convertible Senior Notes
In August 2020, we issued the Green Notes due August 2025, unless earlier repurchased redeemed or converted. 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 fair value of the liability component for the Green Notes of approximately $93.3 million was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity components for the Green Notes of approximately $138.1 million, representing the conversion option, was determined by deducting the fair value of the liability components from the principal amount of the notes. The difference between the principal amount of the notes and the liability components represents the debt discount, is presented as a reduction to the notes on our 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 consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.
As the valuation model used in determining the fair value of the liability component includes inputs subject to management's assumptions and judgements, determining the fair value of the liability component is a critical accounting estimate.
Leases: Incremental Borrowing Rate
We adopted ASC 842, Leases on January 1, 2020 on a modified retrospective basis. This guidance requires that, for all our leases, we recognize ROU assets representing our right to use the underlying asset for the lease term, and lease liabilities related to the rights and obligations created by those leases, on the balance sheet regardless of whether they are classified as finance or operating leases, with classification affecting the pattern and presentation of expenses and cash flows on the consolidated financial statements. Lease liabilities are measured at the lease commencement date as the present value of future minimum lease payments over the reasonably certain lease term. Lease ROU assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, we used our collateralized incremental borrowing rate as our leases do not generally provide an implicit rate. The determination of the incremental borrowing rate considers qualitative and quantitative factors as well as the estimated impact that the collateral has on the rate.
Stock-Based Compensation
We account for stock options and other equity awards, such as restricted stock units and performance-based stock units, to employees and non-employee directors under the provisions of ASC 718, Compensation-Stock Compensation. Accordingly, the stock-based compensation expense for these awards is measured based on the fair value on the date of grant. For stock options,we recognize the expense, net of estimated forfeitures, under the straight-line attribution over the requisite service period which is generally the vesting term. The fair value of the stock options is estimated using the Black-Scholes valuation model. For options with a vesting condition tied to the attainment of service and market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. In addition, we use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach.
The Black-Scholes valuation model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of the stock options and the expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options as well as expected forfeiture rates based on the historical settlement experience and after giving consideration to vesting schedules.
Income Taxes
We account for income taxes using the liability method under ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. This determination is based on expected future results and the future reversals of existing taxable temporary differences. Furthermore, uncertain tax positions are evaluated by management and amounts are recorded when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits. Significant judgement is required throughout management's process in evaluating each uncertain tax position including future taxable income expectations and tax-planning strategies to determine whether the more likely than not recognition threshold has been met. We have provided a full valuation allowance on our domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
Principles of Consolidation
Our consolidated financial statements include the operations of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirements for each of our variable interest entities ("VIEs"), which we refer to as our PPA Entities. This approach focuses on determining whether we have the power to direct those activities that significantly affect their economic performance and whether we have the obligation to absorb losses, or the
right to receive benefits that could potentially be significant to the PPA Entities. The considerations for VIE consolidation is a complex analysis that requires us to determine whether we are the primary beneficiary and therefore have the power to direct activities which are most significant to the PPA Entities.
Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests and Redeemable Noncontrolling Interests
We generally allocate profits and losses to noncontrolling interests under the HLBV method. The HLBV method is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities.
The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
Index to Consolidated Financial Statements and Supplementary Data
|
|
|
Page
|
|
|
|
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|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Bloom Energy Corporation and subsidiaries (the "Company") as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders’ equity (deficit) and noncontrolling interest, and cash flows, for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
The financial statements of the Company as of December 31, 2019, were audited by other auditors whose report dated March 31, 2020, on those statements included an explanatory paragraph that described the change in the Company's manner in which it accounts for revenue from contracts with customers discussed in Note 2 to the financial statements.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition — Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue as they fulfill their performance obligations and transfer control of products and services to their customers. For sales of energy servers (“product revenue”), contracts may contain performance obligations with a combination of product, installation and maintenance services. For these performance obligations, the Company allocates revenue to each performance obligation estimating the standalone selling prices using a cost-plus approach. Costs relating to energy servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances), with an applied margin to the energy servers. Maintenance service contracts are typically subject to optional renewal by customers on an annual basis and are assessed by the Company at contract
inception to determine whether they provide customers with material rights that give rise to separate performance obligations.
The Company’s product and installation revenue is recognized at a point in time, while maintenance service revenue, including revenue associated with any related customer material rights, is recognized over time as the Company performs maintenance service activities. The Company recognized $519 million of product revenue for the year ended December 31, 2020.
We identified revenue recognition for product revenue as a critical audit matter because of the judgments necessary for management to estimate the standalone selling prices and identifying the existence of material rights provided to customers. This required extensive audit effort and a high degree of auditor judgment when performing audit procedures to audit product revenue recognized during the year.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the judgments and estimates used by management to determine product revenue recognized during the year included the following, among others:
•We tested the effectiveness of internal controls related to product revenue recognized during the year, including those over management’s evaluation of whether maintenance service renewal options at contract inception provided customers with material rights giving rise to separate performance obligations, and those over forecasted energy server costs and estimated margins in determining the standalone selling price.
•We tested product revenue recognized during the year, and the evaluation of whether maintenance service renewal options at contract inception provided customers with material rights which gave rise to separate performance obligations, by selecting a sample of contracts with customers, and performed the following:
–We inspected executed contracts to identify the relevant product revenue performance obligations and evaluated the accounting treatment for each of the performance obligations.
–We evaluated management’s ability to estimate energy server replacement costs and margins for maintenance service renewal options used to identify material rights by (i) evaluating the reasonableness of management’s cost-plus approach of estimating standalone selling price for maintenance service renewal options, (ii) testing the completeness, accuracy, and relevance of servicing and engineering costs used in management’s estimates by comparing actual energy server replacement costs and margins to management’s historical estimates for contracts that were completed, and (iii) evaluating the reasonableness of margin assumptions by comparing management’s margin assumptions to the margins earned for similar services within the industry.
–Based on our evaluation of management’s ability to estimate energy server replacement costs and margins, we evaluated management’s conclusion on whether maintenance service renewal options at contract inception provided customers with material rights which gave rise to separate performance obligations and the associated impact on product revenue recognized for the year.
Convertible Notes – Refer to Notes 5 and 7 to the financial statements
Critical Audit Matter Description
In August 2020, the Company issued $230 million aggregate principal amount of 2.5% green convertible senior notes due August 2025 (“Green Notes”), unless earlier repurchased, redeemed or converted. In accounting for the issuance of the Green Notes, the Company separated the Green Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of similar debt instruments which do not have an associated conversion feature. The valuation model used in determining the fair value of the liability component for the Green Notes includes assumptions subject to management's judgment for the implied yield of debt that excludes a conversion option based on yields from companies with comparable credit ratings within the same industry. The carrying amount of the equity component, representing the conversion option, is determined by deducting the carrying amount of the liability component from the principal amount of the Green Notes.
We identified the accounting and the valuation of the Green Notes as a critical audit matter because of the complexity in applying the accounting framework for the Green Notes and the significant estimates and assumptions made by
management in the determination of the fair value of the liability component. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the appropriateness of the accounting framework and the reasonableness of the fair value estimates and assumptions, which included the involvement of our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for Green Notes, including the Company’s assumptions related to the fair value of the liability component included the following, among others:
•We tested the effectiveness of controls over the Company’s accounting for the Green Notes and over the determination of the fair value of the liability component.
•With the assistance of our debt issuance accounting specialists, we evaluated the Company’s conclusions regarding the accounting treatment applied to the Green Notes.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and the significant assumptions, including the implied yield of debt that excludes a conversion option based on yields from companies with comparable credit ratings within the same industry used to determine the fair value of the liability component by:
–Testing the source information underlying the fair value of the liability component and the mathematical accuracy of the calculation.
–Developing an independent estimate and comparing it to the fair value of the liability component determined by management.
/s/ Deloitte & Touche LLP
San Jose, California
February 26, 2021
We have served as the Company's auditor since 2020.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Bloom Energy Corporation
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Bloom Energy Corporation and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, of comprehensive loss, of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders’ equity (deficit) and noncontrolling interest and of cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 31, 2020
We served as the Company’s auditor from 2009 to 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Bloom Energy Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Bloom Energy Corporation and its subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020 of the Company and our report dated February 26, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
San Jose, California
February 26, 2021
Bloom Energy Corporation
Consolidated Balance Sheets
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents1
|
|
$
|
246,947
|
|
|
$
|
202,823
|
|
Restricted cash1
|
|
52,470
|
|
|
30,804
|
|
|
|
|
|
|
Accounts receivable1
|
|
99,513
|
|
|
37,828
|
|
Inventories
|
|
142,059
|
|
|
109,606
|
|
Deferred cost of revenue
|
|
41,469
|
|
|
58,470
|
|
Customer financing receivable1
|
|
5,428
|
|
|
5,108
|
|
Prepaid expenses and other current assets1
|
|
30,718
|
|
|
28,068
|
|
Total current assets
|
|
618,604
|
|
|
472,707
|
|
Property, plant and equipment, net1
|
|
600,628
|
|
|
607,059
|
|
Operating lease right-of-use assets
|
|
35,621
|
|
|
—
|
|
Customer financing receivable, non-current1
|
|
45,268
|
|
|
50,747
|
|
Restricted cash, non-current1
|
|
117,293
|
|
|
143,761
|
|
Deferred cost of revenue, non-current
|
|
2,462
|
|
|
6,665
|
|
Other long-term assets1
|
|
34,511
|
|
|
41,652
|
|
Total assets
|
|
$
|
1,454,387
|
|
|
$
|
1,322,591
|
|
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Equity (Deficit) and Noncontrolling Interest
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
58,334
|
|
|
$
|
55,579
|
|
Accrued warranty
|
|
10,263
|
|
|
10,333
|
|
Accrued expenses and other current liabilities1
|
|
112,004
|
|
|
70,284
|
|
Deferred revenue and customer deposits1
|
|
114,286
|
|
|
89,192
|
|
|
|
|
|
|
Operating lease liabilities
|
|
7,899
|
|
|
—
|
|
Financing obligations
|
|
12,745
|
|
|
10,993
|
|
Recourse debt
|
|
—
|
|
|
304,627
|
|
Non-recourse debt1
|
|
120,846
|
|
|
8,273
|
|
Recourse debt - related parties
|
|
—
|
|
|
20,801
|
|
Non-recourse debt - related parties1
|
|
—
|
|
|
3,882
|
|
Total current liabilities
|
|
436,377
|
|
|
573,964
|
|
|
|
|
|
|
Derivative liabilities1
|
|
4,989
|
|
|
17,551
|
|
Deferred revenue and customer deposits, non-current1
|
|
87,463
|
|
|
125,529
|
|
Operating lease liabilities, non-current
|
|
41,849
|
|
|
—
|
|
|
|
|
|
|
Financing obligations, non-current
|
|
459,981
|
|
|
446,165
|
|
Recourse debt, non-current
|
|
168,008
|
|
|
75,962
|
|
Non-recourse debt, non-current1
|
|
102,045
|
|
|
192,180
|
|
|
|
|
|
|
Non-recourse debt - related parties, non-current1
|
|
—
|
|
|
31,087
|
|
Other long-term liabilities1
|
|
12,279
|
|
|
28,013
|
|
Total liabilities
|
|
1,312,991
|
|
|
1,490,451
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
Redeemable noncontrolling interest
|
|
377
|
|
|
443
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
17
|
|
|
12
|
|
Additional paid-in capital
|
|
3,182,753
|
|
|
2,686,759
|
|
Accumulated other comprehensive income (loss)
|
|
(9)
|
|
|
19
|
|
Accumulated deficit
|
|
(3,103,937)
|
|
|
(2,946,384)
|
|
Total stockholders’ equity (deficit)
|
|
78,824
|
|
|
(259,594)
|
|
Noncontrolling interest
|
|
62,195
|
|
|
91,291
|
|
Total liabilities, redeemable noncontrolling interest, stockholders' equity (deficit) and noncontrolling interest
|
|
$
|
1,454,387
|
|
|
$
|
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 consolidated balance sheets (see Note 13 - Portfolio Financings).
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
$
|
518,633
|
|
|
$
|
557,336
|
|
|
$
|
400,638
|
|
Installation
|
|
|
|
|
|
101,887
|
|
|
60,826
|
|
|
68,195
|
|
Service
|
|
|
|
|
|
109,633
|
|
|
95,786
|
|
|
83,267
|
|
Electricity
|
|
|
|
|
|
64,094
|
|
|
71,229
|
|
|
80,548
|
|
Total revenue
|
|
|
|
|
|
794,247
|
|
|
785,177
|
|
|
632,648
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
332,724
|
|
|
435,479
|
|
|
281,275
|
|
Installation
|
|
|
|
|
|
116,542
|
|
|
76,487
|
|
|
95,306
|
|
Service
|
|
|
|
|
|
132,329
|
|
|
100,238
|
|
|
100,689
|
|
Electricity
|
|
|
|
|
|
46,859
|
|
|
75,386
|
|
|
49,628
|
|
Total cost of revenue
|
|
|
|
|
|
628,454
|
|
|
687,590
|
|
|
526,898
|
|
Gross profit
|
|
|
|
|
|
165,793
|
|
|
97,587
|
|
|
105,750
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
|
|
83,577
|
|
|
104,168
|
|
|
89,135
|
|
Sales and marketing
|
|
|
|
|
|
55,916
|
|
|
73,573
|
|
|
62,807
|
|
General and administrative
|
|
|
|
|
|
107,085
|
|
|
152,650
|
|
|
118,817
|
|
Total operating expenses
|
|
|
|
|
|
246,578
|
|
|
330,391
|
|
|
270,759
|
|
Loss from operations
|
|
|
|
|
|
(80,785)
|
|
|
(232,804)
|
|
|
(165,009)
|
|
Interest income
|
|
|
|
|
|
1,475
|
|
|
5,661
|
|
|
4,322
|
|
Interest expense
|
|
|
|
|
|
(76,276)
|
|
|
(87,480)
|
|
|
(97,021)
|
|
Interest expense - related parties
|
|
|
|
|
|
(2,513)
|
|
|
(6,756)
|
|
|
(8,893)
|
|
Other income (expense), net
|
|
|
|
|
|
(8,318)
|
|
|
706
|
|
|
(999)
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
(12,878)
|
|
|
—
|
|
|
—
|
|
Gain (loss) on revaluation of embedded derivatives
|
|
|
|
|
|
464
|
|
|
(2,160)
|
|
|
(22,139)
|
|
Loss before income taxes
|
|
|
|
|
|
(178,831)
|
|
|
(322,833)
|
|
|
(289,739)
|
|
Income tax provision
|
|
|
|
|
|
256
|
|
|
633
|
|
|
1,537
|
|
Net loss
|
|
|
|
|
|
(179,087)
|
|
|
(323,466)
|
|
|
(291,276)
|
|
Less: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
|
|
|
|
|
|
(21,534)
|
|
|
(19,052)
|
|
|
(17,736)
|
|
Net loss attributable to Class A and Class B common stockholders
|
|
|
|
|
|
(157,553)
|
|
|
(304,414)
|
|
|
(273,540)
|
|
Less: deemed dividend to noncontrolling interest
|
|
|
|
|
|
—
|
|
|
(2,454)
|
|
|
—
|
|
Net loss available to Class A and Class B common stockholders
|
|
|
|
|
|
$
|
(157,553)
|
|
|
$
|
(306,868)
|
|
|
$
|
(273,540)
|
|
Net loss per share available to Class A and Class B common stockholders, basic and diluted
|
|
|
|
|
|
$
|
(1.14)
|
|
|
$
|
(2.67)
|
|
|
$
|
(5.14)
|
|
Weighted average shares used to compute net loss per share available to Class A and Class B common stockholders, basic and diluted
|
|
|
|
|
|
138,722
|
|
|
115,118
|
|
|
53,268
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(179,087)
|
|
|
$
|
(323,466)
|
|
|
$
|
(291,276)
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
(23)
|
|
|
14
|
|
|
26
|
|
Change in derivative instruments designated and qualifying as cash flow hedges
|
|
|
|
|
|
(6,896)
|
|
|
(6,085)
|
|
|
2,098
|
|
Other comprehensive income (loss), net of taxes
|
|
|
|
|
|
(6,919)
|
|
|
(6,071)
|
|
|
2,124
|
|
Comprehensive loss
|
|
|
|
|
|
(186,006)
|
|
|
(329,537)
|
|
|
(289,152)
|
|
Less: Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
|
|
|
|
|
|
(28,425)
|
|
|
(24,842)
|
|
|
(15,905)
|
|
Comprehensive loss attributable to Class A and Class B stockholders
|
|
|
|
|
|
$
|
(157,581)
|
|
|
$
|
(304,695)
|
|
|
$
|
(273,247)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Equity (Deficit) and Noncontrolling Interest
(in thousands, except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Redeemable Preferred Stock
|
|
Redeemable Noncontrolling Interest
|
|
|
Class A and Class B
Common Stock¹
|
|
Additional Paid-In Capital
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated
Deficit
|
|
Total Stockholders' Equity (Deficit)
|
|
Noncontrolling
Interest
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2017
|
71,740,162
|
|
|
1,465,841
|
|
|
$
|
58,154
|
|
|
|
10,353,269
|
|
|
$
|
1
|
|
|
$
|
150,804
|
|
|
$
|
(162)
|
|
|
$
|
(2,350,564)
|
|
|
$
|
(2,199,921)
|
|
|
$
|
155,372
|
|
Issuance of Class A common stock upon public offering, net
|
—
|
|
|
—
|
|
|
—
|
|
|
|
20,700,000
|
|
|
2
|
|
|
282,274
|
|
|
—
|
|
|
—
|
|
|
282,276
|
|
|
—
|
|
Issuance of Class B common stock upon conversion of convertible notes
|
—
|
|
|
—
|
|
|
—
|
|
|
|
5,734,440
|
|
|
1
|
|
|
221,579
|
|
|
—
|
|
|
—
|
|
|
221,580
|
|
|
—
|
|
Issuance of Class A and B common stock upon exercise of warrants
|
—
|
|
|
—
|
|
|
—
|
|
|
|
312,575
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Conversion of redeemable convertible preferred stock Series A-G
|
(71,740,162)
|
|
|
(1,465,841)
|
|
|
—
|
|
|
|
71,740,162
|
|
|
7
|
|
|
1,465,834
|
|
|
—
|
|
|
—
|
|
|
1,465,841
|
|
|
—
|
|
Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
882
|
|
|
—
|
|
|
—
|
|
|
882
|
|
|
—
|
|
Reclassification of derivative liability into additional paid-in capital (as restated)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
177,963
|
|
|
—
|
|
|
—
|
|
|
177,963
|
|
|
—
|
|
Issuance of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
|
166,667
|
|
|
—
|
|
|
2,500
|
|
|
—
|
|
|
—
|
|
|
2,500
|
|
|
—
|
|
Issuance of restricted stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
|
17,793
|
|
|
—
|
|
|
349
|
|
|
—
|
|
|
—
|
|
|
349
|
|
|
—
|
|
Exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
|
396,277
|
|
|
—
|
|
|
1,521
|
|
|
—
|
|
|
—
|
|
|
1,521
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
177,646
|
|
|
—
|
|
|
—
|
|
|
177,646
|
|
|
—
|
|
Unrealized loss on available-for-sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
|
—
|
|
Change in effective portion of interest rate swap agreement
|
—
|
|
|
—
|
|
|
2
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
267
|
|
|
—
|
|
|
267
|
|
|
1,829
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
(6,788)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,462)
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
5,893
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(273,540)
|
|
|
(273,540)
|
|
|
(23,629)
|
|
Balances at December 31, 2018
|
—
|
|
|
—
|
|
|
57,261
|
|
|
|
109,421,183
|
|
|
11
|
|
|
2,481,352
|
|
|
131
|
|
|
(2,624,104)
|
|
|
(142,610)
|
|
|
125,110
|
|
Cumulative effect upon adoption of new accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,996)
|
|
|
(17,996)
|
|
|
—
|
|
Issuance of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Buyout of equity investors in PPA IIIb (Note 13)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(2,454)
|
|
|
169
|
|
|
—
|
|
|
(2,285)
|
|
|
—
|
|
Conversion of Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
|
616,302
|
|
|
—
|
|
|
6,933
|
|
|
—
|
|
|
—
|
|
|
6,933
|
|
|
—
|
|
Issuance of restricted stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
|
8,921,807
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
ESPP purchase
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1,718,433
|
|
|
—
|
|
|
11,183
|
|
|
—
|
|
|
—
|
|
|
11,183
|
|
|
—
|
|
Exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
|
358,564
|
|
|
—
|
|
|
1,529
|
|
|
—
|
|
|
—
|
|
|
1,529
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
188,114
|
|
|
—
|
|
|
—
|
|
|
188,114
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Redeemable Preferred Stock
|
|
Redeemable Noncontrolling Interest
|
|
|
Class A and Class B
Common Stock¹
|
|
Additional Paid-In Capital
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated
Deficit
|
|
Total Stockholders' Equity (Deficit)
|
|
Noncontrolling
Interest
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Unrealized loss on available-for-sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|
—
|
|
Change in effective portion of interest rate swap agreement
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(295)
|
|
|
—
|
|
|
(295)
|
|
|
(5,790)
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
(4,011)
|
|
|
|
—
|
|
|
—
|
|
|
102
|
|
|
|
|
—
|
|
|
102
|
|
|
(5,970)
|
|
Mandatory redemption of noncontrolling interests
|
—
|
|
|
—
|
|
|
(55,684)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative effect of hedge accounting
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
130
|
|
|
130
|
|
|
(130)
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
2,877
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(304,414)
|
|
|
(304,414)
|
|
|
(21,929)
|
|
Balances at December 31, 2019
|
—
|
|
|
—
|
|
|
443
|
|
|
|
121,036,289
|
|
|
$
|
12
|
|
|
2,686,759
|
|
|
19
|
|
|
(2,946,384)
|
|
|
(259,594)
|
|
|
91,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
|
35,881,250
|
|
|
4
|
|
|
300,848
|
|
|
—
|
|
|
—
|
|
|
300,852
|
|
|
—
|
|
Issuance of convertible notes
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
126,799
|
|
|
—
|
|
|
—
|
|
|
126,799
|
|
|
—
|
|
Adjustment of embedded derivative for debt modification
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(24,071)
|
|
|
—
|
|
|
—
|
|
|
(24,071)
|
|
|
—
|
|
Issuance of restricted stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
|
7,806,038
|
|
|
1
|
|
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
ESPP purchase
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1,937,825
|
|
|
—
|
|
|
8,499
|
|
|
—
|
|
|
—
|
|
|
8,499
|
|
|
—
|
|
Exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1,341,324
|
|
|
—
|
|
|
14,988
|
|
|
—
|
|
|
—
|
|
|
14,988
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
68,931
|
|
|
—
|
|
|
—
|
|
|
68,931
|
|
|
—
|
|
Unrealized loss on available-for-sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23)
|
|
|
—
|
|
|
(23)
|
|
|
—
|
|
Change in effective portion of interest rate swap agreement
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
(5)
|
|
|
(6,891)
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
(45)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,205)
|
|
Contribution from noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
(21)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(157,553)
|
|
|
(157,553)
|
|
|
(21,513)
|
|
Balances at December 31, 2020
|
—
|
|
|
$
|
—
|
|
|
$
|
377
|
|
|
|
168,002,726
|
|
|
$
|
17
|
|
|
$
|
3,182,753
|
|
|
$
|
(9)
|
|
|
$
|
(3,103,937)
|
|
|
$
|
78,824
|
|
|
$
|
62,195
|
|
¹ Common Stock issued and converted to Class A Common and Class B Common effective July 2018.
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(179,087)
|
|
|
$
|
(323,466)
|
|
|
$
|
(291,276)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
52,279
|
|
|
78,584
|
|
|
53,887
|
|
Non-cash lease expense
|
|
5,328
|
|
|
—
|
|
|
—
|
|
Write-off of property, plant and equipment, net
|
|
38
|
|
|
3,117
|
|
|
939
|
|
Impairment of equity method investment
|
|
4,236
|
|
|
11,302
|
|
|
—
|
|
Write-off of PPA II and PPA IIIb decommissioned assets
|
|
—
|
|
|
70,543
|
|
|
—
|
|
Debt make-whole expense
|
|
—
|
|
|
5,934
|
|
|
—
|
|
|
|
|
|
|
|
|
Revaluation of derivative contracts
|
|
(497)
|
|
|
2,779
|
|
|
29,021
|
|
Stock-based compensation
|
|
73,893
|
|
|
196,291
|
|
|
168,482
|
|
Loss on long-term REC purchase contract
|
|
72
|
|
|
53
|
|
|
200
|
|
Revaluation of stock warrants
|
|
—
|
|
|
—
|
|
|
(9,108)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
11,785
|
|
|
—
|
|
|
—
|
|
Amortization of debt issuance and premium cost, net
|
|
6,455
|
|
|
22,130
|
|
|
25,437
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
(61,685)
|
|
|
51,952
|
|
|
(55,023)
|
|
Inventories
|
|
(33,004)
|
|
|
18,425
|
|
|
(36,974)
|
|
Deferred cost of revenue
|
|
19,910
|
|
|
(21,992)
|
|
|
14,223
|
|
Customer financing receivable and other
|
|
5,159
|
|
|
5,520
|
|
|
4,878
|
|
Prepaid expenses and other current assets
|
|
(3,124)
|
|
|
8,643
|
|
|
(8,032)
|
|
Other long-term assets
|
|
2,904
|
|
|
3,618
|
|
|
(202)
|
|
Accounts payable
|
|
(620)
|
|
|
(11,310)
|
|
|
18,307
|
|
Accrued warranty
|
|
(241)
|
|
|
(6,603)
|
|
|
1,498
|
|
Accrued expenses and other current liabilities
|
|
17,753
|
|
|
6,728
|
|
|
(5,984)
|
|
|
|
|
|
|
|
|
Deferred revenue and customer deposits
|
|
(12,972)
|
|
|
37,146
|
|
|
(21,774)
|
|
Operating lease liabilities
|
|
(2,855)
|
|
|
—
|
|
|
—
|
|
Other long-term liabilities
|
|
(4,523)
|
|
|
4,376
|
|
|
19,553
|
|
Net cash provided by (used in) operating activities
|
|
(98,796)
|
|
|
163,770
|
|
|
(91,948)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(37,913)
|
|
|
(51,053)
|
|
|
(45,205)
|
|
Payments for acquisition of intangible assets
|
|
—
|
|
|
—
|
|
|
(3,256)
|
|
Purchase of marketable securities
|
|
—
|
|
|
—
|
|
|
(103,914)
|
|
Proceeds from maturity of marketable securities
|
|
—
|
|
|
104,500
|
|
|
27,000
|
|
Net cash provided by (used in) investing activities
|
|
(37,913)
|
|
|
53,447
|
|
|
(125,375)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
300,000
|
|
|
—
|
|
|
—
|
|
Proceeds from issuance of debt to related parties
|
|
30,000
|
|
|
—
|
|
|
—
|
|
Repayment of debt
|
|
(176,522)
|
|
|
(119,277)
|
|
|
(18,770)
|
|
Repayment of debt to related parties
|
|
(2,105)
|
|
|
(2,200)
|
|
|
(1,390)
|
|
Debt make-whole payment
|
|
—
|
|
|
(5,934)
|
|
|
—
|
|
Debt issuance costs
|
|
(13,247)
|
|
|
—
|
|
|
—
|
|
Proceeds from financing obligations
|
|
26,279
|
|
|
72,334
|
|
|
70,265
|
|
Repayment of financing obligations
|
|
(10,756)
|
|
|
(8,954)
|
|
|
(6,188)
|
|
Contribution from noncontrolling interest
|
|
6,513
|
|
|
—
|
|
|
—
|
|
Payments to noncontrolling and redeemable noncontrolling interests
|
|
—
|
|
|
(56,459)
|
|
|
—
|
|
Distributions to noncontrolling and redeemable noncontrolling interests
|
|
(7,622)
|
|
|
(12,537)
|
|
|
(15,250)
|
|
Proceeds from issuance of common stock
|
|
23,491
|
|
|
12,713
|
|
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from public offerings, net of underwriting discounts and commissions
|
|
—
|
|
|
—
|
|
|
292,529
|
|
Payments of initial public offering issuance costs
|
|
—
|
|
|
—
|
|
|
(5,521)
|
|
Net cash provided by (used in) financing activities
|
|
176,031
|
|
|
(120,314)
|
|
|
317,196
|
|
Net increase in cash, cash equivalents, and restricted cash
|
|
39,322
|
|
|
96,903
|
|
|
99,873
|
|
Cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
Beginning of period
|
|
377,388
|
|
|
280,485
|
|
|
180,612
|
|
End of period
|
|
$
|
416,710
|
|
|
$
|
377,388
|
|
|
$
|
280,485
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
71,651
|
|
|
$
|
69,851
|
|
|
$
|
59,549
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
2,855
|
|
|
—
|
|
|
—
|
|
Operating cash flows from financing leases
|
|
16
|
|
|
—
|
|
|
—
|
|
Financing cash flows from financing leases
|
|
45
|
|
|
—
|
|
|
—
|
|
Cash paid during the period for income taxes
|
|
371
|
|
|
860
|
|
|
1,748
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities recorded for property, plant and equipment
|
|
$
|
7,175
|
|
|
$
|
1,745
|
|
|
$
|
12,236
|
|
Operating lease liabilities arising from obtaining right-of-use assets upon adoption of new lease guidance
|
|
39,775
|
|
|
—
|
|
|
—
|
|
Recognition of operating lease right-of-use asset during the year
|
|
12,829
|
|
|
—
|
|
|
—
|
|
Recognition of financing lease right-of-use asset during the year
|
|
385
|
|
|
—
|
|
|
—
|
|
Liabilities recorded for noncontrolling and redeemable noncontrolling interest
|
|
—
|
|
|
—
|
|
|
3,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital
|
|
—
|
|
|
—
|
|
|
882
|
|
Conversion of redeemable convertible preferred stock into additional paid-in capital
|
|
—
|
|
|
—
|
|
|
1,465,841
|
|
Conversion of 8% convertible promissory notes into additional paid-in capital
|
|
—
|
|
|
—
|
|
|
181,469
|
|
Conversion of 6% and 8% convertible promissory notes into additional paid-in capital to related parties
|
|
—
|
|
|
6,933
|
|
|
40,110
|
|
Conversion of 10% convertible promissory notes into Class A common stock
|
|
252,797
|
|
|
—
|
|
|
—
|
|
Conversion of 10% convertible promissory notes to related party into Class A common stock
|
|
50,800
|
|
|
—
|
|
|
—
|
|
Reclassification of derivative liability into additional paid-in capital
|
|
—
|
|
|
—
|
|
|
177,208
|
|
Reclassification of prior year prepaid initial public offering costs to additional paid-in capital
|
|
—
|
|
|
—
|
|
|
4,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued distributions to equity investors
|
|
—
|
|
|
373
|
|
|
576
|
|
Accrued interest for notes
|
|
1,298
|
|
|
1,812
|
|
|
19,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest for notes to related parties
|
|
—
|
|
|
—
|
|
|
2,733
|
|
|
|
|
|
|
|
|
Adjustment of embedded derivative related to debt extinguishment
|
|
24,071
|
|
|
—
|
|
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Bloom Energy Corporation
Notes to Consolidated Financial Statements
1. Nature of Business, Liquidity and Basis of Presentation
Nature of Business
We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Our Energy Servers utilize an innovative fuel cell technology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence.
Liquidity
We have generally incurred operating losses and negative cash flows from operations since our inception. As of December 31, 2019, we had $401.4 million of total outstanding recourse debt, of which $273.4 million of 6% Convertible Promissory Notes ("6% Convertible Notes") were to mature on in December 2020. With the series of new debt offerings, debt extensions and conversions to equity that we completed during 2020, we had $168.0 million of total outstanding recourse debt as of December 31, 2020, all of which is classified as long-term debt. There is also no recourse debt repayment required in the next 12 months, and scheduled debt repayments will commence in June 2022.
The impact of the COVID-19 pandemic on our ability to execute our business strategy and on our financial position and results of operations remains 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 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.
In the opinion of management, the combination of our existing cash and cash equivalents and operating cash flows is expected to be sufficient to meet our operational and capital cash flow requirements and other cash flow needs for the next 12 months from the date of issuance of this Annual Report on Form 10-K.
Correction of Previously Issued Consolidated Financial Statements
In preparation of the condensed consolidated financial statements for the three months ended March 31, 2020, errors in our Condensed Consolidated Statements of Comprehensive Loss were discovered. In the Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019 and 2018, Comprehensive Loss as previously reported was 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. Management evaluated the impact of these errors to the previously issued financial statements and concluded the impacts were not material. The Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019 and 2018 have been revised to correct the errors described above.
Basis of Presentation
We have prepared the consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), and as permitted by those rules, including all disclosures required by generally accepted accounting principles as applied in the United States (“U.S. GAAP”). All intercompany transactions and balances have been eliminated upon consolidation.
Principles of Consolidation
These consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirement for each of our variable interest entities ("VIEs"), which we refer to as a tax equity partnership (each such VIE, also referred to as our power purchase agreement 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 - Portfolio Financings. We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that we continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
We do not consolidate Third Party PPAs as we have determined that, although these entities are variable interest entities, we are not the primary beneficiary as we do not have the power to direct those activities of the Third Party PPAs that most significantly affect their economic performance and we do not have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the Third Party PPAs.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. The most significant estimates include the determination of the stand-alone selling price, including material rights estimates, inventory valuation, specifically excess and obsolescence provisions for obsolete or unsellable inventory and, in relation to property, plant and equipment (specifically Energy Servers), assumptions relating to economic useful lives and impairment assessments.
Other accounting estimates include variable consideration relating to product performance guaranties, 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, product performance warranties and guaranties and extended maintenance, derivative valuations, estimates for recapture of the U.S. investment tax credit and similar federal tax benefits, 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, regional, national and international customers, suppliers and markets. We have made estimates of the impact of COVID-19 within our consolidated 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 year ended December 31, 2020, 2019 and 2018, total revenue in the Asia Pacific region was 35%, 23% and 14%, respectively, of our total revenue.
Credit Risk - At December 31, 2020, one customer, SK Engineering and Construction Co., Ltd. ("SK E&C"), accounted for approximately 56% of accounts receivable. At December 31, 2019, two customers, Costco Wholesale Corporation and The Kraft Group LLC, accounted for approximately 19% and 17% of accounts receivable, respectively. To date, we have not experienced any credit losses.
Customer Risk - In the year ended December 31, 2020, revenue from two customers, SK E&C and Duke Energy Corporation, accounted for approximately 34% and 28%, respectively, of our total revenue. In the year ended December 31, 2019, revenue from two customers, The Southern Company and SK E&C, accounted for approximately 34% and 23%, respectively, of our total revenue. In the year ended December 31, 2018, revenue from customer The Southern Company accounted for approximately 51% of our total revenue. Duke Energy and The Southern Company each indirectly own Operating Companies which are party to a portfolio of power purchase agreements (each, a “PPA”). Each Operating Company purchased the Energy Servers contemplated by each PPA from us. The sale of an Operating Company with a portfolio of PPAs in which we have no equity interest is called a “Third-Party PPA.”
2. Summary of Significant Accounting Policies
Revenue Recognition
We primarily earn product and installation revenue from the sale and installation of our Energy Servers, service revenue by providing services under operations and maintenance services contracts and electricity revenue by selling electricity to
customers under PPAs. We offer our customers several ways to finance their use of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose to purchase our Energy Servers outright. Customers may also enter into service contracts with us for the purchase of electricity generated by our Energy Servers (a "Managed Services Arrangement"), which is then financed through one of our financing partners ("Managed Services Financing"), or as a traditional lease. Finally, customers may purchase electricity through our PPA Entities ("Portfolio Financings").
Revenue Recognition Under ASC 606 Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). We adopted ASU 2014-09 and its related amendments (collectively, “ASC 606”) as of January 1, 2019 using the modified retrospective method.
In applying ASC 606, revenue related to contracts with customers is recognized by following a five-step process:
Identify the contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller, purchase, use and maintenance agreement, maintenance services agreements or energy supply agreement.
Identify the performance obligations in the contract. Performance obligations are identified in our contracts and include transferring control of an Energy Server, installation of Energy Servers, providing maintenance services and maintenance services renewal options which, in certain situations, provide customers with material rights.
Determine the transaction price. The purchase price stated in an agreed-upon purchase order or contract is generally representative of the transaction price. When determining the transaction price, we consider the effects of any variable consideration, which include performance penalties that may be payable to our customers.
Allocate the transaction price to the performance obligations in the contract. The transaction price in a contract is allocated based upon the relative standalone selling price of each distinct performance obligation identified in the contract.
Recognize revenue when (or as) we satisfy a performance obligation. We satisfy performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring control of the promised products or services to a customer.
We frequently combine contracts governing the sale and installation of an Energy Server with the related maintenance services contracts and account for them as a single contract at contract inception to the extent the contracts are with the same customer. These contracts are not combined when the customer for the sale and installation of the Energy Server is different to the maintenance services contract customer. We also assess whether any contract terms including default provisions, put or call options result in components of our contracts being accounted for as financing or leasing transactions outside of the scope of ASC 606.
Most of our contracts contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate the total transaction price to each performance obligation based on the relative standalone selling price. Our maintenance services contracts are typically subject to renewal by customers on an annual basis. We assess these maintenance services renewal options at contract inception to determine whether they provide customers with material rights that give rise to separate performance obligations.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method. We also consider the customers’ rights of return in determining the transaction price where applicable.
We exclude from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are
not included as a component of net sales or cost of sales. These tax amounts are recorded in cost of electricity revenue, cost of service revenue and general and administrative operating expense.
We allocate the transaction price to each distinct performance obligation based on relative standalone selling prices. Given that we typically sell an Energy Server with a maintenance services agreement and have not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices are estimated using a cost-plus approach. Costs relating to Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then apply a margin to the Energy Servers which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. As our business offerings and eligibility for the Investment Tax Credit ("ITC") evolve over time, we may be required to modify the expected margin in subsequent periods and our revenue could be adversely affected. Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for maintenance services arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future material costs. Material costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we apply a lower margin to our service costs than to our Energy Servers as it best reflects our long-term service margin expectations and comparable historical industry service margins. As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance services agreements based on their respective costs or, in the case of maintenance services agreements, the estimated costs to be incurred.
We recognize product and installation revenue at the point in time that the Customer obtains control of the Energy Server. We recognize maintenance services revenue, including revenue associated with any related customer material rights, over time as we perform service maintenance activities.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling fees are recorded as revenue and the related cost is a cost to fulfill the contract that is recognized within costs of goods sold.
The following is a description of the principal activities from which we generate revenue. Our four revenue streams are classified as follows:
Product Revenue - All of our product revenue is generated from the sale of our Energy Servers to direct purchase customers, including financing partners on Third-Party PPAs, international channel providers and traditional lease customers. We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance which is when the system has been installed and is running at full power or, in the case of sales to our international channel providers, based upon shipment terms.
Under our traditional lease financing option, we sell our Energy Servers through a direct sale to a financing partner who, in turn, leases the Energy Servers to the customer under a lease agreement. With our sales to our international channel providers, our international channel providers typically sell the Energy Servers to, or sometimes provide a PPA to, an end customer. In both traditional lease and international channel providers transactions, we contract directly with the end customer to provide extended maintenance services after the end of the standard warranty period. As a result, since the customer that purchases the server is a different and unrelated party to the customer that purchases extended warranty services, the product and maintenance services contract are not combined
Installation Revenue - Nearly all of our installation revenue relates to the installation of Energy Servers sold to customers as part of a direct purchase and to financing parties as part of a traditional lease, Managed Services Financing, or Portfolio Financing. Generally, we recognize installation revenue when the system has been installed and is running at full power.
Payments received from customers are recorded within deferred revenue and customer deposits in the consolidated balance sheets until control is transferred. The related cost of such product and installation is also deferred as a component of deferred cost of revenue in the consolidated balance sheets until control is transferred.
Service Revenue - Service revenue is generated from maintenance services agreements. As part of our initial contract with customers for the sale and installation of our Energy Servers, we typically provide a standard one-year warranty which covers defects in materials and workmanship and manufacturing or performance conditions under normal use and service for the first year following acceptance. As part of this standard first-year warranty, we also monitor the operations of the underlying systems and provide output and efficiency guaranties. We have determined that this standard first-year warranty is a distinct performance obligation - being a promise to stand-ready to maintain the Energy Servers when and if required during the
first year following installation. We also sell to our customers extended annual maintenance services that effectively extend the standard first-year warranty coverage at the customer’s option. These customers generally have an option to renew or cancel the extended maintenance services on an annual basis and nearly every customer has renewed historically. Similar to the standard first-year warranty, the optional extended annual maintenance services are considered a distinct performance obligation – being a promise to stand-ready to maintain the Energy Servers when and if required during the renewal service year.
Service revenue is recognized ratably over the term of the first or renewed one-year service period.
Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price may be less than the standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right. We estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Payments from customers for the extended maintenance contracts are received at the beginning of each service year. Accordingly, the customer payment received is recorded as a customer deposit and revenue is recognized over the related service period as the services are performed.
Electricity Revenue - We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA entities. Our PPA Entities purchase Energy Servers from us and sell electricity produced by these systems to customers through long-term PPAs. Customers are required to purchase all of the electricity produced by those Energy Servers at agreed-upon rates over the course of the PPAs' contractual term.
In addition, in certain Managed Services Financings pursuant to which we are party to a Managed Services Agreement with a customer in a sale-leaseback-sublease arrangement we may recognize electricity revenue. We first determine whether the Energy Servers under the sale-leaseback arrangement of a Managed Services Financing were “integral equipment”. As the Energy Servers were determined not to be integral equipment, we determine if the leaseback was classified as a financing lease or an operating lease.
Under ASC 840 Leases, ("ASC 840"), our Managed Services Agreements with the financiers were classified as capital leases and were accordingly recorded as financing transactions, while the sub-lease arrangements with the end customer were classified as operating leases. We have determined that the financiers are our customers in our Managed Services Agreements. In these Managed Services Financings, we enter into an agreement with a customer for a certain term. In exchange for the use of the Energy Server and its generated electricity, the customer makes a monthly payment. The customer's monthly payment includes a fixed monthly capacity-based payment, and in some cases also includes a performance-based payment based on the performance of the Energy Server. The fixed capacity-based payments made by the customer are applied toward our obligation to pay down the financing obligation with the financier. The performance-based payment is transferred to us as compensation for operations and maintenance services and is recognized as electricity revenue. We allocate the total payments received based on the relative standalone selling prices to electricity revenue and to service revenue. Electricity revenue relating to PPAs was typically accounted for in accordance with ASC 840, and service revenue in accordance with ASC 606.
We adopted ASC 842 Leases, ("ASC 842") with effect from January 1, 2020. Under ASC 842, our Managed Services Agreements with the financier continue to be accounted for as financing transactions because the repurchase options in these agreements prevent the transfer of control of the systems to the financier. We also determined that the sub-lease arrangements with the customer are not within the scope of ASC 842 because the customer does not have the right to control the use of the underlying assets (i.e., the Energy Servers). Accordingly, for transactions entered into on or after January 1, 2020 such arrangements with customers are accounted for under ASC 606. Under ASC 606, we recognize revenue for the electricity generated as electricity revenue.
Transactions entered into with customers prior to January 1, 2020 carried over their classification as operating leases and continue to be accounted for consistent with prior years as described in the paragraph above. Refer below under Accounting Guidance Implemented in 2020 for further discussion regarding our managed services arrangements.
We recognize revenue from the satisfaction of performance obligations under our PPAs and Managed Services Financings as the electricity is provided over the term of the agreement in the amount invoiced, which reflects the amount of consideration to which we have the right to invoice and which corresponds to the value transferred under such arrangements.
Contract Modifications
Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. If the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date.
Deferred Revenue
We recognize a contract liability (referred to as deferred revenue in our consolidated financial statements) when we have an obligation to transfer products or services to a customer in advance of us satisfying a performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The related cost of such product is deferred as a component of deferred cost of revenue in the consolidated balance sheets. Prior to shipment of the product or the commencement of performance of maintenance services, any prepayment made by the customer is recorded as a customer deposit. Deferred revenue related to material rights for options to renew are recognized in revenue over the maintenance services period.
A description of the principal activities from which we recognize cost of revenues associated with each of our revenue streams are classified as follows:
Cost of Product Revenue - Cost of product revenue consists of costs of our Energy Servers that we sell to direct purchase, including financing partners on Third-Party PPAs, international channel providers and traditional lease customers. It includes costs paid to our materials suppliers, direct labor, manufacturing and other overhead costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs of our equipment. Warranty costs are also included in cost of product revenue, see Warranty Costs below.
Cost of Installation Revenue - Cost of installation revenue primarily consists of the costs to install our Energy Servers that we sell to direct purchase, including financing partners on Third-Party PPAs and traditional lease customers. It includes costs paid to our materials and service providers, personnel costs, shipping costs, and allocated costs.
Cost of Service Revenue - Cost of service revenue consists of costs incurred under maintenance service contracts for all customers. It includes personnel costs for our customer support organization, certain allocated costs and extended maintenance-related product repair and replacement costs.
Cost of Electricity Revenue - Cost of electricity revenue primarily consists of the depreciation of the cost of the Energy Servers owned by us or the consolidated PPA Entities and the cost of gas purchased in connection with our first PPA Entity. The cost of electricity revenue is generally recognized over the term of the Managed Services agreement or customer’s PPA contract. The cost of depreciation of the Energy Servers is reduced by the amortization of any U.S. Treasury Department grant payment in lieu of the energy investment tax credit associated with these systems.
Revenue Recognized from Portfolio Financings Through PPA Entities (See Note 13 - Portfolio Financings)
In 2010, we began selling our Energy Servers to tax equity partnerships in which we held an equity interest as a managing member, or a PPA Entity. This program was financed by the sale of an Operating Company counter-party to a portfolio of PPAs to a PPA Entity. The investors in a PPA Entity contribute cash to the PPA Entity in exchange for an equity interest, which then allows the PPA Entity to purchase the Operating Company and the Energy Servers contemplated by the portfolio of PPAs owned by such Operating Company.
The cash contributions held are classified as short-term or long-term restricted cash according to the terms of each PPA Entity's governing documents. As we identified customers, the Operating Company entered into a PPA with the customer pursuant to which the customer agreed to purchase the power generated by one or more Energy Servers at a specified rate per kilowatt hour for a specified term, which can range from 10 to 21 years. The Operating Company, wholly owned by the PPA Entity, typically entered into a maintenance services agreement with us following the first year of service to extend the standard one-year performance warranties and guaranties. This intercompany arrangement is eliminated on consolidation. Those PPAs that qualify as leases are classified as either sales-type leases or operating leases and those that do not qualify as leases are
classified as tariff agreements or revenue arrangements with customers. For arrangements classified as operating leases, tariff agreements, or revenue arrangements with customers, income is recognized as contractual amounts are due when the electricity is generated and presented within electricity revenue on the consolidated statements of operations.
Sales-type Leases - Certain Portfolio Financings with PPA Entities entered into prior to our adoption of ASC 842 qualified as sales-type leases in accordance with ASC 840. The classification for such arrangements were carried over and accounted for as sales-type leases under ASC 842. See additional discussion below under Accounting Guidance Implemented in 2020. We are responsible for the installation, operation and maintenance of the Energy Servers at the customers' sites, including running the Energy Servers during the term of the PPA which ranges from 10 to 15 years. Based on the terms of the PPAs, we may also be obligated to supply fuel for the Energy Servers. The amount billed for the delivery of electricity to customers primarily consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue for certain arrangements.
As the Portfolio Financings through PPA Entities entered into prior to our adoption of ASC 842 contain a lease, the consideration received is allocated between the lease elements (lease of property and related executory costs) and non-lease elements (other products and services, excluding any derivatives) based on relative fair value. Lease elements include the leased system and the related executory costs (i.e. installation of the system, electricity generated by the system, maintenance costs). Non-lease elements include service, fuel and interest related to the leased systems.
Service revenue and fuel revenue are recognized over the term of the PPA as electricity is generated. For those transactions that contain a lease, the interest component related to the leased system is recognized as interest revenue over the life of the lease term. The customer has the option to purchase the Energy Servers at the then fair market value at the end of the PPA contract term.
Service revenue related to sales-type leases of $2.3 million, $2.9 million, and $3.4 million for the years ended December 31, 2020, 2019 and 2018, respectively, is included in electricity revenue in the consolidated statements of operations. We have not entered into any new Portfolio Financing arrangements through PPA Entities during the last three years. Accordingly, there was no product revenue for such arrangements during the years ended December 31, 2020, 2019, or 2018.
Operating Leases - Certain Portfolio Financings with PPA Entities entered into prior to the adoption of ASC 842 that were deemed leases in substance, but did not meet the criteria of sales-type leases or direct financing leases in accordance with ASC 840, were accounted for as operating leases. The classification for such arrangements were carried over and accounted for as operating leases under ASC 842. See additional discussion below under Accounting Guidance Implemented in 2020. Revenue under these arrangements is recognized as electricity sales and service revenue and is provided to the customer at rates specified under the PPAs. During the years ended December 31, 2020, 2019, and 2018, revenue from electricity sales from these Portfolio Financings with PPA Entities amounted to $27.7 million, $29.7 million, and $30.9 million, respectively. During the years ended December 31, 2020, 2019, and 2018, service revenue amounted to $13.8 million, $14.6 million, and $15.2 million, respectively.
Prior to Adoption of ASC 606 Revenue from Contracts with Customers
Prior to the adoption of ASC 606, we recognized revenue from contracts with customers for the sales of products, installation and services in accordance with ASC 605-25, Revenue Recognition for Multiple-Element Arrangements.
Revenue from the sale and installation of Energy Servers was recognized when all of the following criteria were met:
•Persuasive evidence of an arrangement existed. We relied upon non-cancelable sales agreements and purchase orders to determine the existence of an arrangement.
•Delivery and acceptance had occurred. We used shipping documents and confirmation from our installations team that the deployed systems were running at full power as defined in each contract to verify delivery and acceptance.
•The fee was fixed or determinable. We assessed whether the fee was fixed or determinable based on the payment terms associated with the transaction.
•Collectability was reasonably assured. We assessed collectability based on the customer’s credit analysis and payment history.
When these criteria were met, we allocated revenue to each element of the customer arrangement (product, installation and services) based on an estimated selling price at the arrangement inception. The estimated selling price for each element was
based upon the following hierarchy: vendor-specific objective evidence ("VSOE") of selling price, if available; third-party evidence ("TPE") of selling price, if VSOE of selling price is not available; or best estimate of selling price ("BESP") if neither VSOE of selling price nor TPE of selling price are available. We limited the amount of revenue recognized for delivered elements to an amount that was not contingent upon future delivery of additional products or services or upon meeting any specified performance conditions.
We had not been able to obtain reliable evidence of the selling price of the standalone Energy Server. Given that we typically sold an Energy Server with a maintenance service agreement and had not provided maintenance services to a customer who did not have use of an Energy Server, we had no evidence of selling prices for either and virtually no customers had elected to cancel their maintenance service agreements while continuing to operate the Energy Servers. Our objective was to determine the price at which we would have transacted business if the items were being sold separately. As a result, our estimate of our selling price was driven primarily by our expected margin on both the Energy Server and installation based on their respective costs and, in the case of maintenance service agreements, the estimated costs to be incurred during the expected service period.
Costs for Energy Servers included all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). We then applied a margin to the Energy Servers and to expected installation costs to determine the selling price to be used in our BESP model. Costs for maintenance services arrangements were estimated over the expected life of the maintenance contracts and included estimated future service costs and future material costs. Material costs over the expected period of the service arrangement were impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, we applied a lower margin to our service costs than to our Energy Servers as it best reflected our long-term service margin expectations.
Incentives and Grants
Tariff Agreement - One of our PPA entities entered into an agreement with Delmarva Power and Light ("Delmarva"), an energy company that supplies electricity and natural gas to its customers, PJM Interconnection ("PJM"), a regional transmission organization, and the State of Delaware under which PPA II provided the energy generated from its Energy Servers to PJM and received a tariff as collected by Delmarva.
Revenue at the tariff rate was recognized as electricity sales and service revenue as it was generated over the term of the arrangement until the final repowering in December 2019. Revenue relating to power generation at the Delmarva sites of zero, $11.3 million, and $23.0 million for the years ended December 31, 2020, 2019, and 2018, respectively, is included in electricity sales in the consolidated statements of operations. Revenue relating to power generation at the Delmarva sites of zero, $6.8 million, and $13.7 million for the years ended December 31, 2020, 2019, and 2018, respectively, is included in service revenue in the consolidated statements of operations.
Investment Tax Credits - Through December 31, 2016, our Energy Servers were eligible for federal ITCs that accrued to eligible property under Internal Revenue Code Section 48. Under our Portfolio Financings with PPA Entities, ITCs are primarily passed through to Equity Investors with approximately 1% to 10% of incentives received by us. These incentives are accounted for by using the flow-through method. On February 9, 2018, the U.S. Congress passed legislation to extend the federal ITCs for fuel cell systems applicable retroactively to January 1, 2017. On December 21, 2020, the U.S. Congress passed legislation to extend the federal ITCs at a rate of 26% for a further two years.
The ITC program has operational criteria for the first five years after the qualified equipment is placed in service. If the qualified energy property is disposed or otherwise ceases to be investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction of the federal tax incentives. No recapture has occurred during the years ended December 31, 2020, 2019 and 2018.
Recapture of federal tax incentives, including the investment tax credit, and Indemnifications
Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the ITC. Our sale of Energy Servers to PPA Entities and pursuant to Third-Party PPAs, in each case pursuant to a Portfolio Financing, were by the PPA Entities or tax equity partnerships in which we did not have an equity interest (such transaction, a "Third-Party PPA" and the tax equity partnership purchaser, an "Investment Company") and, therefore, the PPA Entities or Investment Companies, as the case may be, bear the risk of recapture if the assets placed in service do not meet the ITC operational criteria in the future. As part of our upgrade of Energy
Servers during 2019, we have agreed to indemnify our customer for up to $108.7 million should benefits expected from anticipated ITC and established tariffs fail to occur. We believe these events to be less than likely to occur and have not established financial reserves.
Warranty Costs
We generally warrant our products sold to our customers, international channel providers, and financing parties for the first year following the date of acceptance of the Energy Servers. This standard warranty covers defects in materials, workmanship and manufacturing or performance conditions under normal use and service conditions for the first year following acceptance or for the optional extended annual maintenance services period.
Prior to adoption of ASC 606, our warranty accrual represents our best estimate of the amount necessary to settle future and existing claims during the warranty period as of the balance sheet date. We accrued for warranty costs based on estimated costs that may have been incurred including material costs, labor costs and higher customer electricity costs should the units not work for extended periods. To estimate the product warranty costs, we continuously monitored product returns for warranty failures and maintained the reserve for the related warranty expense based on various factors including historical warranty claims, field monitoring and results of lab testing.
With the adoption of ASC 606, we only recognize warranty costs for those contracts that are considered to be assurance-type warranties and consequently do not give rise to performance obligations or for those maintenance service contracts that were previously in the scope of ASC 605-20-25, Separately Priced Extended Warranty and Product Maintenance Contracts.
In addition, as part of our standard one-year warranty and managed services agreements obligations, we monitor the operations of the underlying systems and provide output and efficiency guaranties (collectively “product performance guaranties”). If the Energy Servers run at a lower efficiency or power output than we committed under our performance warranty or guaranty, we will reimburse the customer for this underperformance. Our performance obligation includes ensuring the Energy Server operates at least at the efficiency and/or power output levels set forth in the customer agreement. Our aggregate reimbursement obligation for a performance guaranty for each customer is capped based on the purchase price of the underlying Energy Server. Product performance guaranty payments are accounted for as a reduction in service revenue. We accrue for performance guaranties based on the estimated amounts reimbursable at each reporting period and recognize the costs as a reduction to revenue.
Shipping and Handling Costs
We generally record costs related to shipping and handling in cost of product revenue, cost of installation revenue and cost of service as they are incurred.
Sales and Utility Taxes
We recognize revenue on a net basis for taxes charged to our customers and collected on behalf of the taxing authorities.
Operating Expenses
Advertising and Promotion Costs - Expenses related to advertising and promotion of products are charged to sales and marketing expense as incurred. We did not incur any material advertising or promotion expenses during the years ended December 31, 2020, 2019 and 2018.
Research and Development - We conduct internally funded research and development activities to improve anticipated product performance and reduce product life-cycle costs. Research and development costs are expensed as incurred and include salaries and expenses related to employees conducting research and development.
Stock-Based Compensation - We account for stock options, restricted stock units ("RSUs") and performance-based stock units ("PSUs") awarded to employees and non-employee directors under the provisions of ASC 718, Compensation-Stock Compensation.
Stock-based compensation costs for options are measured using the Black-Scholes valuation model. The Black-Scholes valuation model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the award, the risk-free interest rate for a period that approximates the expected term of the stock options and the expected dividend yield. In developing estimates used to calculate assumptions, we established the expected term for employee options as well as expected forfeiture rates based on the historical settlement experience and after giving
consideration to vesting schedules. For options with a vesting condition tied to the attainment of service and market conditions, stock-based compensation costs are recognized using Monte Carlo simulations. Stock-based compensation costs are recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. Previously recognized costs are reversed for the portion of awards forfeited prior to vesting as and when the forfeitures occurred. We typically record stock-based compensation costs for options under the straight-line attribution method over the requisite service period which is generally the vesting term, which is generally four years for options.
Stock-based compensation costs for RSUs and PSUs are measured based on the fair value of the underlying shares on the date of grant. We recognize the compensation cost for RSUs using a straight-line basis over the requisite service period of the RSUs, which is generally three to four years. We recognize the compensation cost for PSUs over the expected performance period using the graded vesting method as the achievement of the milestones become probable, which is generally one to three years.
We also use the Black-Scholes valuation model to estimate the fair value of stock purchase rights under the Bloom Energy Corporation 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The fair value of the 2018 ESPP purchase rights is recognized as expense under the multiple options approach. Forfeitures are estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from initial estimates.
Compensation costs for equity instruments granted to non-employees is measured on the date of performance at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of the equity instruments is expensed over the term of the non-employee's service period.
Stock issued to grantees in our stock-based compensation is from authorized and previously unissued shares. Stock-based compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function. Stock-based compensation costs directly associated with the product manufacturing operations process are capitalized into inventory and expensed when the capitalized asset is used in the normal course of the sales or services process.
We record deferred tax assets for awards that result in deductions on our income tax returns, unless we cannot realize the deduction (i.e., we are in a net operating loss position), based on the amount of compensation cost recognized and our statutory tax rate.
Refer to Note 10 - Stock-Based Compensation and Employee Benefit Plans for further discussion of our stock-based compensation arrangements.
Income Taxes
We account for income taxes using the liability method under ASC 740, Income Taxes ("ASC 740"). Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. Additionally, we must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. We have provided a full valuation allowance on our domestic deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized.
We follow the accounting guidance in ASC 740, which requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured pursuant to ASC 740-10 and the tax position taken or expected to be taken on our tax return. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made. We established reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that the tax return positions are fully supportable. The reserves are adjusted in light of changing facts and circumstances such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. We recognize interest and penalties related to unrecognized tax benefits in income tax expense.
Refer to Note 11 - Income Taxes for further discussion of our income tax expense.
Comprehensive Loss
Our comprehensive loss is comprised of net loss attributable to Class A and Class B common stock shareholders, unrealized gain (loss) on available-for-sale securities, change in the effective portion of our interest rate swap agreements and comprehensive (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest.
Fair Value Measurement
ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principle or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
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Level 1
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Quoted prices in active markets for identical assets or liabilities. Financial assets utilizing Level 1 inputs typically include money market securities and U.S. Treasury securities.
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Level 2
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Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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Level 3
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Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Financial liabilities utilizing Level 3 inputs include natural gas fixed price forward contracts, embedded derivatives in contracts with customers and embedded derivatives in our convertible notes. Derivative liability valuations are performed based on a binomial lattice model and adjusted for illiquidity and/or non-transferability and such adjustments are generally based on available market evidence. Contract embedded derivatives valuations are performed using a Monte Carlo simulation model which considers various potential electricity price curves over the sales contracts terms.
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Other Balance Sheet Components
Cash, Cash Equivalents and Restricted Cash - Cash equivalents consist of highly liquid short-term investments with maturities of 90 days or less at the date of purchase.
Restricted cash is held as collateral to provide financial assurance that we will fulfill obligations and commitments primarily related to our Portfolio Financings, Third Party PPA and managed services arrangements. Restricted cash also includes debt service reserves, maintenance service reserves and facility lease agreements. Restricted cash that is expected to be used within one year of the balance sheet date is classified as a current asset, whereas restricted cash expected to be used more than one year from the balance sheet date is classified as a non-current asset.
Derivative Financial Instruments - We enter into derivative natural gas fixed price forward contracts to manage our exposure to the fluctuating price of natural gas under certain of our power purchase agreements entered in connection with the PPA Entities (refer to Note 13 - Portfolio Financings). In addition, we enter into fixed forward interest rate swap arrangements to convert variable interest rates on debt to a fixed rate and on occasion have committed to certain utility grid price protection guarantees in sales agreements. During the year ended December 31, 2019, we also had derivative financial instruments embedded in our 6% Convertible Notes as a means by which to provide additional incentive to investors and to obtain a lower cost cash-source of funds.
Derivative transactions are governed by procedures covering areas such as authorization, counterparty exposure and hedging practices. Positions are monitored based on changes in the spot price in the commodity market and their impact on the market value of derivatives. Credit risk on derivatives arises from the potential for counterparties to default on their contractual obligations to us. We limit our credit risk by dealing with counterparties that are considered to be of high credit quality. We do not enter into derivative transactions for trading or speculative purposes.
We account for our derivative instruments as either an asset or a liability which are carried at fair value on the consolidated balance sheets. Changes in the fair value of the derivatives that are designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) on the consolidated balance sheets. Changes in fair value of those
derivatives that no longer qualify as cash flow hedges or are derivatives that do not qualify for hedge accounting are recorded through earnings in the consolidated statements of operations.
While we hedge certain of our natural gas purchase requirements under our PPAs, we do not classify these natural gas fixed price forward contracts as designated hedges for accounting purposes. Therefore, we record the change in the fair value of our natural gas fixed price forward contracts in cost of revenue on the consolidated statements of operations. The fair value of the natural gas fixed price forward contracts is recorded on the consolidated balance sheets as a component of accrued expenses and other current liabilities and as derivative liabilities. As these forward contracts are considered economic hedges, the changes in the fair value of these forward contracts are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
Our interest rate swap arrangements qualify as cash flow hedges for accounting purposes as they effectively convert variable rate obligations into fixed rate obligations. The effective change is recorded in accumulated other comprehensive income (loss) and will be recognized as interest expense on settlement. As of January 1, 2019, we adopted ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). Per ASU 2017-12, ineffectiveness is no longer required to be measured or disclosed. If a cash flow hedge is discontinued due to changes in the forecasted hedged transactions, hedge accounting is discontinued prospectively and any unrealized gain or loss on the related derivative is recorded in accumulated other comprehensive income (loss) and is reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The fair value of the swap arrangement is recorded on the consolidated balance sheets as a component of accrued expenses and other current liabilities and as derivative liabilities. The changes in fair value of swap agreements are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
We issued convertible notes with conversion features. These conversion features were evaluated under ASC 815-40, Derivatives and Hedging - Contracts in an Entity's Own Equity, and were determined to be embedded derivatives that were bifurcated from the debt and were classified prior to the IPO as liabilities on the consolidated balance sheet. We recorded these derivative liabilities at fair value and adjusted the carrying value to their estimated fair value at each reporting date with the increases or decreases in the fair value recorded as a gain (loss) on revaluation of warrant liabilities and embedded derivatives in the consolidated statements of operations. Upon the IPO, the final valuation of the embedded derivative was calculated as of the date of the IPO and was reclassified from a derivative liability to additional paid-in capital.
Customer Financing Receivables - The contractual terms of our customer financing receivables are primarily contained within the PPA Entities' customer lease agreements. Leases entered into prior to our adoption of ASC 842 carried over their classification as either operating or sales-type leases in accordance with the relevant accounting guidelines. Customer financing receivables were generated by Energy Servers leased to PPA Entities’ customers in leasing arrangements that qualified and continue to be accounted for as sales-type leases. Customer financing receivables for such arrangements represent the gross minimum lease payments to be received from customers and the system’s estimated residual value, net of unearned income and allowance for estimated losses. Initial direct costs for such sales-type leases continue to be recognized as cost of revenue when the Energy Servers are placed in service.
We record a reserve for credit losses related to the collectability of customer financing receivables using the historical aging of the customer receivable balance. The collectability is determined based on past events, including historical experience, customer credit rating, as well as current market conditions. We monitor customer ratings and collectability on an on-going basis. Account balances will be charged off against the credit loss reserve, when needed, after all means of collection have been exhausted and the potential for recovery is considered remote.
Accounts Receivable - Accounts receivable primarily represents trade receivables from sales to customers recorded at amortized cost less allowance for credit losses. The allowance for credit losses reflects our best estimate about future losses over the contractual life of outstanding accounts receivable taking into consideration historical experience, specific allowances for known troubled accounts, other currently available information including customer financial condition, and both current and forecasted economic conditions.
Inventories - Inventories consist principally of raw materials, work-in-process and finished goods and are stated on a first-in, first-out basis at the lower of cost or net realizable value. We record inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory, equal to the difference between the cost of inventory and estimated net realizable value based upon assumptions about market conditions and future demand for product generally expected to be utilized over the next 12 to 24 months, including product needed to fulfill our warranty obligations. If actual future demand for our products is
less than currently forecasted, additional inventory provisions may be required. Once a provision is recorded, it is maintained until the product to which it relates to is sold or otherwise disposed.
Property, Plant and Equipment - Property, plant and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Energy Servers are depreciated to their residual values over their useful economic lives which reflect consideration of the terms of their related PPA and tariff agreements. These useful lives are reassessed when there is an expected change in the use of the Energy Servers. Leasehold improvements are depreciated over the shorter of the lease term or their estimated depreciable lives. Buildings are amortized over the shorter of the lease or property term or their estimated depreciable lives. Assets under construction are capitalized as costs are incurred and depreciation commences after the assets are put into service within their respective asset class.
Depreciation is calculated using the straight-line method over the estimated depreciable lives of the respective assets as follows:
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Depreciable Lives
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Energy Servers
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15-21 years
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Computers, software and hardware
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|
3-5 years
|
Machinery and equipment
|
|
5-10 years
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Furniture and fixtures
|
|
3-5 years
|
Leasehold improvements
|
|
1-10 years
|
Buildings
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|
*
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* Lesser of 35 years or the term of the underlying land lease.
When assets are retired or disposed, the assets and related accumulated depreciation and amortization are removed from our consolidated financial statements and the resulting gain or loss is reflected in the consolidated statements of operations.
Impairment of Long-Lived Assets - Our long-lived assets include property, plant and equipment and Energy Servers capitalized in connection with our Managed Services Financing Program, Portfolio Financings and other similar arrangements. The carrying amounts of our long-lived assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.
Foreign Currency Transactions - The functional currency of our foreign subsidiaries is the U.S. dollar since they are considered financially and operationally integrated with their domestic parent. Foreign currency monetary assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates. Any currency transaction gains and losses are included as a component of other income (expense), net in our consolidated statements of operations and have not been significant for any period presented.
Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests - We generally allocate profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities. Refer to Note 13 - Portfolio Financings for more information.
The determination of equity in earnings under the HLBV method requires management to determine how proceeds, upon a hypothetical liquidation of the entity at book value, would be allocated between our investors. The noncontrolling interest balance is presented as a component of permanent equity in the consolidated balance sheets.
Noncontrolling interests with redemption features, such as put options, that are not solely within our control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. We elected to accrete changes in the redemption value over the period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument by using an interest method. The balance of redeemable noncontrolling interests on the balance sheets is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are classified as temporary equity and therefore are reported in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests.
For income tax purposes, the Equity Investors of the PPA Entities receive a greater proportion of the share of losses and other income tax benefits. This includes the allocation of investment tax credits which are distributed to the Equity Investors through an Investment Company subsidiary of Bloom. Allocations are initially based on the terms specified in each respective partnership agreement until either a specific date or the Equity Investors' targeted rate of return specified in the partnership agreement is met (the "flip" of the flip structure) whereupon the allocations change. In some cases after the Equity Investors receive their contractual rate of return, we receive substantially all of the remaining value attributable to the long-term recurring customer payments and the other incentives.
Recent Accounting Pronouncements
At the time of our initial public offering, as an emerging growth company ("EGC"), we elected to use the extended transition period provided by the Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards, and as a result of this election, we did not have to comply with the public company effective dates for new accounting standards until we ceased to be classified as an EGC. As a result of the market value of our publicly held common stock held by non-affiliates exceeding $700 million, measured at the end of our second fiscal quarter, we lost our EGC status effective as of December 31, 2020. This accelerated the adoption of various accounting standards as detailed below under Accounting Guidance Implemented in 2020. These accounting standards were therefore, adopted as of January 1, 2020.
As detailed below under Accounting Guidance Not Yet Adopted, we will adopt future accounting standards based on the public company effective dates.
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
Our adoption of the following guidance as of January 1, 2020 did not have a material impact on our consolidated financial statements and related disclosures:
•ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740)
•ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
•ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting
•ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
Leases - In February 2016, the FASB issued ASC 842, which supersedes all existing lease guidance. To increase transparency and comparability among organizations, this guidance requires that an entity that lease assets recognize right-of-use (“ROU”) assets representing its right to use the underlying asset for the lease term and lease liabilities related to the rights and obligations created by those leases on the balance sheet regardless of whether they are classified as finance or operating leases, with classification affecting the pattern and presentation of expenses and cash flows on the consolidated financial statements. In addition, new disclosures are required to meet the objective of enabling users of the consolidated financial statements to better understand the amount, timing, and uncertainty of cash flows arising from leases.
Prior to December 31, 2020, as an EGC, we elected to use the extended transition period provided by the Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards, and as a result of this election, we did not have to comply with the public company effective date for ASC 842 until we ceased to be classified as an EGC. Effective on December 31, 2020, we lost our EGC status which accelerated the adoption of ASC 842. As a result, we adjusted our previously reported consolidated financial statements effective January 1, 2020 in this Form 10-K for the year ended December 31, 2020.
We adopted ASC 842 on January 1, 2020 on a modified retrospective basis under which we recognized and measured leases existing at, or entered into after, the beginning of the period of adoption. We elected the optional transition approach of not adjusting our comparative period consolidated financial statements for the impacts of adoption. Upon adoption of ASC 842, we recorded right-of-use assets of $28.1 million (after deducting $9.2 million relating to a tenant improvement allowance) and
corresponding lease liabilities of $39.8 million related to our operating leases as a lessee for facilities, office buildings, and vehicles.
The comparative consolidated balance sheet as of December 31, 2019 has not been restated to reflect the adoption of ASC 842. In addition, the amounts presented as deferred lease obligations on our consolidated balance sheet as of December 31, 2019 are now included in the calculation of the operating lease ROU assets.
The transition guidance associated with ASC 842 also permitted certain practical expedients. We elected the practical expedient, which allowed us to carryforward certain aspects of our historical lease accounting under ASC 840 for leases that commenced before the effective date, including not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. We also elected the practical expedient to not separate non-lease and lease components and instead account for them as a single lease component for all classes of underlying assets. Lastly, for all classes of underlying assets, we elected to adopt an accounting policy for which we will not record on our consolidated balance sheets leases whose terms are 12 months or less. Instead, these lease payments are recognized in profit or loss on a straight-line basis over the lease term.
Facilities, Office Buildings, and Vehicles
The lease ROU assets and related lease liabilities are classified as either operating or financing. Lease liabilities are measured at the lease commencement date as the present value of future minimum lease payments. Lease right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, the discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. In computing our lease liabilities, we use the incremental borrowing rate based on the information available on the commencement date using an estimate of company-specific rate in the U.S. on a collateralized basis and consistent with the lease term for each lease. The lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised.
The cumulative effect of applying ASC 842 on our consolidated balance sheets as of January 1, 2020 was as follows (in thousands):
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December 31, 2019 (1)
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Adjustments Due to the Adoption of ASC 842
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January 1, 2020
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Assets:
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|
|
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|
|
|
|
|
|
|
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Operating lease right-of-use assets
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|
$
|
—
|
|
|
$
|
28,121
|
|
|
$
|
28,121
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
1,322,591
|
|
|
28,121
|
|
|
1,350,712
|
|
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest:
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|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
—
|
|
|
5,535
|
|
|
5,535
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
70,284
|
|
|
(1,314)
|
|
(2)
|
68,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
573,964
|
|
|
4,221
|
|
|
578,185
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, non-current
|
|
—
|
|
|
34,240
|
|
|
34,240
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
28,013
|
|
|
(10,340)
|
|
(2)
|
17,673
|
|
Total liabilities
|
|
1,490,451
|
|
|
28,121
|
|
|
1,518,572
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|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
|
|
1,322,591
|
|
|
28,121
|
|
|
1,350,712
|
|
(1) As reported in our 2019 Annual Report on Form 10-K.
(2) Adjustment relates to deferred rent balances as of December 31, 2019.
ROU assets for operating and finance leases are periodically reviewed for impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. No impairment losses have been recognized to date.
We monitor for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset.
Managed Services and Portfolio Financings Through PPA Entities
Transactions with Financiers - Under the transition guidance in ASC 842, companies are required to reassess sale-leaseback transactions previously accounted for as failed sale-leaseback arrangements. Under ASC 840, we concluded that Managed Services arrangements should be accounted for as a financing arrangement given that these contracts were considered failed sale-leasebacks because the leaseback was classified under ASC 840 as a capital lease. As part of our adoption of ASC 842, we reassessed our Managed Services arrangements with financiers as of the transition date to determine whether these transactions would now qualify as successful sale-leaseback arrangements.
Our Managed Services arrangements with financiers contain repurchase options whereby we may under certain circumstances repurchase the asset from the financier, as buyer-lessor, we determined that because there will be no alternative assets that will be available for the financier to purchase that are substantially the same as the asset initially transferred, the existence of the repurchase option precludes us from concluding that control of the Energy Server system has transferred to the financier at the onset of the sale-leaseback transaction. Accordingly, we determined that the sale-leaseback transactions will continue to be accounted for as failed sale-leaseback transactions and the consideration received under such arrangements will continue to be accounted for as a financing arrangement, consistent with the accounting treatment in the prior year.
Transactions with Customers - As described above under our Revenue Recognition accounting policy, certain of our customers enter into PPAs with a PPA Entity or Managed Services agreements to finance their lease of Bloom Energy Servers. Prior to the adoption of ASC 842, such arrangements with customers that qualified as leases were classified as either sales-type leases or operating leases.
As discussed above, we elected the package of practical expedients to be applied to all leases in the transition from ASC 840 to ASC 842. Accordingly, we have not re-evaluated whether our pre-existing customer PPAs or Managed Services arrangements contain a lease. For all pre-existing customer PPAs and Managed Services arrangements, we have carried over the accounting classifications for those transactions under ASC 840, and continue to account for such transactions as either sales-type leases or operating leases under ASC 842.
As part of our adoption of ASC 842, we assessed whether customer PPAs or Managed Services arrangements entered into on or after January 1, 2020 are within the scope of ASC 842 and, if so, their appropriate accounting treatment. ASC 842 states that a contract contains a lease if the contracts convey the right to control the use of an identified asset for a period of time in exchange for consideration. Central to this analysis are two factors: (i) whether there is an identified asset; and (ii) whether the counterparty has the right to control the use of the identified asset. We determined that while there is an identified asset (i.e., the Energy Servers installed at the end-customers' facilities), the customer does not have the right to control the use of the Energy Servers because they do not have decision-making rights over how and for what purpose the Energy Servers are utilized throughout the term of the arrangement. Accordingly, the customer PPAs and Managed Services arrangements do not contain a lease, and therefore are not within the scope of ASC 842, and instead are accounted for under ASC 606.
See Note 17 - Leases, for additional information and disclosures on the impact of the adoption of ASC 842.
Accounting Guidance Not Yet Adopted
As a result of the loss of our EGC status with effect from December 31, 2020, we have revised our planned adoption dates from the nonpublic company effective dates to the pubic company effective dates for the accounting guidance below.
Cessation of LIBOR - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional expedients for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate ("LIBOR") or other reference rate expected to be discontinued. An entity may elect to apply the amendments in ASU 2020-04 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 consolidated financial statements are available to be issued. An entity may elect to apply ASU 2020-04 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging instruments entered into after the beginning of the interim period that includes March 12, 2020. We are currently evaluating the impact of the adoption of ASU 2020-04 on our consolidated financial statements.
Debt with Conversion Options - In August 2020, the 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 the exception. 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.
3. Revenue Recognition
Deferred Revenue and Customer Deposits
Deferred revenue and customer deposits as of December 31, 2020 and 2019 consists of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
135,578
|
|
|
$
|
175,619
|
|
|
|
Customer deposits
|
|
66,171
|
|
|
39,101
|
|
|
|
Deferred revenue and customer deposits
|
|
$
|
201,749
|
|
|
$
|
214,720
|
|
|
|
Deferred revenue activity during the years ended December 31, 2020 and 2019 consists of the following (in thousands):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
|
|
|
$
|
175,619
|
|
|
$
|
149,612
|
|
Additions
|
|
|
|
|
|
652,960
|
|
|
709,843
|
|
Revenue recognized
|
|
|
|
|
|
(693,001)
|
|
|
(683,836)
|
|
Ending balance
|
|
|
|
|
|
$
|
135,578
|
|
|
$
|
175,619
|
|
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. During the year ended December 31, 2020, we recognized $14.2 million of previously deferred revenue that was not associated with acceptances or service in the year as a result of a modification of a contract with a customer.
We do not disclose the value of the unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
We disaggregate revenue from contracts with customers into four revenue categories: (i) product, (ii) installation, (iii) services, and (iv) electricity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Under ASC 606
|
|
With Adoption of ASC 606
|
|
Under ASC 605
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
|
|
|
|
$
|
518,633
|
|
|
$
|
557,336
|
|
|
$
|
400,638
|
|
Installation revenue
|
|
|
|
|
|
101,887
|
|
|
60,826
|
|
|
68,195
|
|
Services revenue
|
|
|
|
|
|
109,633
|
|
|
95,786
|
|
|
83,267
|
|
Electricity revenue
|
|
|
|
|
|
—
|
|
|
10,840
|
|
|
23,023
|
|
Total revenue from contract with customers
|
|
|
|
|
|
730,153
|
|
|
724,788
|
|
|
575,123
|
|
Revenue from contracts accounted for as leases:
|
|
|
|
|
|
|
|
|
|
|
Electricity revenue
|
|
|
|
|
|
64,094
|
|
|
60,389
|
|
|
57,525
|
|
Total revenue
|
|
|
|
|
|
$
|
794,247
|
|
|
$
|
785,177
|
|
|
$
|
632,648
|
|
4. Financial Instruments
Cash, Cash Equivalents and Restricted Cash
The carrying values of cash, cash equivalents and restricted cash approximate fair values and are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
As Held:
|
|
|
|
|
Cash
|
|
$
|
180,808
|
|
|
$
|
100,773
|
|
Money market funds
|
|
235,902
|
|
|
276,615
|
|
|
|
$
|
416,710
|
|
|
$
|
377,388
|
|
As Reported:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
246,947
|
|
|
$
|
202,823
|
|
Restricted cash
|
|
169,763
|
|
|
174,565
|
|
|
|
$
|
416,710
|
|
|
$
|
377,388
|
|
Restricted cash consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Current:
|
|
|
|
|
Restricted cash
|
|
$
|
26,706
|
|
|
$
|
28,494
|
|
Restricted cash related to PPA Entities1
|
|
25,764
|
|
|
2,310
|
|
Restricted cash, current
|
|
52,470
|
|
|
30,804
|
|
Non-current:
|
|
|
|
|
Restricted cash
|
|
286
|
|
|
10
|
|
Restricted cash related to PPA Entities1
|
|
117,007
|
|
|
143,751
|
|
Restricted cash, non-current
|
|
117,293
|
|
|
143,761
|
|
|
|
$
|
169,763
|
|
|
$
|
174,565
|
|
1 We have VIEs that represent a portion of the consolidated balances recorded within the "restricted cash," and other financial statement line items in the consolidated balance sheets (see Note 13 - Portfolio Financings). In addition, the restricted cash held in the PPA II and PPA IIIb entities as of December 31, 2020, include $20.3 million and $0.7 million of current restricted cash, and $88.4 million and $13.3 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.
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 are accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measured at Reporting Date Using
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
235,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
235,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
235,902
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
Natural gas fixed price forward contracts
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,574
|
|
|
$
|
2,574
|
|
|
|
|
|
|
|
|
|
|
Embedded EPP derivatives
|
|
—
|
|
|
—
|
|
|
5,541
|
|
|
5,541
|
|
Interest rate swap agreements
|
|
—
|
|
|
15,989
|
|
|
—
|
|
|
15,989
|
|
|
|
$
|
—
|
|
|
$
|
15,989
|
|
|
$
|
8,115
|
|
|
$
|
24,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measured at Reporting Date Using
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
276,615
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
276,615
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
|
$
|
276,615
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
276,618
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
996
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
Natural gas fixed price forward contracts
|
|
—
|
|
|
—
|
|
|
6,968
|
|
|
6,968
|
|
|
|
|
|
|
|
|
|
|
Embedded EPP derivatives
|
|
—
|
|
|
—
|
|
|
6,176
|
|
|
6,176
|
|
Interest rate swap agreements
|
|
—
|
|
|
9,241
|
|
|
—
|
|
|
9,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
996
|
|
|
$
|
9,241
|
|
|
$
|
13,144
|
|
|
$
|
23,381
|
|
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 consolidated balance sheets. As of December 31, 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.
The following table provides the number and fair value of our natural gas fixed price forward contracts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 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)
|
|
830
|
|
|
$
|
2,574
|
|
|
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 years ended December 31, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contracts and recognized losses of $0.1 million and $0.8 million, respectively. We recorded the fair value of our natural gas fixed price forward contracts and recognized gains of $4.5 million and $3.6 million for the years ended December 31, 2020 and 2019, respectively, on the settlement of these contracts in cost of revenue on our consolidated statements of operations.
Embedded Escalation Protection Plan Derivative Liability in Sales Contracts - We estimated the fair value of the embedded Escalation Protection Plan ("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 years ended December 31, 2020 and 2019, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized gain of $0.6 million and an unrealized loss of $2.2 million, respectively, in gain (loss) on revaluation of embedded derivatives on our consolidated statements of operations.
There were no transfers between fair value measurement classifications during the years ended December 31, 2020 and 2019.
The changes in the Level 3 financial liabilities during the year ended December 31, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
Gas
Fixed Price
Forward
Contracts
|
|
|
|
|
|
Embedded EPP Derivative Liability
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at December 31, 2018
|
|
$
|
9,729
|
|
|
|
|
|
|
$
|
4,015
|
|
|
$
|
13,744
|
|
Settlement of natural gas fixed price forward contracts
|
|
(3,605)
|
|
|
|
|
|
|
—
|
|
|
(3,605)
|
|
Changes in fair value
|
|
844
|
|
|
|
|
|
|
2,161
|
|
|
3,005
|
|
Liabilities at December 31, 2019
|
|
6,968
|
|
|
|
|
|
|
6,176
|
|
|
13,144
|
|
Settlement of natural gas fixed price forward contracts
|
|
(4,503)
|
|
|
|
|
|
|
—
|
|
|
(4,503)
|
|
Changes in fair value
|
|
109
|
|
|
|
|
|
|
(635)
|
|
|
(526)
|
|
Liabilities at December 31, 2020
|
|
$
|
2,574
|
|
|
|
|
|
|
$
|
5,541
|
|
|
$
|
8,115
|
|
The following table presents the unobservable inputs related to our Level 3 liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
Commodity Contracts
|
|
|
|
Derivative Liabilities
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Units
|
|
Range
|
|
Average
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
($ per Units)
|
Natural Gas
|
|
|
|
$
|
2,574
|
|
|
Discounted Cash Flow
|
|
Forward basis price
|
|
MMBTU
|
|
$2.82 - $5.03
|
|
$
|
3.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unobservable inputs used in the fair value measurement of the natural gas commodity contracts consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas contracts were deemed unobservable.
To estimate the liabilities related to the EPP contracts an option pricing method was implemented through a Monte Carlo simulation. The unobservable inputs were simulated based on the available values for avoided cost and cost of electricity as calculated for December 31, 2020, using an expected growth rate of 7% over the contracts' life and volatility of 20%. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 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, whereby the fair value approximates the present value of the receivables (Level 3). The senior secured notes, term loans and convertible promissory notes are based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Net Carrying
Value
|
|
Fair Value
|
|
Net Carrying
Value
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Customer receivables
|
|
|
|
|
|
|
|
|
Customer financing receivables
|
|
$
|
50,746
|
|
|
$
|
42,679
|
|
|
$
|
55,855
|
|
|
$
|
44,002
|
|
Debt instruments
|
|
|
|
|
|
|
|
|
Recourse:
|
|
|
|
|
|
|
|
|
LIBOR + 4% Term Loan due November 2020
|
|
—
|
|
|
—
|
|
|
1,536
|
|
|
1,590
|
|
5% Convertible Promissory Note due 2020
|
|
—
|
|
|
—
|
|
|
36,482
|
|
|
32,070
|
|
|
|
|
|
|
|
|
|
|
10% Convertible Promissory Notes due December 2021
|
|
—
|
|
|
—
|
|
|
273,410
|
|
|
302,047
|
|
10% Senior Secured notes due July 2024
|
|
—
|
|
|
—
|
|
|
89,962
|
|
|
97,512
|
|
10.25% Senior Secured Notes due March 2027
|
|
68,614
|
|
|
71,831
|
|
|
—
|
|
|
—
|
|
2.5% Green Convertible Senior Notes due August 2025
|
|
99,394
|
|
|
426,229
|
|
|
—
|
|
|
—
|
|
Non-recourse:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5% Term Loan due September 2028
|
|
31,746
|
|
|
37,658
|
|
|
34,969
|
|
|
41,108
|
|
|
|
|
|
|
|
|
|
|
6.07% Senior Secured Notes due March 2030
|
|
77,007
|
|
|
89,654
|
|
|
80,016
|
|
|
87,618
|
|
LIBOR + 2.5% Term Loan due December 2021
|
|
114,138
|
|
|
116,113
|
|
|
120,437
|
|
|
120,510
|
|
6. Balance Sheet Components
Inventories
The components of inventory consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Raw materials
|
|
$
|
79,090
|
|
|
$
|
67,829
|
|
Work-in-progress
|
|
29,063
|
|
|
21,207
|
|
Finished goods
|
|
33,906
|
|
|
20,570
|
|
|
|
$
|
142,059
|
|
|
$
|
109,606
|
|
The inventory reserves were $14.0 million and $14.6 million as of December 31, 2020 and 2019, respectively.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Government incentives receivable
|
|
$
|
479
|
|
|
$
|
893
|
|
Prepaid hardware and software maintenance
|
|
5,227
|
|
|
3,763
|
|
Receivables from employees
|
|
5,160
|
|
|
6,130
|
|
Other prepaid expenses and other current assets
|
|
19,852
|
|
|
17,282
|
|
|
|
$
|
30,718
|
|
|
$
|
28,068
|
|
Property, Plant and Equipment, Net
Property, plant and equipment, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Energy Servers
|
|
$
|
669,422
|
|
|
$
|
650,600
|
|
Computers, software and hardware
|
|
20,432
|
|
|
20,275
|
|
Machinery and equipment
|
|
106,644
|
|
|
101,650
|
|
Furniture and fixtures
|
|
8,455
|
|
|
8,339
|
|
Leasehold improvements
|
|
37,497
|
|
|
35,694
|
|
Building
|
|
46,730
|
|
|
40,512
|
|
Construction in progress
|
|
21,118
|
|
|
12,611
|
|
|
|
910,298
|
|
|
869,681
|
|
Less: accumulated depreciation
|
|
(309,670)
|
|
|
(262,622)
|
|
|
|
$
|
600,628
|
|
|
$
|
607,059
|
|
Depreciation expense related to property, plant and equipment, net, was $52.2 million, $78.6 million, and $53.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Depreciation expense incurred during the year ended December 31, 2019, included a decommissioning in PPA II, including the replacement during 2019 of 30 megawatts of installed Energy Servers with 27.5 megawatts of new systems sold, resulting in product cost of goods sold due to $52.5 million for the write-off of Energy Servers and $78.4 million for the cost of new systems sold, and electricity cost of revenue of
$22.6 million of accelerated depreciation charged. Additionally, during the year ended December 31, 2019, there was a decommissioning in PPA IIIb, including the replacement during 2019 of five megawatts of installed Energy Servers, resulting in product cost of goods sold of $18.0 million for the write-off of Energy Servers, and electricity cost of revenue of $1.7 million of accelerated depreciation charged in fourth quarter of 2019 related to the revised expected lives of installed systems, which we recognized in our consolidated statement of operations. There was no similar decommissioning activity or similar charges during the year ended December 31, 2020.
Property, plant and equipment, net, under operating leases by the PPA Entities was $368.0 million and $371.4 million as of December 31, 2020 and 2019, respectively. The accumulated depreciation for these assets was $115.9 million and $95.5 million as of December 31, 2020 and 2019, respectively. Depreciation expense related to our property, plant and equipment under operating leases by the PPA Entities was $23.8 million, $27.1 million and $25.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Depreciation expense is included in cost of product, installation, service and electricity revenue as well as research and development, sales and marketing and general and administration expenses in our consolidated statements of operations.
Other Long-Term Assets
Other long-term assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Prepaid and other long-term assets
|
|
$
|
24,116
|
|
|
$
|
29,153
|
|
|
|
|
|
|
Deferred commissions
|
|
6,732
|
|
|
5,007
|
|
Equity-method investments
|
|
1,954
|
|
|
5,733
|
|
Long-term deposits
|
|
1,709
|
|
|
1,759
|
|
|
|
$
|
34,511
|
|
|
$
|
41,652
|
|
Accrued Warranty
Accrued warranty liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Product warranty
|
|
$
|
1,549
|
|
|
$
|
2,345
|
|
Product performance
|
|
8,605
|
|
|
7,536
|
|
Maintenance services contracts
|
|
109
|
|
|
453
|
|
|
|
$
|
10,263
|
|
|
$
|
10,334
|
|
Changes in the product warranty and product performance liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2018
|
$
|
9,668
|
|
Cumulative effect upon adoption of ASC 606
|
1,032
|
|
Accrued warranty, net
|
1,849
|
|
Warranty expenditures during period
|
(2,668)
|
|
Balances at December 31, 2019
|
9,881
|
|
Accrued warranty, net
|
5,944
|
|
Warranty expenditures during the year
|
(5,671)
|
|
Balances at December 31, 2020
|
$
|
10,154
|
|
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
28,343
|
|
|
$
|
17,173
|
|
Current portion of derivative liabilities
|
|
19,116
|
|
|
4,834
|
|
Sales-related liabilities
|
|
14,479
|
|
|
416
|
|
|
|
|
|
|
Accrued installation
|
|
16,468
|
|
|
10,348
|
|
Sales tax liabilities
|
|
2,732
|
|
|
3,849
|
|
Interest payable
|
|
2,224
|
|
|
3,875
|
|
Other
|
|
28,642
|
|
|
29,789
|
|
|
|
$
|
112,004
|
|
|
$
|
70,284
|
|
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Delaware grant
|
|
$
|
9,212
|
|
|
$
|
10,469
|
|
|
|
|
|
|
Other
|
|
3,067
|
|
|
17,544
|
|
|
|
$
|
12,279
|
|
|
$
|
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 repaid $1.5 million of the grant in 2017, and no additional amounts have been repaid since then. As of December 31, 2020, we have recorded $1.3 million in current liabilities and $9.2 million in other long-term liabilities for potential future repayments of this grant. See Note 14 - Commitments and Contingencies for a full description of the grant.
7. Outstanding Loans and Security Agreements
The following is a summary of our debt as of December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
Net Carrying Value
|
|
Unused
Borrowing
Capacity
|
|
Interest
Rate
|
|
Maturity Dates
|
|
Entity
|
|
Recourse
|
|
|
Current
|
|
Long-
Term
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.25% Senior Secured Notes due March 2027
|
|
$
|
70,000
|
|
|
$
|
—
|
|
|
$
|
68,614
|
|
|
$
|
68,614
|
|
|
$
|
—
|
|
|
10.25%
|
|
March 2027
|
|
Company
|
|
Yes
|
2.5% Green Convertible Senior Notes due August 2025
|
|
230,000
|
|
|
—
|
|
|
99,394
|
|
|
99,394
|
|
|
|
|
2.5%
|
|
August 2025
|
|
Company
|
|
Yes
|
Total recourse debt
|
|
300,000
|
|
|
—
|
|
|
168,008
|
|
|
168,008
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5% Term Loan due September 2028
|
|
34,456
|
|
|
2,826
|
|
|
28,920
|
|
|
31,746
|
|
|
—
|
|
|
7.5%
|
|
September
2028
|
|
PPA IIIa
|
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.07% Senior Secured Notes due March 2030
|
|
77,837
|
|
|
3,882
|
|
|
73,125
|
|
|
77,007
|
|
|
—
|
|
|
6.1%
|
|
March 2030
|
|
PPA IV
|
|
No
|
LIBOR + 2.5% Term Loan due December 2021
|
|
114,761
|
|
|
114,138
|
|
|
—
|
|
|
114,138
|
|
|
—
|
|
|
LIBOR plus
margin
|
|
December 2021
|
|
PPA V
|
|
No
|
Letters of Credit due December 2021
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
968
|
|
|
2.25%
|
|
December 2021
|
|
PPA V
|
|
No
|
Total non-recourse debt
|
|
227,054
|
|
|
120,846
|
|
|
102,045
|
|
|
222,891
|
|
|
968
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
527,054
|
|
|
$
|
120,846
|
|
|
$
|
270,053
|
|
|
$
|
390,899
|
|
|
$
|
968
|
|
|
|
|
|
|
|
|
|
The following is a summary of our debt as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
Net Carrying Value
|
|
Unused
Borrowing
Capacity
|
|
Interest
Rate
|
|
Maturity Dates
|
|
Entity
|
|
Recourse
|
|
|
Current
|
|
Long-
Term
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIBOR + 4% Loan due November 2020
|
|
$
|
1,571
|
|
|
$
|
1,536
|
|
|
$
|
—
|
|
|
$
|
1,536
|
|
|
$
|
—
|
|
|
LIBOR
plus margin
|
|
November 2020
|
|
Company
|
|
Yes
|
5% Convertible Promissory Note due December 2020
|
|
33,104
|
|
|
36,482
|
|
|
—
|
|
|
36,482
|
|
|
—
|
|
|
5.0%
|
|
December 2020
|
|
Company
|
|
Yes
|
6% Convertible Promissory Notes due December 2020
|
|
289,299
|
|
|
273,410
|
|
|
—
|
|
|
273,410
|
|
|
—
|
|
|
6.0%
|
|
December 2020
|
|
Company
|
|
Yes
|
10% Notes due July 2024
|
|
93,000
|
|
|
14,000
|
|
|
75,962
|
|
|
89,962
|
|
|
—
|
|
|
10.0%
|
|
July 2024
|
|
Company
|
|
Yes
|
Total recourse debt
|
|
416,974
|
|
|
325,428
|
|
|
75,962
|
|
|
401,390
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5% Term Loan due September 2028
|
|
38,337
|
|
|
3,882
|
|
|
31,087
|
|
|
34,969
|
|
|
—
|
|
|
7.5%
|
|
September 2028
|
|
PPA IIIa
|
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.07% Senior Secured Notes due March 2030
|
|
80,988
|
|
|
3,151
|
|
|
76,865
|
|
|
80,016
|
|
|
—
|
|
|
6.1%
|
|
March 2030
|
|
PPA IV
|
|
No
|
LIBOR + 2.5% Term Loan due December 2021
|
|
121,784
|
|
|
5,122
|
|
|
115,315
|
|
|
120,437
|
|
|
—
|
|
|
LIBOR plus
margin
|
|
December 2021
|
|
PPA V
|
|
No
|
Letters of Credit due December 2021
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
|
2.25%
|
|
December 2021
|
|
PPA V
|
|
No
|
Total non-recourse debt
|
|
241,109
|
|
|
12,155
|
|
|
223,267
|
|
|
235,422
|
|
|
1,220
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
658,083
|
|
|
$
|
337,583
|
|
|
$
|
299,229
|
|
|
$
|
636,812
|
|
|
$
|
1,220
|
|
|
|
|
|
|
|
|
|
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 and all of our subsidiaries were in compliance with all financial covenants as of December 31, 2020 and 2019.
Recourse Debt Facilities
LIBOR + 4% Loan due November 2020 - The weighted average interest rate as of December 31, 2019 was 6.3%. As of December 31, 2020 and 2019, the unpaid principal balance of debt outstanding was zero and $1.6 million, respectively. This Term Loan was extinguished in November 2020.
5% Convertible Promissory Note due 2020 - On March 31, 2020, we entered into an Amended and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”), pursuant to which 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 per share to $8.00 per share (referred to as the "10% Constellation Note" prior to the extinguishment and the "New 10% Constellation Note" after the extinguishment).
As a result, 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 New 10% Constellation Note was recognized at its fair market value, which equaled $40.7 million. The difference between the fair market value of the New 10% Constellation Note and the carrying value of the 10% Constellation Note prior to the modification of $3.8 million was recognized as a loss on extinguishment of debt in the consolidated statement of operations.
On June 18, 2020, Constellation exchanged their entire New 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.
6% Convertible Promissory Notes due December 2020 - On March 31, 2020, we entered into an Amendment Support Agreement with the noteholders of our outstanding 6% Convertible Notes due December 2020 ("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. In addition, we amended the 6% Convertible Notes by reducing the strike price on the conversion feature from $11.25 to $8.00 per share ("10% Convertible Notes"). 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 certain noteholders. The 10% Convertible Notes and the $30.0 million new 10% Convertible Notes were all reflected in the Restated Indenture. 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.
As a result, during the year ended December 31, 2020, we recognized a $10.3 million loss on extinguishment of debt in the 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, being the fair value at March 31, 2020 of the embedded derivative relating to the equity classified conversion feature. The fair value of the embedded feature was reclassified from additional paid-in capital at the time of the debt extinguishment.
During the year ended December 31, 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.The $96.2 million principal balance of 10% Convertible Notes due to the Canada Pension Plan Investment Board was converted to 12.0 million shares of common stock in October 2020, and the unamortized premium of $3.2 million was recorded in additional paid in capital.
10% Notes due July 2024 - The outstanding unpaid principal balance of $79.0 million on the 10% Senior Secured Notes due July 2024 was called and retired at 104% during the year ended December 31, 2020. The 4% premium of $3.2 million and unpaid accrued interest of $2.1 million were included in the final payment to the noteholders. The unrecognized debt issuance costs of $2.0 million were expensed.
10.25% Senior Secured Notes due March 2027 - On May 1, 2020, we issued $70.0 million of 10.25% Senior Secured Notes in a private placement ("10.25% Senior Secured Notes"). The 10.25% Senior Secured Notes are governed by an indenture (the “Senior Secured Notes Indenture”) entered into among us, the guarantor party thereto and U.S. Bank National Association, in its capacity as trustee and collateral agent. The 10.25% Senior Secured Notes are secured by certain of our operations and maintenance agreements that previously were part of the security for the 6% Convertible Notes. We used the proceeds of this issuance to repay $70.0 million of our 10% Convertible Notes. 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 on or prior to September 27, 2021.
Interest on the 10.25% Senior Secured Notes is payable quarterly, commencing June 30, 2020. The 10.25% Senior Secured Notes Indenture contains customary events of default and covenants relating to, among other things, the incurrence of new debt, affiliate transactions, liens and restricted payments. On or after March 27, 2022, we may redeem all of the 10.25% Senior Secured Notes at a 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 December 31, 2020.
2.5% Green Convertible Senior Notes due August 2025 - In August 2020, we issued $230.0 million aggregate principal amount of our 2.5% Green Convertible Senior Notes due August 2025, unless earlier repurchased, redeemed or converted ("Green Notes"). The principal amount of the Green Notes are $230.0 million, less initial purchaser's discount of $6.9 million and 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.
We may not redeem the Green Notes prior to August 21, 2023. We may elect to redeem, at face value, all or any portion of the Green Notes at any time on or after August 21, 2023 and on or before the twenty-sixth trading day immediately before the maturity date, provided certain conditions are met.
Before May 15, 2025, the noteholders have the right to convert their Green Notes only upon the occurrence of certain events, including a conversion upon satisfaction of a condition relating to the closing price of our common stock ("the Closing Price Condition"). If the Closing Price Condition is met on at least 20 of the last 30 consecutive trading days in any quarter, the noteholders may convert their Green Notes at any time during the immediately following quarter. The Closing Price Condition was met during the quarter ended December 31, 2020 and accordingly, the noteholders may convert their Green Notes at any time during the quarter ending March 31, 2021. From and after May 15, 2025, the noteholders may convert their Green Notes at any time at their election until the close of business on the second trading day immediately before the maturity date. Should the noteholders elect to convert their Green Notes, we may elect to settle the conversion by paying or delivering, as applicable, cash, shares of our Class A common stock or a combination thereof.
The initial conversion rate is 61.6808 shares of Class A common stock per $1,000 principal amount of notes, which represents an initial conversion price of approximately $16.21 per share of Class A common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” as defined occur, 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 fair value of the liability component for the Green Notes of approximately $93.3 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 consolidated balance sheet. The carrying amount of the equity component for the Green Notes of approximately $138.1 million, representing the conversion option, was determined by deducting the fair value of the liability component from the principal amount of the notes. The difference between the principal amount of the notes and the liability component represents the debt discount, is presented as a reduction to the notes on our consolidated balance sheets, and is amortized to interest expense using the effective interest method over the remaining term of the notes. The equity component of the Green Notes is included in additional paid-in capital on our 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 to the liability and equity components using the same proportions determined above for the notes. Transaction costs attributable to the liability component for the Green Notes of approximately $4.2 million were recorded as
debt issuance costs, presented as a reduction to the notes on our 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 component for the Green Notes were approximately $5.7 million and were recorded as a reduction to the equity component included in additional paid-in capital.
As of December 31, 2020, the remaining lives of the Green Notes are approximately 4.7 years and accordingly, the Green Notes are classified as long-term debt. The effective interest rate of the liability components for the Green Notes is 21.9% 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 year ended December 31, 2020 was $8.3 million, comprised of contractual interest expense of $2.2 million, amortization of debt discount of $5.9 million and amortization of issuance costs of $0.2 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 December 31, 2020 and 2019, respectively, which was included as part of long-term restricted cash in the consolidated balance sheets. The loan is secured by all assets of PPA IIIa.
6.07% Senior Secured Notes due March 2030 - The notes bear a fixed interest rate of 6.07% per annum payable quarterly, which began in December 2015 and ends in March 2030. The 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 $8.5 million and $8.0 million as of December 31, 2020 and 2019, respectively, which was included as part of long-term restricted cash in the consolidated balance sheets. The notes are secured by all the assets of the PPA IV.
LIBOR + 2.5% Term Loan due December 2021 - The current portion of the LIBOR + 2.5% Term Loan as of December 31, 2020 and 2019 was $114.1 million and $5.1 million, respectively. The non-current portion of this loan was zero and $115.3 million as of December 31, 2020 and 2019, respectively.
In accordance with the credit agreement, PPA V was issued floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. For the lenders’ commitments to the loan and the commitments to a letter of credit ("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 December 31, 2020 and 2019 was $5.2 million and $5.0 million, respectively. The unused capacity as of December 31, 2020 and 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.
Repayment Schedule and Interest Expense
The following table presents details of our outstanding loan principal repayment schedule as of December 31, 2020 (in thousands):
|
|
|
|
|
|
2021
|
$
|
121,469
|
|
2022
|
16,393
|
|
2023
|
22,166
|
|
2024
|
24,886
|
|
2025
|
258,022
|
|
Thereafter
|
84,118
|
|
|
$
|
527,054
|
|
Interest expense of $78.8 million, $94.2 million and $105.9 million for the years ended December 31, 2020, 2019 and 2018, respectively, was recorded in interest expense on the consolidated statements of operations, which includes interest expense - related parties of $2.5 million, $6.8 million and $8.9 million, respectively.
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 London Inter-bank Offered Rate ("LIBOR") is applied. We do not enter into derivative contracts for trading or speculative purposes.
The fair values of the derivatives designated as cash flow hedges as of December 31, 2020 and 2019 on our consolidated balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
15,989
|
|
|
$
|
782
|
|
Derivative liabilities
|
|
—
|
|
|
8,459
|
|
|
|
$
|
15,989
|
|
|
$
|
9,241
|
|
PPA V - In July 2015, PPA V entered into nine 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. Three of these swaps matured in 2016, three will mature on December 21, 2021 and the remaining three will mature on September 30, 2031. The effective change is recorded in accumulated other comprehensive income (loss) and is recognized as interest expense on settlement. The notional amounts of the swaps are $181.4 million, $184.2 million and $186.6 million as of December 31, 2020, 2019 and 2018, 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 years ended December 31, 2020, 2019 and 2018, and these gains are included in other income (expense), net, in the consolidated statements of operations.
The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive income (loss) and in earnings are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Beginning balance
|
|
|
|
|
|
$
|
9,238
|
|
|
$
|
3,548
|
|
|
|
|
|
Loss recognized in other comprehensive loss
|
|
|
|
|
|
8,465
|
|
|
6,131
|
|
|
|
|
|
Amounts reclassified from other comprehensive loss to earnings
|
|
|
|
|
|
(1,569)
|
|
|
(216)
|
|
|
|
|
|
Net loss recognized in other comprehensive loss
|
|
|
|
|
|
6,896
|
|
|
5,915
|
|
|
|
|
|
Gain recognized in earnings
|
|
|
|
|
|
(145)
|
|
|
(225)
|
|
|
|
|
|
Ending balance
|
|
|
|
|
|
$
|
15,989
|
|
|
$
|
9,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2020 and 2019, we recognized a loss of $0.1 million and $0.8 million, respectively, on the remeasurement of our natural gas fixed price forward contract. For the years ended December 31, 2020 and 2019, we recognized a realized gain of $4.5 million and $3.6 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the consolidated statements of operations.
Embedded EPP Derivatives in Sales Contracts
We estimate the fair value of the embedded EPP derivatives in certain of the contracts with our customers using a Monte Carlo simulation model, which considers various potential electricity price forward curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. The grid pricing EPP guarantees that we provided in some of our sales arrangements represent an embedded derivative, with the initial value accounted for as a reduction in product revenue and any changes, reevaluated quarterly, in the fair market value of the derivative recorded in gain (loss) on revaluation of embedded derivatives. We recognized an unrealized gain of $0.6 million, a loss of $2.2 million and a gain of $0.2 million attributable to the change in fair value for the years ended December 31, 2020, 2019 and 2018, respectively. These gains and losses are included within loss on revaluation of embedded derivatives in the consolidated statements of operations. The fair value of these derivatives is $5.5 million, $6.2 million and $4.0 million as of December 31, 2020, 2019 and 2018, respectively.
9. Stockholders' Equity
Our capitalization as of December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Authorized
|
|
2020
|
|
2019
|
Shares issued and outstanding:
|
|
|
|
|
|
|
Total common stock - Class A1 - par value $0.0001
|
|
600,000,000
|
|
|
140,094,633
|
|
|
84,549,511
|
|
Total common stock - Class B1 - par value $0.0001
|
|
600,000,000
|
|
|
27,908,093
|
|
|
36,486,778
|
|
Total preferred stock
|
|
10,000,000
|
|
|
—
|
|
|
—
|
|
|
|
|
|
168,002,726
|
|
|
121,036,289
|
|
Rights to acquire stock:
|
|
|
|
|
|
|
Stock Plans' options and other equity awards outstanding:
|
|
|
|
|
|
|
2002 stock plan - options
|
|
|
|
1,265,656
|
|
|
1,856,154
|
|
2012 equity incentive plan - options
|
|
|
|
8,877,792
|
|
|
9,982,756
|
|
2012 equity incentive plan - other equity awards
|
|
|
|
504,034
|
|
|
6,656,094
|
|
2018 equity incentive plan - options
|
|
|
|
5,210,823
|
|
|
5,998,406
|
|
2018 equity incentive plan - other equity awards
|
|
|
|
5,914,754
|
|
|
3,456,172
|
|
|
|
|
|
|
|
|
Warrants outstanding:
|
|
|
|
|
|
|
Common stock warrants - exercise price of $27.78
|
|
|
|
468,548
|
|
|
481,181
|
|
Common stock warrants - exercise price of $38.64
|
|
|
|
12,940
|
|
|
12,940
|
|
|
|
|
|
|
|
|
Shares reserved for future issuance:
|
|
|
|
|
|
|
Total options/RSUs available for grant - 2018 Plan
|
|
|
|
20,233,754
|
|
|
17,233,144
|
|
Total shares available for grant - 2018 ESPP
|
|
|
|
2,587,874
|
|
|
3,030,407
|
|
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 one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one 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.
10. Stock-Based Compensation and Employee Benefit Plans
Share-based grants are designed to reward employees for their long-term contributions to us and provide incentives for them to remain with us.
2002 Stock Plan
Our 2002 Stock Plan (the "2002 Plan") was approved in April 2002 and amended in June 2011. In August 2012 and in connection with the adoption of the 2012 Plan, shares authorized for issuance under the 2002 Plan were cancelled, except for those shares reserved for issuance upon exercise of outstanding stock options. Any outstanding stock options granted under the 2002 Plan remain outstanding, subject to the terms of the 2002 Plan, until such shares are issued under those awards (by exercise of stock options) or until the awards terminate or expire by terms.
Grants under the 2002 Plan generally vest ratably over a four-year period from the vesting commencement date and expire ten years from grant date. Original grants under the 2002 Plan were for "common stock". Pursuant to the Twelfth Amended and Restated Articles of Incorporation authorized in July 2018, all such shares automatically converted to Class B shares of common stock. As of December 31, 2020, options to purchase 1,265,656 shares of Class B common stock were
outstanding with a weighted average exercise price of $26.64 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
Our 2012 Equity Incentive Plan (the "2012 Plan") was approved in August 2012. The 2012 Plan provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights and restricted stock awards ("RSUs"), all of which may be granted to employees, including officers, and to non-employee directors and consultants except we may grant incentive stock options only to employees.
Grants under the 2012 Plan generally vest ratably over a four-year period from the vesting commencement date and expire ten years from grant date. Original grants under the 2012 Plan were for "common stock". Pursuant to the Twelfth Amended and Restated Articles of Incorporation authorized in July 2018, all such shares automatically converted to Class B shares of common stock. As of December 31, 2020, stock options to purchase 8,877,792 shares of Class B common stock were outstanding with a weighted average exercise price of $27.43 per share and no shares were available for future grant. As of December 31, 2020, we had outstanding RSUs that may be settled for 504,034 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.
2018 Equity Incentive Plan
The 2018 Equity Incentive Plan (the "2018 Plan") was approved in April 2018. The 2018 Plan became effective upon the IPO and will serve as the successor to the 2012 Plan. The 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, PSUs and stock bonuses. The 2018 Plan provides for the grant of awards to employees, directors, consultants, independent contractors and advisors provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options is at least equal to the fair market value of Class A common stock on the date of grant. Grants under the 2018 Plan generally vest ratably over a four-year period from the vesting commencement date and expire ten years from grant date.
The 2018 Plan allows for an annual increase on January 1, of each of 2019 through 2028, by the lesser of (a) four percent (4%) of the number of Class A common stock, Class B common stock, and common stock equivalents (including options, RSUs, warrants and preferred stock on an as-converted basis) issued and outstanding on each December 31 immediately prior to the date of increase, and (b) such number of shares determined by the Board of Directors.
As of December 31, 2020, stock options to purchase 5,210,823 shares of Class A common stock were outstanding with a weighted average exercise price of $9.48 per share and 5,914,754 shares of outstanding RSUs that may be settled for Class A common stock which were granted pursuant to the 2018 Plan.
Stock-Based Compensation Expense
We used the following weighted-average assumptions in applying the Black-Scholes valuation model for determination of option valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
|
|
|
0.6%
|
|
1.7% - 2.6%
|
|
2.5% - 3.1%
|
Expected term (years)
|
|
|
|
|
|
6.6
|
|
6.4 - 6.7
|
|
6.2 - 6.7
|
Expected dividend yield
|
|
|
|
|
|
—
|
|
—
|
|
—
|
Expected volatility
|
|
|
|
|
|
71.0%
|
|
45.7% - 50.2%
|
|
52.4% - 56.1%
|
The following table summarizes the components of stock-based compensation expense in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
$
|
17,475
|
|
|
$
|
45,429
|
|
|
$
|
29,680
|
|
Research and development
|
|
|
|
|
|
19,037
|
|
|
40,949
|
|
|
39,029
|
|
Sales and marketing
|
|
|
|
|
|
10,997
|
|
|
32,478
|
|
|
32,284
|
|
General and administrative
|
|
|
|
|
|
26,384
|
|
|
77,435
|
|
|
67,489
|
|
|
|
|
|
|
|
$
|
73,893
|
|
|
$
|
196,291
|
|
|
$
|
168,482
|
|
As of December 31, 2020, 2019 and 2018, we capitalized $5.9 million, $7.3 million and $13.6 million of stock-based compensation cost, respectively, into inventory and property, plant and equipment.
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)
|
Balances at December 31, 2018
|
|
14,558,420
|
|
|
$
|
25.93
|
|
|
6.8
|
|
$
|
3,084
|
|
Granted
|
|
4,956,064
|
|
|
5.60
|
|
|
|
|
|
Exercised
|
|
(358,564)
|
|
|
4.26
|
|
|
|
|
Cancelled
|
|
(1,318,604)
|
|
|
25.33
|
|
|
|
|
Balances at December 31, 2019
|
|
17,837,316
|
|
|
20.76
|
|
|
6.9
|
|
14,964
|
|
Granted
|
|
200,000
|
|
|
7.30
|
|
|
|
|
|
Exercised
|
|
(1,341,324)
|
|
|
11.18
|
|
|
|
|
|
Cancelled
|
|
(1,341,721)
|
|
|
22.49
|
|
|
|
|
|
Balances at December 31, 2020
|
|
15,354,271
|
|
|
21.27
|
|
|
6.0
|
|
129,855
|
|
Vested and expected to vest at December 31, 2020
|
|
14,976,706
|
|
|
21.55
|
|
|
5.9
|
|
122,813
|
|
Exercisable at December 31, 2020
|
|
10,311,316
|
|
|
26.37
|
|
|
4.9
|
|
39,569
|
|
Stock Options - During the years ended December 31, 2020, 2019 and 2018, we recognized $19.1 million, $36.2 million and $33.3 million of stock-based compensation costs for stock options, respectively.
During the years ended December 31, 2020, 2019 and 2018, the intrinsic value of stock options exercised was $11.2 million, $2.6 million and $9.2 million, respectively.
We granted 200,000 and 4,956,064 options of Class A common stock during the years ended December 31, 2020 and 2019, and the weighted average grant-date fair value of the awards was $7.30 per share and $5.60 per share, respectively.
As of December 31, 2020 and 2019, we had unrecognized compensation costs related to unvested stock options of $20.7 million and $41.9 million, respectively. This cost is expected to be recognized over the remaining weighted-average period of 1.8 years and 2.8 years, respectively. Cash received from stock options exercised totaled $15.0 million and $1.5 million for the years ended December 31, 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, 2018
|
|
16,784,800
|
|
|
$
|
18.74
|
|
Granted
|
|
3,219,959
|
|
|
11.81
|
|
Vested
|
|
(8,921,807)
|
|
|
18.03
|
|
Forfeited
|
|
(970,686)
|
|
|
17.34
|
|
Unvested Balance at December 31, 2019
|
|
10,112,266
|
|
|
17.29
|
|
Granted
|
|
4,744,467
|
|
|
12.43
|
|
Vested
|
|
(7,806,038)
|
|
|
17.48
|
|
Forfeited
|
|
(631,907)
|
|
|
14.93
|
|
Unvested Balance at December 31, 2020
|
|
6,418,788
|
|
|
13.71
|
|
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 years ended December 31, 2020, 2019 and 2018, we recognized $44.1 million, $141.3 million and $142.4 million of stock-based compensation costs for RSUs, respectively.
As of December 31, 2020, we had $59.8 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 December 31, 2019, we had $52.0 million of unrecognized stock-based compensation cost related to unvested RSUs, which was expected to be recognized over a weighted average period of 1.1 years.
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 three vesting tranches with a vesting schedule based on the attainment of market conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2019 Executive Awards are recognized over the service period, even though no tranches of the 2019 Performance Awards vest unless a market condition is achieved. The grant date fair value of the options is determined using a Monte Carlo simulation.
In June 2020, the Board approved stock awards ("2020 Executive Awards") to certain executive staff. The 2020 Executive Awards were PSUs granted pursuant to the 2018 EIP and consist of three vesting tranches with an annual vesting schedule based on the attainment of performance conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2020 Executive Awards is recognized over the service period as we evaluate the probability of the achievement of the performance conditions.
In addition, during 2020, other PSUs were granted to certain executive officers and other employees that will only vest upon the achievement of certain specific financial or operational performance criteria.
The following table presents the stock activity and the total number of shares available for grant under our stock plans as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Plan Shares Available
for Grant
|
|
|
|
|
|
|
Balances at December 31, 2018
|
|
17,457,847
|
|
Added to plan
|
|
7,585,422
|
|
Granted
|
|
(8,176,023)
|
|
Cancelled
|
|
2,289,290
|
|
Expired
|
|
(1,923,392)
|
|
Balances at December 31, 2019
|
|
17,233,144
|
|
Added to plan
|
|
7,179,751
|
|
Granted
|
|
(4,944,467)
|
|
|
|
|
Cancelled
|
|
1,965,801
|
|
Expired
|
|
(1,200,475)
|
|
Balances at December 31, 2020
|
|
20,233,754
|
|
|
|
|
2018 Employee Stock Purchase Plan
In April 2018, we adopted the 2018 ESPP. The 2018 ESPP became effective upon our initial public offering ("IPO") in July 2018. The 2018 ESPP is intended to qualify under Section 423 of the Internal Revenue Code. The aggregate number of our shares that may be issued over the term of our ESPP is 33,333,333 Class A common stock. A total of 3,333,333 shares of our Class A common stock were initially reserved for issuance under the plan. The number of shares reserved for issuance under the 2018 ESPP will increase automatically on the 1st day of January of each of the first nine years following the first offering date by the number of shares equal to one percent (1%) of the total number of Class A common stock, Class B common stock, and common stock equivalents (including options, RSUs, warrants and preferred stock on an as converted basis) issued and outstanding on the immediately preceding December 31 (rounded down to the nearest whole share); provided, that the Board of Directors or the Compensation Committee may in its sole discretion reduce the amount of the increase in any particular year.
The 2018 ESPP allows eligible employees to purchase shares, subject to purchase limits of 2,500 shares during each six month period or $25,000 worth of stock for each calendar year, of our Class A common stock through payroll deductions at a price per share equal to 85% of the lesser of the fair market value of our Class A common stock (i) on the first trading day of the applicable offering date and (ii) the last trading day of each purchase date.
During the years ended December 31, 2020 and 2019, we recognized $5.7 million and $10.3 million of stock-based compensation costs for the 2018 ESPP, respectively. We issued 1,937,825 shares in the year ended December 31, 2020. During the year ended December 31, 2020, we added an additional 1,494,819 shares and there were 2,587,401 shares available for issuance as of December 31, 2020.
As of December 31, 2020, we had $1.7 million of unrecognized stock-based compensation costs. This cost is expected to be recognized over a weighted average period of 0.3 years.
We used the following weighted-average assumptions in applying the Black-Scholes valuation model for determination of the 2018 ESPP share valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
|
|
|
0.12% - 1.51%
|
|
1.5% - 2.6%
|
|
|
Expected term (years)
|
|
|
|
|
|
0.5 - 2.0
|
|
0.5 - 2.0
|
|
|
Expected dividend yield
|
|
|
|
|
|
—
|
|
—
|
|
|
Expected volatility
|
|
|
|
|
|
61.0% - 119.2%
|
|
45.9% - 54.0%
|
|
|
11. Income Taxes
The components of income (loss) before the provision for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
$
|
(179,657)
|
|
|
$
|
(324,467)
|
|
|
$
|
(291,574)
|
|
Foreign
|
|
|
|
|
|
826
|
|
|
1,634
|
|
|
1,835
|
|
Total
|
|
|
|
|
|
$
|
(178,831)
|
|
|
$
|
(322,833)
|
|
|
$
|
(289,739)
|
|
The provision for income taxes is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
|
|
|
21
|
|
|
26
|
|
|
191
|
|
Foreign
|
|
|
|
|
|
472
|
|
|
595
|
|
|
1,407
|
|
Total current
|
|
|
|
|
|
493
|
|
|
621
|
|
|
1,598
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
State
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
|
|
|
|
(237)
|
|
|
12
|
|
|
(61)
|
|
Total deferred
|
|
|
|
|
|
(237)
|
|
|
12
|
|
|
(61)
|
|
Total provision for income taxes
|
|
|
|
|
|
$
|
256
|
|
|
$
|
633
|
|
|
$
|
1,537
|
|
A reconciliation of the U.S. federal statutory income tax rate to our effective tax rate is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Tax at federal statutory rate
|
|
|
|
|
|
$
|
(37,552)
|
|
|
$
|
(67,795)
|
|
|
$
|
(60,845)
|
|
State taxes, net of federal effect
|
|
|
|
|
|
21
|
|
|
26
|
|
|
191
|
|
Impact on noncontrolling interest
|
|
|
|
|
|
4,522
|
|
|
4,001
|
|
|
3,725
|
|
Non-U.S. tax effect
|
|
|
|
|
|
78
|
|
|
264
|
|
|
960
|
|
Nondeductible expenses
|
|
|
|
|
|
908
|
|
|
144
|
|
|
6,796
|
|
Stock-based compensation
|
|
|
|
|
|
5,956
|
|
|
6,484
|
|
|
3,892
|
|
Loss on debt extinguishment
|
|
|
|
|
|
214
|
|
|
—
|
|
|
—
|
|
U.S. tax on foreign earnings (GILTI)
|
|
|
|
|
|
203
|
|
|
221
|
|
|
127
|
|
Change in valuation allowance
|
|
|
|
|
|
25,906
|
|
|
57,288
|
|
|
46,691
|
|
Provision for income taxes
|
|
|
|
|
|
$
|
256
|
|
|
$
|
633
|
|
|
$
|
1,537
|
|
For the year ended December 31, 2020, we recognized a provision for income taxes of $0.3 million on a pre-tax loss of $178.8 million, for an effective tax rate of (0.1)%. For the year ended December 31, 2019, we recognized a provision for income taxes of $0.6 million on a pre-tax loss of $322.8 million, for an effective tax rate of (0.2)%. For the year ended December 31, 2018, we recognized a provision for income taxes of $1.5 million on a pre-tax loss of $289.7 million, for an effective tax rate of (0.5)%. The effective tax rate for 2020, 2019 and 2018 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.
Significant components of our deferred tax assets and liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Tax credits and net operating loss carryforwards
|
|
|
|
|
|
$
|
510,599
|
|
|
$
|
494,084
|
|
Lease liabilities
|
|
|
|
|
|
128,151
|
|
|
122,145
|
|
Depreciation and amortization
|
|
|
|
|
|
7,541
|
|
|
8,523
|
|
Deferred revenue
|
|
|
|
|
|
27,134
|
|
|
6,688
|
|
Accruals and reserves
|
|
|
|
|
|
15,068
|
|
|
5,874
|
|
Stock-based compensation
|
|
|
|
|
|
35,815
|
|
|
61,808
|
|
|
|
|
|
|
|
|
|
|
Other items - deferred tax assets
|
|
|
|
|
|
25,931
|
|
|
24,443
|
|
Gross deferred tax assets
|
|
|
|
|
|
750,239
|
|
|
723,565
|
|
Valuation allowance
|
|
|
|
|
|
(614,958)
|
|
|
(633,591)
|
|
Net deferred tax assets
|
|
|
|
|
|
135,281
|
|
|
89,974
|
|
Investment in PPA entities
|
|
|
|
|
|
(10,757)
|
|
|
(13,494)
|
|
Debt issuance cost
|
|
|
|
|
|
—
|
|
|
(4,055)
|
|
Discount upon issuance of debt
|
|
|
|
|
|
(29,513)
|
|
|
—
|
|
Managed services - deferred costs
|
|
|
|
|
|
(21,898)
|
|
|
—
|
|
Right-of-use assets and leased assets
|
|
|
|
|
|
(70,818)
|
|
|
(65,978)
|
|
Other items - deferred tax liability
|
|
|
|
|
|
(1,413)
|
|
|
(5,803)
|
|
Gross deferred tax liabilities
|
|
|
|
|
|
(134,399)
|
|
|
(89,330)
|
|
Net deferred tax asset
|
|
|
|
|
|
$
|
882
|
|
|
$
|
644
|
|
Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, is not more-likely-than-not to be realized. Management believes that, based on available evidence, both positive and negative, it is not more likely than not that the net U.S. deferred tax assets will be utilized. As a result, a full valuation allowance has been recorded.
The valuation allowance for deferred tax assets was $615.0 million and $633.6 million as of December 31, 2020 and 2019, respectively. The net change in the total valuation allowance for the years ended December 31, 2020 and 2019 was a decrease of $18.6 million and an increase of $62.3 million, respectively.
At December 31, 2020, we had federal and state net operating loss carryforwards of $1.9 billion and $1.6 billion, respectively, to reduce future taxable income. Of the federal net operating loss carryforwards, $1.7 billion will begin to expire in 2022 and $224.8 million will carryforward indefinitely, while state net operating losses begin to expire in 2028. In addition, we had approximately $23.0 million of federal research credit, $6.6 million of federal investment tax credit, and $14.7 million of state research credit carryforwards. The federal tax credit carryforwards begin to expire in 2022. The state credit carryforwards may be carried forward indefinitely. We have not reflected deferred tax assets for the federal and state research credit carryforwards as the entire amount of the carryforwards represent unrecognized tax benefits.
Internal Revenue Code Section 382 (“Section 382”) limits the use of net operating loss and tax credit carryforwards in certain situations in which changes occur in our capital stock ownership. Any annual limitation may result in the expiration of net operating losses and credits before utilization. If we should have an ownership change, as defined by the tax law, utilization of the net operating loss and credit carryforwards could be significantly reduced. We completed a Section 382 analysis through December 31, 2020. Based on this analysis, Section 382 limitations will not have a material impact on our net operating loss and credit carryforwards related to any ownership changes.
During the year ended December 31, 2020, the amount of uncertain tax positions increased by $3.3 million. We have not recorded any uncertain tax liabilities associated with our tax positions.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
Unrecognized tax benefits beginning balance
|
|
|
|
|
|
$
|
34,480
|
|
|
$
|
30,311
|
|
Gross decrease for tax positions of prior year
|
|
|
|
|
|
—
|
|
|
(93)
|
|
Gross increase for tax positions of prior year
|
|
|
|
|
|
307
|
|
|
615
|
|
Gross increase for tax positions of current year
|
|
|
|
|
|
2,966
|
|
|
3,647
|
|
Unrecognized tax benefits end balance
|
|
|
|
|
|
$
|
37,753
|
|
|
$
|
34,480
|
|
If fully recognized in the future, there would be no impact to the effective tax rate, and $34.7 million would result in adjustments to the valuation allowance. We do not have any tax positions that are expected to significantly increase or decrease within the next 12 months.
Interest and penalties, to the extent there are any, would be included in income tax expense. There were no interest or penalties accrued during or for the years ended December 31, 2020 and 2019.
We are subject to taxation in the United States and various states and foreign jurisdictions. We currently do not have any income tax examinations in progress nor have we had any income tax examinations since our inception. All of our tax years will remain open for examination by federal and state authorities for three and four years from the date of utilization of any net operating losses and tax credits.
The Tax Cuts and Jobs Act of 2017 ("Tax Act") includes a provision referred to as Global Intangible Low-Taxed Income ("GILTI") which generally imposes a tax on foreign income in excess of a deemed return on tangible assets. Guidance issued by the Financial Accounting Standards Board in January 2018 allows companies to make an accounting policy election to either (i)
account for GILTI as a component of tax expense in the period in which the tax is incurred ("period cost method"), or (ii) account for GILTI in the measurement of deferred taxes ("deferred method"). We elected to account for the tax effects of this provision using the period cost method.
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in the United States on March 27, 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act does not have a material impact on our financial results for the year ended December 31, 2020.
Our accumulated undistributed foreign earnings as of December 31, 2020 have been subject to either the deemed one-time mandatory repatriation under the Tax Act or the current year income inclusion under GILTI regime for U.S. tax purposes. If we were to make actual distributions of some or all of these earnings, including earnings accumulated after December 31, 2017, we would generally incur no additional U.S. income tax but could incur U.S. state income tax and foreign withholding taxes. We have not accrued for these potential U.S. state income tax and foreign withholding taxes because we intend to permanently reinvest our foreign earnings in our international operations. However, any additional income tax associated with the distribution of these earnings would be immaterial.
12. Net Loss per Share Available to Common Stockholders
Net loss per share (basic) available to common stockholders is calculated by dividing net loss available to common stockholders by the weighted-average shares of common stock outstanding for the period. Net loss per share is the same for each class of common stock as they are entitled to the same liquidation and dividend rights. As a result, net loss per share (basic) and net loss per share (diluted) available to common stockholders are the same for both Class A and Class B common stock and are combined for presentation.
Net loss per share (diluted) is computed by using the "if-converted" method when calculating the potentially dilutive effect, if any, of our convertible notes. Net loss per share (diluted) available to common stockholders is then calculated by dividing the resulting adjusted net loss available to common stockholders by the combined weighted-average number of fully diluted common shares outstanding. There were no adjustments to net loss available to common stockholders (diluted). Equally, there were no adjustments to the weighted average number of outstanding shares of common stock (basic) in arriving at the weighted average number of outstanding shares (diluted), as such adjustments would have been antidilutive.
We recognized a deemed dividend of $2.5 million on November 26, 2019 related to our buyout of the tax equity partner’s equity interest in PPA IIIb. The deemed dividend was recorded as a result of the buyout amount exceeding the hypothetical liquidation book value of the tax equity investor's equity interest in PPA IIIb on the date the buyout occurred. This charge impacted net income available to common stockholders and earnings per share in the year ended December 31, 2019.
The following table sets forth the computation of our net loss per share available to common stockholders, basic and diluted (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Class A and Class B common stockholders
|
|
|
|
|
|
$
|
(157,553)
|
|
|
$
|
(304,414)
|
|
|
$
|
(273,540)
|
|
Deemed dividend
|
|
|
|
|
|
—
|
|
|
(2,454)
|
|
|
—
|
|
Net loss available to Class A and Class B common stockholders
|
|
|
|
|
|
$
|
(157,553)
|
|
|
$
|
(306,868)
|
|
|
$
|
(273,540)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock, basic and diluted
|
|
|
|
|
|
138,722
|
|
|
115,118
|
|
|
53,268
|
|
Net loss per share available to Class A and Class B common stockholders, basic and diluted
|
|
|
|
|
|
$
|
(1.14)
|
|
|
$
|
(2.67)
|
|
|
$
|
(5.14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following common stock equivalents (in thousands) were excluded from the computation of our net loss per share available to common stockholders, diluted, for the years presented as their inclusion would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
|
|
|
29,729
|
|
|
27,213
|
|
|
27,230
|
|
Stock options and awards
|
|
|
|
|
|
6,109
|
|
|
4,631
|
|
|
4,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,838
|
|
|
31,844
|
|
|
32,192
|
|
13. Portfolio Financings
Overview
We have developed three financing options that enable customers' use of the Energy Servers through third-party ownership financing arrangements. One of these financing options requires the customer to pay for each kilowatt-hour produced by the Energy Servers under a PPA through a Portfolio Financing.
In some cases, similar to direct purchases and leases, the standard one-year warranty and performance guaranties are included in the price of the product. The Operating Company also enters into a master services agreement with us following the first year of service to extend the warranty services and guaranties over the term of the PPA. In other cases, the master services agreements including performance warranties and guaranties are billed on a quarterly basis starting in the first quarter following the placed-in-service date of the Energy Server(s) and continuing over the term of the PPA. The first of such arrangements was considered a sales-type lease and the product revenue from that agreement was recognized upfront in the same manner as direct purchase and lease transactions. Substantially all of our subsequent PPAs have been accounted for as operating leases with the related revenue under those agreements recognized ratably over the PPA term as electricity revenue. We recognize the cost of revenue, primarily product costs and maintenance service costs, over the shorter of the estimated useful life of the Energy Server or the term of the PPA.
We and our third-party equity investors (together "Equity Investors") contribute funds into a limited liability investment entity ("Investment Company") that owns and is parent to the Operating Company (together, the "PPA Entities"). These PPA Entities constitute VIEs under U.S. GAAP. We have considered the provisions within the contractual agreements which grant us power to manage and make decisions affecting the operations of these VIEs. We consider that the rights granted to the Equity Investors under the contractual agreements are more protective in nature rather than participating. Therefore, we have determined under the power and benefits criterion of ASC 810, Consolidations that we are the primary beneficiary of these VIEs. As the primary beneficiary of these VIEs, we consolidate in our consolidated financial statements the financial position, results of operations and cash flows of the PPA Entities, and all intercompany balances and transactions between us and the PPA Entities are eliminated in the consolidated financial statements.
In accordance with our Portfolio Financings, the Operating Company acquires Energy Servers from us for cash payments that are made on a similar schedule as if the Operating Company were a customer purchasing an Energy Server from us outright. In the consolidated financial statements, the sale of Energy Servers by us to the Operating Company are treated as intercompany transactions and as a result eliminated in consolidation. The acquisition of Energy Servers by the Operating Company is accounted for as a non-cash reclassification from inventory to Energy Servers within property, plant and equipment, net on our consolidated balance sheets. In arrangements qualifying for sales-type leases, we reduce these recorded assets by amounts received from U.S. Treasury Department cash grants and from similar state incentive rebates.
The Operating Company sells the electricity to end customers under PPAs. Cash generated by the electricity sales, as well as receipts from any applicable government incentive program, is used to pay operating expenses (including the management and services we provide to maintain the Energy Servers over the term of the PPA) and to service the non-recourse debt with the remaining cash flows distributed to the Equity Investors. In transactions accounted for as sales-type leases, we recognize subsequent customer billings as electricity revenue over the term of the PPA and amortize any applicable government incentive program grants as a reduction to depreciation expense of the Energy Server over the term of the PPA. In transactions accounted for as operating leases, we recognize subsequent customer payments and any applicable government incentive program grants as electricity revenue and service revenue over the term of the PPA.
Upon sale or liquidation of a PPA Entity, distributions would occur in the order of priority specified in the contractual agreements.
We have established six different PPA Entities to date. The contributed funds are restricted for use by the Operating Company to the purchase of our Energy Servers manufactured by us in our normal course of operations. All six PPA Entities utilized their entire available financing capacity and have completed the purchase of their Energy Servers. Any debt incurred by the Operating Companies is non-recourse to us. Under these structures, each Investment Company is treated as a partnership for U.S. federal income tax purposes. Equity Investors receive investment tax credits and accelerated tax depreciation benefits. In 2016, we purchased the tax equity investor’s interest in PPA I, which resulted in a change in our ownership interest in PPA I while we continued to hold the controlling financial interest in this company. In 2019, we bought out the then-existing tax equity investors' interest in the PPA II Investment Company, and admitted two new equity investors as a member of the PPA II Operating Company, retaining only a minor equity interest in the Operating Company. One of the new equity investors became the managing member, and as a result we determined that we no longer retained a controlling interest in the Operating Company in PPA II and therefore, the Operating Company was no longer consolidated as a VIE into our consolidated financial statements. In 2019, we also entered into a PPA IIIb upgrade of Energy Servers transaction where we bought out the equity interest of the third-party investor, decommissioned the Energy Servers in the Operating Company and sold new Energy Servers deployed at customer sites through our managed services financing option. The PPA IIIb Investment Company and Operating Company became wholly-owned by us but no longer met the definition of a VIE. We therefore continue to consolidate PPA IIIb in our consolidated financial statements.
PPA Entities' Activities Summary
The table below shows the details of the three Investment Company VIEs that were active during the year ended December 31, 2020 and their cumulative activities from inception to the years indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPA IIIa
|
|
|
|
PPA IV
|
|
PPA V
|
Overview:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum size of installation (in megawatts)
|
|
|
|
|
|
10
|
|
|
|
21
|
|
40
|
Installed size (in megawatts)
|
|
|
|
|
|
10
|
|
|
|
19
|
|
37
|
Term of power purchase agreements (in years)
|
|
|
|
|
|
15
|
|
|
|
15
|
|
15
|
First system installed
|
|
|
|
|
|
Feb-13
|
|
|
|
Sep-14
|
|
Jun-15
|
Last system installed
|
|
|
|
|
|
Jun-14
|
|
|
|
Mar-16
|
|
Dec-16
|
Income (loss) and tax benefits allocation to Equity Investor
|
|
|
|
|
|
99%
|
|
|
|
90%
|
|
99%
|
Cash allocation to Equity Investor
|
|
|
|
|
|
99%
|
|
|
|
90%
|
|
90%
|
Income (loss), tax and cash allocations to Equity Investor after the flip date
|
|
|
|
|
|
5%
|
|
|
|
No flip
|
|
No flip
|
Equity Investor 1
|
|
|
|
|
|
US Bank
|
|
|
|
Exelon Corporation
|
|
Exelon Corporation
|
Put option date 2
|
|
|
|
|
|
1st anniversary of flip point
|
|
|
|
N/A
|
|
N/A
|
Company cash contributions
|
|
|
|
|
|
$
|
32,223
|
|
|
|
|
$
|
11,669
|
|
|
$
|
27,932
|
|
Company non-cash contributions 3
|
|
|
|
|
|
$
|
8,655
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Investor cash contributions
|
|
|
|
|
|
$
|
36,967
|
|
|
|
|
$
|
84,782
|
|
|
$
|
227,344
|
|
Debt financing
|
|
|
|
|
|
$
|
44,968
|
|
|
|
|
$
|
99,000
|
|
|
$
|
131,237
|
|
Activity as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Equity Investor
|
|
|
|
|
|
$
|
4,847
|
|
|
|
|
$
|
8,852
|
|
|
$
|
24,809
|
|
Debt repayment—principal
|
|
|
|
|
|
$
|
10,513
|
|
|
|
|
$
|
21,163
|
|
|
$
|
16,475
|
|
Activity as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Equity Investor
|
|
|
|
|
|
$
|
4,803
|
|
|
|
|
$
|
6,692
|
|
|
$
|
70,591
|
|
Debt repayment—principal
|
|
|
|
|
|
$
|
6,631
|
|
|
|
|
$
|
18,012
|
|
|
$
|
9,453
|
|
Activity as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Equity Investor
|
|
|
|
|
|
$
|
4,063
|
|
|
|
|
$
|
4,568
|
|
|
$
|
66,745
|
|
Debt repayment—principal
|
|
|
|
|
|
$
|
4,431
|
|
|
|
|
$
|
15,543
|
|
|
$
|
5,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Investor name represents ultimate parent of subsidiary financing the project.
|
2 Investor right on the certain date, upon giving us advance written notice, to sell the membership interests to us or resign or withdraw from the investment partnership.
|
3 Non-cash contributions consisted of warrants that were issued by us to respective lenders to each PPA Entity, as required by such entity’s credit agreements. The corresponding values are amortized using the effective interest method over the debt term.
|
The noncontrolling interests in PPA IIIa are redeemable as a result of the put option held by the Equity Investors as of December 31, 2020 and 2019. At December 31, 2020 and 2019, the carrying value of redeemable noncontrolling interests of $0.4 million and $0.4 million, respectively, exceeded the maximum redemption value.
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. The following are the aggregate carrying values of our VIEs' assets and liabilities in our 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31, 2019
|
|
|
|
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,421
|
|
|
$
|
1,894
|
|
Restricted cash
|
|
4,698
|
|
|
2,244
|
|
Accounts receivable
|
|
4,420
|
|
|
4,194
|
|
Customer financing receivable
|
|
5,428
|
|
|
5,108
|
|
Prepaid expenses and other current assets
|
|
3,048
|
|
|
3,587
|
|
Total current assets
|
|
19,015
|
|
|
17,027
|
|
Property and equipment, net
|
|
252,020
|
|
|
275,481
|
|
Customer financing receivable, non-current
|
|
45,268
|
|
|
50,747
|
|
Restricted cash
|
|
15,320
|
|
|
15,045
|
|
Other long-term assets
|
|
37
|
|
|
607
|
|
Total assets
|
|
$
|
331,660
|
|
|
$
|
358,907
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
19,510
|
|
|
$
|
1,391
|
|
Deferred revenue and customer deposits
|
|
662
|
|
|
662
|
|
Current portion of debt
|
|
120,846
|
|
|
12,155
|
|
Total current liabilities
|
|
141,018
|
|
|
14,208
|
|
Derivative liabilities
|
|
—
|
|
|
8,459
|
|
Deferred revenue
|
|
6,072
|
|
|
6,735
|
|
Long-term portion of debt
|
|
102,045
|
|
|
223,267
|
|
Other long-term liabilities
|
|
—
|
|
|
2,355
|
|
Total liabilities
|
|
$
|
249,135
|
|
|
$
|
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 primary beneficiary 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.
We believe that by presenting assets and liabilities separate from the PPA Entities, we provide a better view of the true operations of our core business. The table below provides detail into the assets and liabilities of Bloom Energy separate from the PPA Entities. The table provides our stand-alone assets and liabilities, those of the PPA Entities combined, and our consolidated balances as of December 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Bloom Energy
|
|
PPA Entities
|
|
Consolidated
|
|
Bloom Energy
|
|
PPA Entities
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
599,589
|
|
|
$
|
19,015
|
|
|
$
|
618,604
|
|
|
$
|
455,680
|
|
|
$
|
17,027
|
|
|
$
|
472,707
|
|
Long-term assets
|
|
523,138
|
|
|
312,645
|
|
|
835,783
|
|
|
508,004
|
|
|
341,880
|
|
|
849,884
|
|
Total assets
|
|
$
|
1,122,727
|
|
|
$
|
331,660
|
|
|
$
|
1,454,387
|
|
|
$
|
963,684
|
|
|
$
|
358,907
|
|
|
$
|
1,322,591
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
295,359
|
|
|
$
|
20,172
|
|
|
$
|
315,531
|
|
|
$
|
234,328
|
|
|
$
|
2,053
|
|
|
$
|
236,381
|
|
Current portion of debt
|
|
—
|
|
|
120,846
|
|
|
120,846
|
|
|
325,428
|
|
|
12,155
|
|
|
337,583
|
|
Long-term liabilities
|
|
600,489
|
|
|
6,072
|
|
|
606,561
|
|
|
599,709
|
|
|
17,549
|
|
|
617,258
|
|
Long-term portion of debt
|
|
168,008
|
|
|
102,045
|
|
|
270,053
|
|
|
75,962
|
|
|
223,267
|
|
|
299,229
|
|
Total liabilities
|
|
$
|
1,063,856
|
|
|
$
|
249,135
|
|
|
$
|
1,312,991
|
|
|
$
|
1,235,427
|
|
|
$
|
255,024
|
|
|
$
|
1,490,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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14. Commitments and Contingencies
Commitments
Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and to ensure an adequate supply of inventories, we have agreements with our component suppliers and contract manufacturers to allow long lead-time component inventory procurement based on a rolling production forecast. We are contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with our forecasts. We can generally give notice of order cancellation at least 90 days prior to the delivery date. However, we issue purchase orders to our component suppliers and third-party manufacturers that may not be cancellable. As of December 31, 2020 and 2019, we had no material open purchase orders with our component suppliers and third-party manufacturers that are not cancellable.
Portfolio Financings - Under the terms of the PPA I transaction, customers agree to purchase power from our Energy Servers at negotiated rates, generally for periods of up to 15 years. We are responsible for all operating costs necessary to maintain, monitor and repair the Energy Servers, including the fuel necessary to operate the systems under certain PPAs. The risk associated with the future market price of fuel purchase obligations is mitigated with commodity contract futures. For additional information, see Note 13 - Portfolio Financings.
We guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. The PPA Entities monitor the need for any accruals arising from such guaranties, which are calculated as the difference between committed and actual power output or between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by the contractual rates with the customer. Amounts payable under these guaranties are accrued in periods when the guaranties are not met and are recorded in cost of service revenue in the consolidated statements of operations. We paid $7.4 million and $3.5 million for the years ended December 31, 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 Letter of Credit ("LC") facility with the aggregate
principal amount of $6.2 million. The LC facility is to fund the debt service reserve account. The amount reserved under the LC as of December 31, 2020 was $5.2 million.
In 2019, pursuant to the PPA II upgrade of Energy Servers, we agreed to indemnify our financing partner for losses that may be incurred in the event of certain regulatory, legal or legislative development and established a cash-collateralized LC for this purpose. As of December 31, 2020, the balance of this cash-collateralized LC was $108.7 million, of which $20.3 million and $88.4 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 December 31, 2020, we had 424 full time workers in Delaware and paid $152.2 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 $2.0 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. We repaid $1.5 million of the grant in 2017, and no additional amounts have been repaid since then. As of December 31, 2020, we have recorded $1.3 million in current liabilities and $9.2 million in other long-term liabilities for potential future repayments of this grant.
Investment Tax Credits - Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed of or otherwise ceases to be qualified investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction of the incentives. Energy Servers are purchased by the PPA Entities, other financial sponsors, or customers and, therefore, these parties bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future although in certain limited circumstances we do provide indemnification for such risk.
Legal Matters - We are involved in various legal proceedings that arise in the ordinary course of business. We review all legal matters at least quarterly and assess whether an accrual for loss contingencies needs to be recorded. We record an accrual for loss contingencies when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so the actual liability in any such matters may be materially different from our estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on our consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.
In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a statement of claim with the American Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27, 2014 (the
“Confidential Agreement”). On May 7, 2019, KPCB and NEA were dismissed with prejudice. On June 15, 2019, a second amended statement of claim was filed against us alleging securities fraud, fraudulent inducement, a breach of the Confidential Agreement, and violation of the California unfair competition law. On July 16, 2019, we filed our answering statement and affirmative defenses. On September 27, 2019, we filed a motion to dismiss the statement of claim. On March 24, 2020, the Tribunal denied our motion to dismiss in part, and ordered that claimant’s relief is limited to rescission of the Confidential Agreement or remedies consistent with rescission, and not expectation damages. On September 14, 2020, the Tribunal issued an interim order dismissing the Claimant’s remaining claims and requesting further briefing on the issue of prevailing party. On November 10, 2020, the Tribunal issued an order declaring Bloom the prevailing party and requesting a motion for award of attorney’s fees. We are waiting for the final order on the award of attorney fees.
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 was stayed pending the outcome of the arbitration. Once the arbitration was 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 once we have received the final order from the arbitration regarding attorney’s fees. We believe the complaint to be without merit and that the issues were previously tried and dismissed in the arbitration. We are unable to estimate any range of reasonably possible losses.
In March 2019, the Lincolnshire Police Pension Fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara, against us, certain members of our senior management, certain of our directors and the underwriters in our July 25, 2018 IPO alleging violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the "Securities Act"), for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with 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. Given that the case is still in its early stages, we are unable to estimate any range of reasonably possible losses.
In May 2019, Elissa Roberts filed a class action complaint in the federal district court for the Northern District of California against us, certain members of our senior management team, and certain of our directors alleging violations under Section 11 and 15 of the Securities Act for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with 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 and are waiting for a ruling on that motion. 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 and accordingly are not able to estimate any range of reasonably possible losses.
In September 2019, we received a books and records demand from purported stockholder Dennis Jacob (“Jacob Demand”). The Jacob Demand cites allegations from the September 17, 2019 report prepared by admitted short seller Hindenburg Research. In November 2019, we received a substantially similar books and records demand from the same law firm on behalf of purported stockholder Michael Bolouri (“Bolouri Demand” and, together with the Jacob Demand, the “Demands”). On January 13, 2020, Messrs. Jacob and Bolouri filed a complaint in the Delaware Court of Chancery to enforce the Demands in the matter styled Jacob, et al. v. Bloom Energy Corp., C.A. No. 2020-0023-JRS. On March 9, 2020, Messrs. Jacob and Bolouri filed an amended complaint in the Delaware Court of Chancery to add allegations regarding the restatement. The court held a one-day trial on December 7, 2020. On February 25, 2021, the Delaware Court of Chancery issued a decision rejecting the Bolouri Demand but granting in part the Jacob Demand allowing limited access to certain books and records
pertaining to the allegations made in the Hindenburg Research Report. We are unable to estimate any range of reasonably possible losses.
In March 2020, Francisco Sanchez filed a class action complaint in Santa Clara County Superior Court against us alleging certain wage and hour violations under the California Labor Code and Industrial Welfare Commission Wage Orders and that we engaged in unfair business practices under the California Business and Professions Code, and in July 2020 he amended his complaint to add claims under the California Labor Code Private Attorneys General Act. On November 30, 2020, we filed a motion to compel arbitration and the motion was to be heard on March 5, 2021. On February 24, 2021, Mr.Sanchez dismissed the individual and class action claims without prejudice, leaving one cause of action for enforcement of the Private Attorney Generals Act . Given that the case is still in its early stages, we are unable to estimate any range of reasonably possible losses.
On April 2, 2020, we agreed with the U.S. Environmental Protection Agency ("EPA") on the terms of a Consent Agreement and Final Order. On May 12, 2020, an Administrative Law Judge of the Environmental Appeals Board of the EPA ratified the Consent Agreement between EPA and us, which was incorporated by reference into a Final Order to resolve EPA Docket No. RCRA-HQ-2020-501. Under the Consent Agreement, we paid a civil penalty of approximately $0.2 million and submitted to an audit for the time period from September 2015 to December 2019. Shipments of its desulfurization units made during that time period utilizing the Manufacturing Process Unit ("MPU") exemption will be subject to a penalty based on per ship penalty amounts agreed to with the EPA. We utilized the MPU until November of 2016 and $1.2 million was accrued during the first quarter of 2020. The audit was completed during the fourth quarter of 2020 and the penalty for shipments made was approximately $1.2 million. The EPA accepted the audited amount and payment was made by us during the fourth quarter of 2020. The matter is now closed.
15. Segment Information
Our chief operating decision makers ("CODMs"), our CEO and the CFO, review financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The CODMs allocate resources and make operational decisions based on direct involvement with our operations and product development efforts. We are managed under a functionally-based organizational structure with the head of each function reporting to the Chief Executive Officer. The CODMs assess performance, including incentive compensation, based upon consolidated operations performance and financial results on a consolidated basis. As such, we have a single operating unit structure and are a single reporting segment.
16. Related Party Transactions
Our operations include the following related party transactions (in thousands):
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Years Ended
December 31,
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2020
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2019
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2018
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Total revenue from related parties
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$
|
7,562
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|
|
$
|
228,100
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|
|
$
|
32,381
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|
Interest expense to related parties
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|
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2,513
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|
|
6,756
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|
|
8,893
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|
Consulting expenses to related parties 1 (included in general and administrative expense)
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—
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—
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|
|
125
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|
1As of July 2019, we no longer have a consultant considered to be a related party.
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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 years ended December 31, 2020 and 2019, we recognized related party total revenue of $3.4 million and $4.2 million, respectively. Accounts receivable from this joint venture was $2.4 million as of December 31, 2020 and 2019.
SK Engineering & Construction Co., Ltd Joint Venture
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 and is accounted for as a consolidated subsidiary. For the year ended December 31, 2020, we recognized related party total revenue of $4.2 million and we had no outstanding accounts receivable from this joint venture as of December 31, 2020.
Debt to Related Parties
We had no debt or convertible notes from investors considered to be related parties as of December 31, 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):
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Unpaid
Principal
Balance
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Net Carrying Value
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Current
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Long-
Term
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Total
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Recourse debt from related parties:
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10% Convertible Promissory Notes due December 2021 from related parties
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|
$
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20,801
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|
|
$
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20,801
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|
|
$
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—
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|
|
$
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20,801
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Non-recourse debt from related parties:
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7.5% Term Loan due September 2028 from related parties
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|
38,337
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|
|
3,882
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|
|
31,088
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|
|
34,970
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|
Total debt from related parties
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|
$
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59,138
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|
|
$
|
24,683
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|
|
$
|
31,088
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|
|
$
|
55,771
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In November 2019, one related-party note holder exchanged $6.9 million of their 10% 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 repaid $2.1 million and $2.2 million of the non-recourse 7.5% term loan principal balance in the year ended December 31, 2020 and 2019, respectively, and we paid $0.7 million and $3.0 million of interest in the year ended December 31, 2020 and 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. Leases
Facilities, Office Buildings, and Vehicles
We lease most of our facilities, office buildings and vehicles under operating leases that expire at various dates through July 2029. We lease various manufacturing facilities in Sunnyvale, Fremont, and Mountain View, California. Our lease for our Sunnyvale manufacturing facilities was entered into in April 2005 and expired in December 2020. In January 2021, we extended this lease to December 2023. In June 2020, we signed a lease in Fremont that will expire in 2027 to replace the manufacturing facility in Sunnyvale. Our current lease for our manufacturing facilities at Mountain View was entered into in December 2011, and expired in December 2019, but it extended on a month-to-month basis. The existing 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.
Certain of these arrangements have free rent periods or escalating rent payment provisions. We recognize lease cost under such arrangements on a straight-line basis over the life of the leases. During the year ended December 31, 2020, rent expense for all occupied facilities was $9.9 million. During the years ended December 31, 2019 and 2018, prior to our adoption of ASC 842, rent expense for all occupied facilities was $7.8 million and $6.3 million, respectively.
At inception of the contract, we assess whether a contract is a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification, measurement, and recognition are determined at lease commencement, which is the date the underlying asset is available for use by us. The accounting classification of a lease is based on whether the arrangement is effectively a financed purchase of the underlying asset (financing lease) or not (operating lease). Our operating leases are comprised primarily of leases for facilities, office buildings, and vehicles, and our financing leases are comprised primarily of vehicles.
Our leases have remaining lease terms ranging from less than 1 year to 9 years, some of which include options to extend the leases. The lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised.
Lease liabilities are measured at the lease commencement date as the present value of future lease payments. Lease right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future lease payments, the discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. In computing our lease liabilities, we use the incremental borrowing rate based on the information available on the commencement date using an estimate of company-specific rate in the United States on a collateralized basis and consistent with the lease term for each lease. The lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised.
Operating and financing lease right-of-use assets and lease liabilities for facilities, office buildings, and vehicles as of December 31, 2020 were as follows (in thousands):
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|
December 31, 2020
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Assets:
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Operating lease right-of-use assets, net 1, 2
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$
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35,621
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Financing lease right-of-use assets, net 3, 4
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334
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Total
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$
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35,955
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Liabilities:
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|
|
Current:
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Operating lease liabilities
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|
$
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7,899
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Financing lease liabilities 5
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74
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Total current lease liabilities
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7,973
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Non-current:
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Operating lease liabilities
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41,849
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Financing lease liabilities 6
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267
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Total non-current lease liabilities
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42,116
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Total lease liabilities
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$
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50,089
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1 At December 31, 2020, these assets primarily include leases for facilities, office buildings, and vehicles.
2 Net of accumulated amortization.
3 At December 31, 2020, these assets primarily include leases for vehicles.
4 Included in property, plant and equipment, net, in the consolidated balance sheets, net of accumulated amortization.
5 Included in accrued expenses and other current liabilities in the consolidated balance sheets.
6 Included in other long-term liabilities in the consolidated balance sheets.
The components of our facilities, office buildings, and vehicles' lease costs for the year ended December 31, 2020 were as follows (in thousands):
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December 31, 2020
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Operating lease costs
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$
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9,804
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Financing lease costs:
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Amortization of financing lease right-of-use assets
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51
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Interest expense for financing lease liabilities
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|
16
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Total financing lease costs
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|
67
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Short-term lease costs
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|
613
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Total lease costs
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$
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10,484
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Weighted average remaining lease terms and discount rates for our facilities, office buildings, and vehicles as of December 31, 2020 were as follows:
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December 31, 2020
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Remaining lease term (years):
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Operating leases
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|
6.7 years
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Finance leases
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|
4.2 years
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Discount rate:
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Operating leases
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|
8.7
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%
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Finance leases
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|
7.0
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%
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Future lease payments under lease agreements for our facilities, office buildings, and vehicles as of December 31, 2020, were as follows (in thousands):
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|
|
Operating Leases
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|
Finance Leases
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2021
|
|
$
|
11,388
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|
|
$
|
95
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|
2022
|
|
8,211
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|
|
95
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|
2023
|
|
8,292
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|
|
90
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|
2024
|
|
8,472
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|
|
84
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|
2025
|
|
8,330
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|
|
28
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Thereafter
|
|
19,863
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|
|
—
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Total minimum lease payments
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|
64,556
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|
|
392
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Less: amounts representing interest or imputed interest
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|
(14,808)
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|
(51)
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|
Present value of lease liabilities
|
|
$
|
49,748
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|
|
$
|
341
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As of December 31, 2020, we had additional operating leases related to facilities that will commence during 2021 with future lease payments of $5.2 million. These operating leases will commence in fiscal year 2021 with lease terms of up to 3 years.
Prior to adoption of ASC 842, at December 31, 2019, future minimum lease payments under operating leases were as follows (in thousands):
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Operating Leases
|
2020
|
|
$
|
7,250
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|
2021
|
|
5,495
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|
2022
|
|
4,168
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|
2023
|
|
4,230
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|
2024
|
|
4,357
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|
Thereafter
|
|
17,913
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Total lease payments
|
|
$
|
43,413
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|
Managed Services and Portfolio Financings Through PPA Entities
As described above under Accounting Guidance Implemented in 2020, certain of our customers enter into Managed Services or Portfolio Financings through a PPA Entity to finance their lease of Bloom Energy Servers. Prior to the adoption of ASC 842, such arrangements with customers that qualified as leases were classified as either sales-type leases or operating leases. For all pre-existing Managed Services arrangements or Portfolio Financings through PPA Entities, we have carried over the accounting classifications for those transactions and continue to account for such transactions as either sales-type leases or operating leases under ASC 842. Customer arrangements under Managed Services and Portfolio Financings through PPA Entities do not contain a lease under ASC 842 and are accounted for under ASC 606 as revenue arrangements.
Lease agreements under our Managed Services arrangements and Portfolio Financings through PPA Entities include non-cancellable lease terms, during which terms the majority of our investment in Energy Servers under lease are typically recovered. The Company mitigates remaining residual value risk of its Energy Servers through its provision of maintenance on the Energy Servers during the lease term and through insurance whose proceeds are payable in the event of theft, loss, damage, or destruction.
Managed Services Financings - Our Managed Services arrangements with financiers are accounted for as financing transactions. Payments received from the financier are recognized as financing obligations in our consolidated balance sheets. These financing obligations are included in each agreements' contract value and are recognized as short-term or long-term liabilities based on the estimated payment dates. The lease agreements expire on various dates through 2034 and there was no recorded rent expense for the year ended December 31, 2020.
At December 31, 2020, future lease payments under the Managed Services financing obligations and the sublease payments from the customers under the related operating leases were as follows (in thousands):
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|
|
|
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|
|
|
|
|
|
|
|
|
|
Financing Obligations
|
|
Sublease Payments1
|
2021
|
|
$
|
40,589
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|
|
$
|
(40,589)
|
|
2022
|
|
41,584
|
|
|
(41,584)
|
|
2023
|
|
42,526
|
|
|
(42,526)
|
|
2024
|
|
40,429
|
|
|
(40,429)
|
|
2025
|
|
39,379
|
|
|
(39,379)
|
|
Thereafter
|
|
87,623
|
|
|
(87,623)
|
|
Total lease payments
|
|
292,130
|
|
|
$
|
(292,130)
|
|
Less: imputed interest
|
|
(172,860)
|
|
|
|
Total lease obligations
|
|
119,270
|
|
|
|
Less: current obligations
|
|
(12,745)
|
|
|
|
Long-term lease obligations
|
|
$
|
106,525
|
|
|
|
1 Sublease Payments primarily represents the fees received by the bank from our 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.
The long-term financing obligations, as reflected in our Consolidated Balance Sheets, were $460.0 million and $446.2 million as of December 31, 2020 and 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.
Portfolio Financings through PPA Entities - Customer arrangements entered into prior to January 1, 2020 under Portfolio Financing arrangements through a PPA Entity that qualified as leases are accounted for as either sales-type leases or operating leases. We have not entered into any new PPAs with customers under such arrangements during 2020.
The components of our aggregate net investment in sales-type leases under our Portfolio Financings through PPA entities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Lease payment receivables, net1
|
|
$
|
49,806
|
|
Estimated residual value of leased assets (unguaranteed)
|
|
890
|
|
Net investment in sales-type leases
|
|
50,696
|
|
Less: current portion
|
|
(5,428)
|
|
Non-current portion of net investment in sales-type leases
|
|
$
|
45,268
|
|
1 Net of current estimated credit losses of approximately $0.1 million as of December 31, 2020.
As of December 31, 2020, the future scheduled customer payments from sales-type leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments
|
2021
|
|
$
|
5,796
|
|
2022
|
|
6,110
|
|
2023
|
|
6,435
|
|
2024
|
|
6,797
|
|
2025
|
|
7,125
|
|
Thereafter
|
|
19,176
|
|
Total undiscounted cash flows
|
|
51,439
|
|
Less: imputed interest
|
|
(1,582)
|
|
Present value of lease payments1
|
|
$
|
49,857
|
|
|
|
|
1 Amount comprises a current and long-term portion of lease receivables of $5.4 million and $44.4 million, respectively, after giving effect to a $0.1 million current expected credit loss reserve on the long-term portion, which is reflected as a component of the net investment in sales-type leases presented in our statement of financial position as customer financing receivables.
|
As of December 31, 2019, the components of investment in sales-type financing leases consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
Total minimum lease payments to be received
|
|
$
|
76,886
|
|
Less: Amounts representing estimated executory costs
|
|
(19,931)
|
|
Net present value of minimum lease payments to be received
|
|
56,955
|
|
Estimated residual value of leased assets
|
|
890
|
|
Less: Unearned income
|
|
(1,990)
|
|
Net investment in sales-type financing leases
|
|
55,855
|
|
Less: Current portion
|
|
(5,108)
|
|
Non-current portion of net investment in sales-type leases
|
|
$
|
50,747
|
|
As of December 31, 2019, the future scheduled customer payments from sales-type financing leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
2021
|
2022
|
2023
|
2024
|
Thereafter
|
Future minimum lease payments, less interest
|
$
|
5,108
|
|
$
|
5,428
|
|
$
|
5,784
|
|
$
|
6,155
|
|
$
|
6,567
|
|
$
|
25,923
|
|
Future estimated operating lease payments we expect to receive from Portfolio Financing arrangements through PPA Entities as of December 31, 2020, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
2021
|
|
$
|
43,176
|
|
2022
|
|
44,258
|
|
2023
|
|
45,345
|
|
2024
|
|
46,590
|
|
2025
|
|
47,612
|
|
Thereafter
|
|
264,207
|
|
Total lease payments
|
|
$
|
491,188
|
|
18. Subsequent Events
There have been no subsequent events that occurred during the period subsequent to the date of these consolidated financial statements that would require adjustment to our disclosure in the consolidated financial statements as presented.