Notes to Unaudited Condensed Consolidated Financial Statements
1. Nature of Business, Liquidity and Basis of Presentation
Nature of Business
We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Our Energy Servers utilize an innovative fuel cell technology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence.
We continue to monitor and adjust as appropriate our operations in response to the COVID-19 pandemic. There have been a number of supply chain disruptions throughout the global supply chain as countries are in various stages of opening up and demand for certain components increases. Although we were able to find alternatives for many component shortages, we experienced some delays and cost increases with respect to container shortages, ocean shipping and air freight. We have not experienced any supply chain disruption as a result of the events occurring in Ukraine.
We have generally incurred operating losses and negative cash flows from operations since our inception. With the series of new debt offerings, debt extensions and conversions to equity that we completed during 2020 and 2021, we had $292.4 million of total outstanding recourse debt as of March 31, 2022, $280.1 million of which is classified as long-term debt. Our recourse debt scheduled repayments will commence in June 2022.
On October 23, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with SK ecoplant Co., Ltd. (formerly known as SK Engineering and Construction Co., Ltd.) ("SK ecoplant") in connection with a strategic partnership. Pursuant to the SPA, on December 29, 2021, SK ecoplant purchased 10,000,000 shares of zero coupon, non-voting Series A redeemable convertible preferred stock ("RCPS") in Bloom Energy, par value $0.0001 per share, at a purchase price of $25.50 per share for an aggregate purchase price of $255.0 million, including an option to purchase Class A common stock. For more information about the SPA, please see Note 18 - SK ecoplant Strategic Investment, and for more information about our joint venture with SK ecoplant, please see Note 12 - Related Party Transactions.
In November 2021, PPA V entered into $136.0 million, 3.04% Senior Secured Notes due June 30, 2031, which replaced the LIBOR + 2.5% Term Loan due December 2021.
Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our product, our ability to secure financing for customer use of our Energy Servers, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations.
In the opinion of management, the combination of our existing cash and cash equivalents and operating cash flows is expected to be sufficient to meet our operational and capital cash flow requirements and other cash flow needs for the next 12 months from the date of issuance of this Quarterly Report on Form 10-Q.
Basis of Presentation
We have prepared the condensed consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), and as permitted by those rules, including all disclosures required by generally accepted accounting principles as applied in the United States (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation.
Principles of Consolidation
These condensed consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirement for
each of our variable interest entities ("VIEs"), which we refer to as a tax equity partnership (each such VIE, also referred to as our power purchase agreement ("PPA") entities ("PPA Entities")). This approach focuses on determining whether we have the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPA Entities. For all periods presented, we have determined that we are the primary beneficiary in all of our operational PPA Entities, as discussed in Note 11 - Portfolio Financings. We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that we continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated upon consolidation.
The sale of an operating company with a portfolio of PPAs in which we do not have an equity interest is called a “Third-Party PPA.” We have determined that, although these entities are VIEs, we do not have the power to direct those activities of the Third-Party PPAs that most significantly affect their economic performance. We also do not have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the Third-Party PPAs. Because we are not the primary beneficiary of these activities, we do not consolidate Third-Party PPAs.
Acquisitions of a business are accounted by using the acquisition method of accounting. Assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at the acquisition date at their fair values. Assigning fair values requires us to make significant estimates and assumptions regarding the fair value of identifiable intangible assets, property, plant and equipment, deferred tax asset valuation allowances and liabilities, such as uncertain tax positions and contingencies. We may refine these estimates if necessary over a period not to exceed one year by taking into consideration new information that, if known at the acquisition date, would have affected the fair values ascribed to the assets acquired and liabilities assumed.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. The most significant estimates include the determination of the stand-alone selling price, including material rights estimates, inventory valuation, specifically excess and obsolescence provisions for obsolete or unsellable inventory and, in relation to property, plant and equipment (specifically Energy Servers), assumptions relating to economic useful lives and impairment assessments.
Other accounting estimates include variable consideration relating to product performance guaranties, 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 ("ITC") and similar federal tax benefits, estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, stock-based compensation expense and the fair value of contingent consideration related to business combinations, and estimates of fair value of preferred stock and equity and non-equity items in relation to the SK ecoplant strategic investment. In addition, because the duration and severity of the COVID-19 pandemic remains uncertain, certain of such estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility. Actual results could differ materially from these estimates under different assumptions and conditions.
Concentration of Risk
Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. Additionally, we sell our Energy Servers in Japan, India and the Republic of Korea (collectively, the "Asia Pacific region"). In the three months ended March 31, 2022 and 2021, total revenue in the Asia Pacific region was 65% and 43%, respectively, of our total revenue.
Credit Risk - At March 31, 2022, SK D&D Co., Ltd accounted for approximately 60% of accounts receivable and at December 31, 2021, SK ecoplant accounted for approximately 60% of accounts receivable. To date, we have not experienced any credit losses.
Customer Risk - During the three months ended March 31, 2022, revenue from two customers, SK ecoplant and SK D&D Co, Ltd, accounted for approximately 32% and 32% of our total revenue.
2. Summary of Significant Accounting Policies
Please refer to the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
We primarily earn product and installation revenue from the sale and installation of our Energy Servers, service revenue by providing services under operations and maintenance services contracts, and electricity revenue by selling electricity to customers under PPAs and Managed Services Agreements (as defined below). We offer our customers several ways to finance their use of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose to purchase our Energy Servers outright. Customers may also enter into contracts with us for the purchase of electricity generated by our Energy Servers (a "Managed Services Agreement"), which is then financed through one of our financing partners ("Managed Services Financings"), or as a traditional lease. Finally, customers may purchase electricity through our PPA Entities ("Portfolio Financings").
Revenue Recognition under ASC 606 Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). We adopted ASU 2014-09 and its related amendments (collectively, “ASC 606”) as of January 1, 2019 using the modified retrospective method.
In applying Accounting Standards Codification 606, Revenue from Contracts with Customers, revenue is recognized by following a five-step process:
Identify the contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller, purchase, use and maintenance agreement, maintenance services agreements or energy supply agreement.
Identify the performance obligations in the contract. Performance obligations are identified in our contracts and include transferring control of an Energy Server, installation of Energy Servers, providing maintenance services and maintenance services renewal options which, in certain situations, provide customers with material rights.
Determine the transaction price. The purchase price stated in an agreed-upon purchase order or contract is generally representative of the transaction price. When determining the transaction price, we consider the effects of any variable consideration, which include performance guarantees that may be payable to our customers.
Allocate the transaction price to the performance obligations in the contract. The transaction price in a contract is allocated based upon the relative standalone selling price of each distinct performance obligation identified in the contract.
Recognize revenue when (or as) we satisfy a performance obligation. We satisfy performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring control of the promised products or services to a customer.
We frequently combine contracts governing the sale and installation of an Energy Server with the related maintenance services contracts and account for them as a single contract at contract inception to the extent the contracts are with the same customer. These contracts are not combined when the customer for the sale and installation of the Energy Server is different in relation to the maintenance services contract customer. We also assess whether any contract terms including default provisions, put or call options result in components of our contracts being accounted for as financing or leasing transactions outside of the scope of ASC 606.
Most of our contracts contain performance obligations with a combination of our Energy Server product, installation and maintenance services. For these performance obligations, we allocate the total transaction price to each performance obligation based on the relative standalone selling price. Our maintenance services contracts are typically subject to renewal by customers on an annual basis. We assess these maintenance services renewal options at contract inception to determine whether they provide customers with material rights that give rise to separate performance obligations.
The total transaction price is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the performance obligations to which the variable consideration relates. These estimates reflect our
historical experience and current contractual requirements which cap the maximum amount that may be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method.
We exclude from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. These tax amounts are recorded in cost of electricity revenue, cost of service revenue, and general and administrative operating expenses.
We allocate the transaction price to each distinct performance obligation 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 ITC evolve over time, we may be required to modify the expected margin in subsequent periods and our revenue could be materially affected. Costs relating to installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for maintenance services arrangements are estimated over the life of the maintenance contracts and include estimated future 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 generally recognize product and installation revenue at the point in time that the customer obtains control of the Energy Server. For certain instances, such as bill-and-hold transactions, control of installations transfers to the customer over time, and the related revenue is recognized over time as the performance obligation is satisfied using the cost-to-total cost (percentage-of-completion) method. We use an input measure of progress to determine the amount of revenue to recognize during each reporting period when such revenue is recognized over time, based on the costs incurred to satisfy the performance obligation. We recognize maintenance 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 costs are recorded within cost of revenue.
The following is a description of the principal activities from which we generate revenue. Our four revenue streams are classified as follows:
Product Revenue - All of our product revenue is generated from the sale of our Energy Servers to direct purchase customers, including financing partners on Third-Party PPAs and sale-and-leaseback transactions, international channel providers and traditional lease customers. We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance, which typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system is shipped and delivered to our customers, when the system is shipped and delivered and is physically ready for startup and commissioning, or when the system is shipped and delivered and is turned on and producing power. Certain customer arrangements include bill-and-hold terms under which transfer of control criteria have been met, including the passing of title and significant risk and reward of ownership to the customers. Therefore, the customers can direct the use of the bill-and-hold product while we retain physical possession of the product until it is delivered to a customer site at a point in time in the future.
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 or Portfolio Financing. Generally, we recognize installation revenue when the system is physically ready for startup and commissioning, or when the system is turned on and producing power. For instances when control for installation services is transferred over time, we use an input measure of progress to determine the amount of revenue to recognize during each reporting period based on the costs incurred to satisfy the performance obligation.
Payments received from customers are recorded within deferred revenue and customer deposits in the condensed 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 condensed 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 commencement of operations. As part of this standard first-year warranty, we also monitor the operations of the underlying systems and provide output and efficiency guaranties. We have determined that this standard first-year warranty is a distinct performance obligation - being a promise to stand-ready to maintain the Energy Servers when and if required during the first year following installation. We also sell to our customers extended annual maintenance services that effectively extend the standard first-year warranty coverage at the customer’s option. These customers generally have an option to renew or cancel the extended maintenance services on an annual basis and nearly every customer has renewed historically. Similar to the standard first-year warranty, the optional extended annual maintenance services are considered a distinct performance obligation – being a promise to stand-ready to maintain the Energy Servers when and if required during the renewal service year.
Given our customers' 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 generally received at the beginning of each service year. Accordingly, the customer payment received is recorded as a customer deposit and revenue is recognized over the related service period as the services are performed.
Electricity Revenue - We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA Entities. Our PPA Entities 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 finance 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 service revenue. We allocate the total payments received based on
the relative standalone selling prices to electricity revenue and to service revenue. Electricity revenue relating to PPAs was typically accounted for in accordance with ASC 840, and service revenue in accordance with ASC 606.
We adopted ASC 842, Leases ("ASC 842"), with effect from January 1, 2020. Managed Services Financings entered from January 1, 2020 until June 30, 2021, including some of our agreements with financiers are accounted for as financing transactions because the repurchase options in these agreements prevent the transfer of control of the systems to the financier. Additionally, some of our leaseback agreements with financiers are not operating leases and are therefore accounted for as failed sale-and-leaseback transactions. We also determined that the sub-lease arrangements under the Managed Services Agreements with the customer are not within the scope of ASC 842 because the customer does not have the right to control the use of the underlying assets (i.e., the Energy Servers). Accordingly, such agreements are accounted for under ASC 606. Under ASC 606, we recognize customer payments for electricity as electricity revenue.
The transition guidance associated with ASC 842 also permitted certain practical expedients. We elected the practical expedient, which allowed us to carryforward certain aspects of our historical lease accounting under ASC 840 for leases that commenced before the effective date, including not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. We also elected the practical expedient to not separate non-lease and lease components and instead account for them as a single lease component for all classes of underlying assets. Lastly, for all classes of underlying assets, we elected to adopt an accounting policy for which we will not record on our condensed consolidated balance sheets leases whose terms are 12 months or less. Instead, these lease payments are recognized in profit or loss on a straight-line basis over the lease term.
During the second half of fiscal 2021, we completed several successful sale-and-lease back transactions in which we transferred control of the Energy Server to the financier and leased it back as an operating lease to provide electricity to the end customer.
In order for the transaction to meet the criteria for sale-leaseback accounting, control of the Energy Servers must transfer to the financier, which requires, among other criteria, the leaseback to meet the criteria for an operating lease in accordance with ASC 842. Accordingly, for such transactions where control transfers and the leaseback is classified as an operating lease, the proceeds from the sale to the financier are recognized as revenue based on the fair value of the Energy Servers sold and are allocated between Product Revenue and Installation Revenue based on the relative standalone selling prices.
We recognize a lease liability for the Energy Server leaseback obligation based on the present value of the future payments to the financier that are attributed to the Energy Server leaseback using our incremental borrowing rate. We also record a right-of-use asset, which is amortized over the term of the leaseback, and is included as a cost of electricity revenue on the condensed consolidated statements of operations.
For certain sale-leaseback transactions, we receive proceeds from the financier in excess of the fair value of the Energy Servers in order to finance our ongoing costs associated with the operation of the Energy Servers during the term of the end customer agreement to provide electricity. Such proceeds are recognized as a financing obligation.
We allocate payments we are obligated to make under the leaseback agreement with the financier between the lease liability and the financing obligation based on the proportion of the financing obligation to the total proceeds to be received.
We recognize revenue from the satisfaction of performance obligations under our PPAs and Managed Services Financings to provide electricity to our end customers as the electricity is provided over the term of the agreement in the amount invoiced, which reflects the amount of consideration to which we have the right to invoice and which corresponds to the value transferred under such arrangements.
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.
We recognize a contract liability (referred to as deferred revenue in our condensed 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 condensed 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. For Energy Servers sold to customers pending installation, we provide warranty reserves as a part of product costs for the period from transfer of control of Energy Servers to commencement of operations.
Cost of Installation Revenue - Cost of installation revenue primarily consists of the costs to install our Energy Servers that we sell to direct purchase, including financing partners on Third-Party PPAs and traditional lease customers. It includes cost of materials and service providers, personnel costs, shipping costs and allocated costs.
Cost of Service Revenue - Cost of service revenue consists of costs incurred under maintenance service contracts for all customers. It includes 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 11 - Portfolio Financings)
In 2010, we began selling our Energy Servers to tax equity partnerships in which we held an equity interest as a managing member, or a PPA Entity. The investors in a PPA Entity contribute cash to the PPA Entity in exchange for an equity interest, which then allows the PPA Entity to purchase the Operating Company and the Energy Servers.
The cash contributions held are classified as short-term or long-term restricted cash according to the terms of each PPA Entity'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 condensed 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. 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 is included in electricity revenue in the condensed consolidated statements of operations. We have not entered into any new Portfolio Financing arrangements through PPA Entities during the last three years.
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. Revenue under these arrangements is recognized as electricity sales and service revenue and is provided to the customer at rates specified under the PPAs.
Recent Accounting Pronouncements
There have been no significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.
Accounting Guidance Not Yet Adopted
Lessor with Variable Lease Payments - In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments ("ASU 2021-05"), which modifies ASC 842 to require lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses if they were classified as sales-type or direct financing leases. The amendments in ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2021-05 on our condensed consolidated financial statements.
3. Revenue Recognition
The following table provides information about accounts receivables, contract assets, customer deposits and deferred revenue from contracts with customers (in thousands):
|March 31,||December 31,|
|Accounts receivable||$||110,842 ||$||87,788 |
|Contract assets||13,533 ||25,201 |
|Customer deposits||71,013 ||64,809 |
|Deferred revenue ||103,489 ||115,476 |
Contract assets relate to contracts for which revenue is recognized upon transfer of control of performance obligations, however billing milestones have not been reached. Customer deposits and deferred revenue are payments received from customers or invoiced amounts prior to transfer of controls of performance obligations. Customer deposits, except for those related to the transaction with SK ecoplant, are refundable fees until certain milestones are met.
|Three Months Ended |
|Beginning balance||$||25,201 ||$||3,327 |
|Transferred to accounts receivable from contract assets recognized at the beginning of the period||(14,576)||(4,277)|
|Revenue recognized and not billed as of the end of the period||2,908 ||5,958 |
|Ending balance||$||13,533 ||$||5,008 |
Deferred revenue activity, including deferred incentive revenue activity, during the three months ended March 31, 2022 and 2021 consisted of the following (in thousands):
|Three Months Ended |
|Beginning balance||$||115,476 ||$||135,578 |
|Additions||166,676 ||156,586 |
|Ending balance||$||103,489 ||$||120,643 |
Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the end of the period. The significant component of deferred revenue at the end of the period consists of performance obligations relating to the provision of maintenance services under current contracts and future renewal periods. These obligations provide customers with material rights over a period that we estimate will be largely commensurate with the period of their expected use of the associated Energy Server. As a result, we expect to recognize these amounts as revenue over a period of up to 21 years, predominantly on a relative standalone selling price basis that reflects the cost of providing these services. Deferred revenue also includes performance obligations relating to product acceptance and installation. A significant amount of this deferred revenue is reflected as additions and revenue recognized in the same period and we expect to recognize substantially all amounts within a year.
We do not disclose the value of the unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
We disaggregate revenue from contracts with customers into four revenue categories: product, installation, services and electricity (in thousands):
|Three Months Ended |
|Revenue from contracts with customers:|| |
|Product revenue|| ||$||133,547 ||$||137,930 |
|Installation revenue|| ||13,553 ||2,659 |
|Services revenue|| ||35,239 ||36,417 |
|Electricity revenue|| ||2,682 ||595 |
|Total revenue from contract with customers||185,021 ||177,601 |
|Revenue from contracts accounted for as leases:|
|Electricity revenue||16,018 ||16,406 |
|Total revenue||$||201,039 ||$||194,007 |
4. Financial Instruments
Cash, Cash Equivalents and Restricted Cash
The carrying values of cash, cash equivalents and restricted cash approximate fair values and were as follows (in thousands):
|March 31,||December 31,|
|Cash||$||246,476 ||$||318,080 |
|Money market funds||247,420 ||297,034 |
|$||493,896 ||$||615,114 |
|Cash and cash equivalents||$||286,007 ||$||396,035 |
|Restricted cash||207,889 ||219,079 |
|$||493,896 ||$||615,114 |
Restricted cash consisted of the following (in thousands):
|March 31,||December 31,|
|Current:|| || |
|Restricted cash||$||67,983 ||$||89,462 |
Restricted cash related to PPA Entities1
|2,158 ||3,078 |
|Restricted cash, current||70,141 ||92,540 |
|Restricted cash||114,484 ||103,300 |
Restricted cash related to PPA Entities1
|23,264 ||23,239 |
|Restricted cash, non-current||137,748 ||126,539 |
|$||207,889 ||$||219,079 |
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 condensed consolidated balance sheets (see Note 11 - Portfolio Financings). In addition, the restricted cash held in the PPA II, PPA IIIa and PPA IIIb entities as of March 31, 2022, includes $41.2 million, $0.4 million and $1.5 million of current restricted cash, respectively, and $50.4 million, $6.1 million and $6.7 million of non-current restricted cash, respectively. PPA IIIa is no longer a VIE as of 03/31/2022. The restricted cash held in the PPA II and PPA IIIb entities as of December 31, 2021, includes $41.7 million and $1.2 million of current restricted cash, respectively, and $57.7 million and $6.7 million of non-current restricted cash, respectively. These entities are not considered VIEs.
We sell certain customer trade receivables on a non-recourse basis under factoring arrangements with our designated financial institution. These transactions are accounted for as sales and cash proceeds are included in cash used in operating activities. We derecognized $46.1 million of accounts receivable during the three months ended March 31, 2022 and none during the three months ended March 31, 2021. The costs of factoring such accounts receivable on our condensed consolidated statements of operations for the three months ended March 31, 2022 were not material.
5. Fair Value
Our accounting policy for the fair value measurement of cash equivalents, the fair value of contingent consideration related to business combinations, natural gas fixed price forward contracts, embedded Escalation Protection Plan ("EPP") derivatives and interest rate swap agreements is described in Note 2 - Significant Accounting Policies.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below set forth, by level, our financial assets that are accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):
|Fair Value Measured at Reporting Date Using|
|March 31, 2022||Level 1||Level 2||Level 3||Total|
|Money market funds||$||247,420 ||$||— ||$||— ||$||247,420 |
|$||247,420 ||$||— ||$||— ||$||247,420 |
|Option to acquire a variable number of shares of Class A Common Stock (Note 18)||$||— ||$||16,198 ||$||— ||$||16,198 |
|Embedded EPP derivatives||— ||— ||5,929 ||5,929 |
|$||— ||$||16,198 ||$||5,929 ||$||22,127 |
| ||Fair Value Measured at Reporting Date Using|
|December 31, 2021||Level 1||Level 2||Level 3||Total|
|Money market funds||$||297,034 ||$||— ||$||— ||$||297,034 |
|$||297,034 ||$||— ||$||— ||$||297,034 |
|Option to acquire a variable number of shares of Class A Common Stock||$||— ||$||13,200 ||$||— ||$||13,200 |
|Embedded EPP derivatives||— ||— ||6,461 ||6,461 |
|$||— ||$||13,200 ||$||6,461 ||$||19,661 |
Money Market Funds - Money market funds are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial assets.
Option to acquire a variable number of shares of Class A Common Stock - We estimated the fair value of the Option (as defined in Note 8) to acquire a variable number of shares of Class A Common Stock using a Monte Carlo simulation model using a stochastic volatility parameter, which is calibrated and considers the observable implied volatility, the stock price of our Class A Common Stock and market interest rates. As the fair value is determined based on observable inputs, the Option to acquire a variable number of shares of Class A Common Stock is classified as a Level 2 financial liability.
Embedded Escalation Protection Plan Derivative Liability in Sales Contracts - We estimate the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo simulation model, which considers various potential electricity price curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. We have classified these derivatives as a Level 3 financial liability.
For the three months ended March 31, 2022 and 2021, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized gain of $0.5 million and an unrealized loss of $0.5 million, respectively, in (loss) gain on revaluation of embedded derivatives on our condensed consolidated statements of operations (in thousands in the table below).
|Embedded EPP Derivative Liability|
Liabilities at December 31, 2021
|Changes in fair value||(532)|
|Liabilities at March 31, 2022||$||5,929 |
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 March 31, 2022 and 2021, using an expected growth rate of 7% over the contracts' life and volatility of 20%. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 2021. Avoided cost is the transmission and distribution cost expressed in dollars per kilowatt hours avoided in the given year of the contract, calculated using the billing rates of the effective utility tariff applied during the 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.
Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified as Level 2 financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on our condensed consolidated balance sheets. During the fourth quarter of 2021, we terminated our hedges.
Option - We revalued the Option to purchase Class A common stock to its fair value as of March 31, 2022, and recorded a loss of $3.0 million which is included in other income (expense), net in our condensed consolidated statements of operations. The fair value of the Option is reflected in Accrued expenses and other current liabilities in our condensed consolidated balance sheet.
Financial Assets and Liabilities and Other Items Not Measured at Fair Value on a Recurring Basis
Customer Receivables and Debt Instruments - The fair value for customer financing receivables is based on a discounted cash flow model, whereby the fair value approximates the present value of the receivables (Level 3). The senior secured notes, term loans and convertible notes are based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):
| ||March 31, 2022||December 31, 2021|
| ||Net Carrying|
|Fair Value||Net Carrying|
| || || |
| Customer receivables|
|Customer financing receivables||$||43,880 ||$||36,273 ||$||45,269 ||$||38,334 |
10.25% Senior Secured Notes due March 2027
|69,056 ||70,056 ||68,968 ||72,573 |
2.5% Green Convertible Senior Notes due August 2025
|223,355 ||384,330 ||222,863 ||356,822 |
7.5% Term Loan due September 2028
|28,298 ||33,377 ||29,006 ||35,669 |
6.07% Senior Secured Notes due March 2030
|72,193 ||78,311 ||73,262 ||83,251 |
3.04% Senior Secured Notes due June 2031
|129,910 ||129,101 ||132,631 ||137,983 |
6. Balance Sheet Components
The components of inventory consist of the following (in thousands):
|March 31,||December 31,|
|Raw materials||$||98,417 ||$||80,809 |
|Work-in-progress||41,345 ||31,893 |
|Finished goods||43,304 ||30,668 |
|$||183,066 ||$||143,370 |
The inventory reserves were $14.0 million and $13.9 million as of March 31, 2022 and 2021, respectively.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
|March 31,||December 31,|
| || || |
|Prepaid hardware and software maintenance||$||3,691 ||$||3,494 |
|Receivables from employees||8,410 ||5,463 |
|Other prepaid expenses and other current assets||24,899 ||21,704 |
|$||37,000 ||$||30,661 |
Property, Plant and Equipment, Net
Property, plant and equipment, net, consists of the following (in thousands):
|March 31,||December 31,|
| || || |
|Energy Servers||$||674,799 ||$||674,799 |
|Computers, software and hardware||22,382 ||21,276 |
|Machinery and equipment||123,938 ||110,600 |
|Furniture and fixtures||8,684 ||8,607 |
|Leasehold improvements||63,852 ||52,936 |
|Building||49,226 ||48,934 |
|Construction-in-progress||36,619 ||43,544 |
|979,500 ||960,696 |
|Less: accumulated depreciation||(370,588)||(356,590)|
|$||608,912 ||$||604,106 |
Depreciation expense related to property, plant and equipment was $14.4 million and $13.4 million for the three months ended March 31, 2022 and 2021, respectively.
Property, plant and equipment under operating leases by the PPA Entities was $368.0 million and $368.0 million and accumulated depreciation for these assets was $145.3 million and $139.4 million as of March 31, 2022 and December 31, 2021, respectively. Depreciation expense for these assets was $5.9 million and $5.8 million for the three months ended March 31, 2022 and 2021, respectively.
Other Long-Term Assets
Other long-term assets consist of the following (in thousands):
|March 31,||December 31,|
| || || |
|Prepaid insurance||$||9,006 ||$||9,534 |
|Deferred commissions||7,448 ||7,569 |
|Long-term lease receivable||8,063 ||7,953 |
|Prepaid and other long-term assets||13,895 ||14,060 |
|$||38,412 ||$||39,116 |
Accrued warranty liabilities consist of the following (in thousands):
|March 31,||December 31,|
| || || |
|Product warranty||$||1,089 ||$||961 |
|Product performance||13,582 ||10,785 |
|$||14,671 ||$||11,746 |
Changes in the product warranty and product performance liabilities were as follows (in thousands):
|Balances at December 31, 2021||$||11,746 |
|Accrued warranty, net||3,229 |
|Warranty expenditures during the year-to-date period||(304)|
|Balances at March 31, 2022||$||14,671 |
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|March 31,||December 31,|
| || || |
|Compensation and benefits||$||24,099 ||$||38,222 |
|Current portion of derivative liabilities||3,654 ||6,059 |
|Sales-related liabilities||5,523 ||6,040 |
|Accrued installation||5,094 ||13,968 |
|Sales tax liabilities||1,176 ||1,491 |
|Interest payable||719 ||2,159 |
|Other||51,905 ||46,198 |
|$||92,170 ||$||114,138 |
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
|March 31,||December 31,|
|Delaware grant||$||9,495 ||$||9,495 |
|Other||8,861 ||7,277 |
|$||18,356 ||$||16,772 |We recorded a long-term liability for the potential future repayment of the incentive grant received from the Delaware Economic Development Authority of $9.5 million and $9.5 million as of March 31, 2022 and December 31, 2021, respectively. See Note 13 - Commitments and Contingencies for a full description of the grant.
7. Outstanding Loans and Security Agreements
The following is a summary of our debt as of March 31, 2022 (in thousands, except percentage data):
|Net Carrying Value||Interest|
10.25% Senior Secured Notes due March 2027
|$||70,000 ||$||12,355 ||$||56,701 ||$||69,056 ||10.25%||March 2027||Company||Yes|
2.5% Green Convertible Senior Notes due August 2025
|230,000 ||— ||223,355 ||223,355 ||2.5%||August 2025||Company||Yes|
|Total recourse debt||300,000 ||12,355 ||280,056 ||292,411 |
3.04% Senior Secured Notes due June 30, 2031
|131,830 ||9,404 ||120,506 ||129,910 ||3.04%||June 2031||PPA V||No|
7.5% Term Loan due September 2028
|30,213 ||3,653 ||24,645 ||28,298 ||7.5%||September |
6.07% Senior Secured Notes due March 2030
|72,852 ||4,879 ||67,314 ||72,193 ||6.07%||March 2030||PPA IV||No|
|Total non-recourse debt||234,895 ||17,936 ||212,465 ||230,401 |
|Total debt||$||534,895 ||$||30,291 ||$||492,521 ||$||522,812 |
The following is a summary of our debt as of December 31, 2021 (in thousands, except percentage data):
|Net Carrying Value||Interest|
10.25% Senior Secured Notes due March 2027
|$||70,000 ||$||8,348 ||$||60,620 ||$||68,968 ||10.25%||March 2027||Company||Yes|
2.5% Green Convertible Senior Notes due August 2025
|230,000 ||— ||222,863 ||222,863 ||2.5%||August 2025||Company||Yes|
|Total recourse debt||300,000 ||8,348 ||283,483 ||291,831 |
3.04% Senior Secured Notes due June 30, 2031
|134,644 ||9,376 ||123,255 ||132,631 ||3.04%||June 2031||PPA V||No|
7.5% Term Loan due September 2028
|31,070 ||3,436 ||25,570 ||29,006 ||7.5%||September |
6.07% Senior Secured Notes due March 2030
|73,955 ||4,671 ||68,591 ||73,262 ||6.07%||March 2030||PPA IV||No|
|Total non-recourse debt||239,669 ||17,483 ||217,416 ||234,899 |
|Total debt||$||539,669 ||$||25,831 ||$||500,899 ||$||526,730 |
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 deferred financing costs. We and all of our subsidiaries were in compliance with all financial covenants as of March 31, 2022 and December 31, 2021.
Recourse Debt Facilities
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. The 10.25% Senior Secured Notes are supported by a $70.0 million indenture between us and U.S. Bank National Association.
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 non-current balance of the outstanding unpaid principal of the 10.25% Senior Secured Notes was $57.6 million as of March 31, 2022. The current balance of the outstanding unpaid principal of the 10.25% Senior Secured Notes was $12.4 million as of March 31, 2022.
2.5% Green Convertible Senior Notes due August 2025 - In August 2020, we issued $230.0 million aggregate principal amount of our 2.5% Green Convertible Senior Notes due August 2025 (the "Green Notes"), unless earlier repurchased, redeemed or converted. The principal amount of the 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 not met during the three months ended September 30, 2021 and accordingly, the noteholders may not convert their Green Notes at any time during the quarter ending December 31, 2021. From and after May 15, 2025, the noteholders may convert their Green Notes at any time at their election until the close of business on the second trading 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, the conversion rate will, in certain circumstances, be increased for a specified period of time.
We adopted ASU 2020-06 as of January 1, 2021 using the modified retrospective transition method. Upon adoption, we combined the previously separated equity component of the Green Notes with the liability component, which is now together classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was reclassified to debt and amortized as interest expense. Accordingly, we recorded a net decrease to accumulated deficit of $5.3 million, a decrease to additional paid-in capital of $126.8 million, and an increase to recourse debt, non-current, of approximately $121.5 million upon adoption as of January 1, 2021.
Interest on the Green Notes for the three months ended March 31, 2022 was $1.9 million, including amortization of issuance costs of $0.5 million.
Non-recourse Debt Facilities
3.04% Senior Secured Notes due June 2031 - In November 2021, PPA V issued senior secured notes in an aggregate principal amount of $136.0 million due June 2031. The note bears a fixed rate of 3.04% per annum payable quarterly. The proceeds from the 3.04% Senior Secured Notes due June 2031 were utilized to (i) repay all obligations of the existing LIBOR + 2.5% Term Loan due December 2021, including an outstanding principal balance of $109.1 million, accrued interest of $0.1 million, and fees required to terminate associated interest rate swaps of $11.5 million, (ii) pay the required premium for the PPA V production insurance of $6.5 million, (iii) and pay related fees and expenses related to the refinancing totaling $2.1 million, resulting in a net cash flow of $6.7 million. The note purchase agreement requires us to maintain a debt service reserve, the balance of which was $8.0 million as of March 31, 2022, which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The loan is secured by all assets of PPA V.
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreement to 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 $3.6 million and $3.6 million as of March 31, 2022 and December 31, 2021, respectively, which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The loan is secured by all assets of PPA IIIa.
6.07% Senior Secured Notes due March 2030 - The notes bear a fixed interest rate of 6.07% per annum payable quarterly, which began in December 2015 and ends in March 2030. The note purchase agreement requires us to maintain a debt service reserve, the balance of which was $9.2 million and $9.1 million as of March 31, 2022 and December 31, 2021, respectively, which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The notes are secured by all the assets of the PPA IV.
Repayment Schedule and Interest Expense
The following table presents details of our outstanding loan principal repayment schedule as of March 31, 2022 (in thousands):
|Remainder of 2022||$||21,195 |
Interest expense of $14.1 million and $14.7 million for the three months ended March 31, 2022 and 2021, respectively, was recorded in interest expense on the condensed consolidated statements of operations.
8. Derivative Financial Instruments
Option to Acquire a Variable Number of Shares of Class A Common Stock (Note 18)
In December 2021, we provided SK ecoplant with an option to acquire a variable number of shares of Class A Common Stock (the “Option”). We concluded that the Option is a freestanding financial instrument that should be separately recorded at fair value on the date the SPA was executed. We determined the fair value of the Option on that date to be $9.6 million. We revalued the Option to its fair value of $13.2 million as of December 31, 2021, and $16.2 million as of March 31, 2022. We recorded a loss of $3.0 million in other income (expense), net in our condensed consolidated statements of operations. The fair value of the Option is reflected in accrued expenses and other current liabilities in our condensed consolidated balance sheet. For additional information, see Note 18 - SK ecoplant Strategic Investment.
Interest Rate Swaps
We use various financial instruments to minimize the impact of variable market conditions on our results of operations. We use interest rate swaps to minimize the impact of fluctuations of interest rate changes on our outstanding debt where LIBOR is applied. We do not enter into derivative contracts for trading or speculative purposes. In July 2015, PPA V entered into interest rate swap agreements to convert a variable interest rate debt to a fixed rate. During 2021, the variable rate debts were refinanced into fixed rate debt and the notational amount as the swaps were settled.
Cash Flow Hedges
As of December 31, 2021, we had settled our derivative contracts designated as cash flow hedges. The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive loss and in earnings were as follows during the three months ended March 31, 2021 (in thousands):
|Three Months Ended|
|Beginning balance||$||— ||$||15,989 |
|Loss (gain) recognized in other comprehensive loss||— ||(4,164)|
|Amounts reclassified from other comprehensive loss to earnings||— ||(489)|
|Net loss (gain) recognized in other comprehensive loss||— ||(4,653)|
|Gain recognized in earnings||— ||(35)|
|Ending balance||$||— ||$||11,301 |
Embedded EPP Derivatives in Sales Contracts
We estimate the fair value of the embedded EPP derivatives in certain of the contracts with our customers using a Monte Carlo simulation model, which considers various potential electricity price forward curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. The grid pricing EPP guarantees that we provided in some of our sales arrangements represent an embedded derivative, with the initial value accounted for as a reduction in product revenue and any changes, reevaluated quarterly, in the fair market value of the derivative recorded in gain (loss) on revaluation of embedded derivatives. For the three months ended March 31, 2022 and 2021, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized gain of $0.5 million and an unrealized loss of $0.5 million, respectively. These gains and losses are included within loss on revaluation of embedded derivatives in the condensed consolidated statements of operations. The fair value of these derivatives was $5.9 million and $6.0 million as of March 31, 2022 and 2021, respectively.
Facilities, Energy Servers, and Vehicles
Most of our leases are facilities, Energy Servers, and vehicles under operating and finance leases that expire at various dates through February 2036. We lease various manufacturing facilities in California and Delaware. Our Sunnyvale, California manufacturing facility lease was entered into in April 2005 and expires in December 2023. In June 2020 and in March 2021, we signed leases in Fremont, California that will expire in 2027 and 2036, respectively, to replace our manufacturing facilities in Sunnyvale and Mountain View, California. These existing plants in California together comprise over 500,000 square feet of space. In 2021, we extended the lease term for our headquarters in San Jose, California to 2031 and leased three additional floors. We lease additional office space as field offices in the United States and around the world including in China, India, Japan, the Republic of Korea, Taiwan, and the United Arab Emirates.
Some of these arrangements have free rent periods or escalating rent payment provisions. We recognize lease cost under such arrangements on a straight-line basis over the life of the leases. For the three months ended March 31, 2022 and 2021, rent expense for all occupied facilities was $4.5 million and $3.1 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 (finance lease) or not (operating lease). Our operating leases are comprised primarily of leases for facilities, office buildings, and vehicles, and our finance leases are comprised primarily of vehicles.
Our leases have lease terms ranging from less than 1 year to 14 years, some of which include options to extend the leases. The lease term is the non-cancelable period of the lease and includes options to extend the lease when it is reasonably certain that an option will be exercised.
Lease liabilities are measured at the lease commencement date as the present value of future lease payments. Lease right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future lease payments, the discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. In computing our lease liabilities, we use the incremental borrowing rate based on the information available on the commencement date using an estimate of company-specific rate in the United States on a collateralized basis and consistent with 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 finance lease right-of-use assets and lease liabilities for facilities, Energy Servers, and vehicles as of March 31, 2022 and December 31, 2021 were as follows (in thousands):
|March 31,||December 31,|
Operating lease right-of-use assets, net 1, 2
|$||98,119 ||$||106,660 |
|2,686 ||2,944 |
|Total||$||100,805 ||$||109,604 |
|Operating lease liabilities||$||11,598 ||$||13,101 |
|880 ||863 |
|Total current lease liabilities||12,478 ||13,964 |
|Operating lease liabilities||105,656 ||106,187 |
|1,937 ||2,157 |
|Total non-current lease liabilities||107,593 ||108,344 |
|Total lease liabilities||$||120,071 ||$||122,308 |
1 These assets primarily include leases for facilities, Energy Servers, and vehicles.
2 Net of accumulated amortization.
3 These assets primarily include leases for vehicles.
4 Included in property, plant and equipment, net, in the condensed consolidated balance sheets, net of accumulated amortization.
5 Included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.
6 Included in other long-term liabilities in the condensed consolidated balance sheets.
The components of our facilities, Energy Servers, and vehicles' lease costs for the years ended March 31, 2022 and 2021 were as follows (in thousands):
|Three Months Ended|
|Operating lease costs||$||5,818 ||$||3,018 |
|Finance lease costs:|
|Amortization of finance lease right-of-use assets||258 ||708 |
|Interest expense for finance lease liabilities||54 ||199 |
|Total finance lease costs||312 ||907 |
|Short-term lease costs||36 ||168 |
|Total lease costs||$||6,166 ||$||4,093 |
Weighted average remaining lease terms and discount rates for our facilities, Energy Servers and vehicles as of March 31, 2022 and December 31, 2021 were as follows:
|March 31,||December 31,|
|Remaining lease term (years):|
|Operating leases||8.7 years||8.9 years|
|Finance leases||3.3 years||3.5 years|
|Operating leases||9.7 ||%||9.6 ||%|
|Finance leases||7.6 ||%||7.6 ||%|
Future lease payments under lease agreements for our facilities, Energy Servers and vehicles as of March 31, 2022 were as follows (in thousands):
|Operating Leases||Finance Leases|
|Remainder of 2022||$||13,357 ||$||725 |
|2023||19,971 ||935 |
|2024||18,096 ||771 |
|2025||18,320 ||301 |
|2026||17,901 ||97 |
|Thereafter||76,472 ||— |
|Total minimum lease payments||164,117 ||2,829 |
|Less: amounts representing interest or imputed interest||(46,863)||(12)|
|Present value of lease liabilities||$||117,254 ||$||2,817 |
Managed Services and Portfolio Financings Through PPA Entities
Certain of our customers enter into Managed Services or Portfolio Financings through a PPA Entity to finance their lease of Bloom Energy Servers. Prior to our adoption of ASC 842 as of January 1, 2020, such arrangements with customers that qualified as leases were classified as either sales-type leases or operating leases. For all pre-existing Managed Services Financings or Portfolio Financings through PPA Entities, we have carried over the accounting classifications for those transactions and continue to account for such transactions as either sales-type leases or operating leases under ASC 842. Customer arrangements under Managed Services and Portfolio Financings through PPA Entities entered into after January 1, 2021 do not contain a lease under ASC 842 and are accounted for under ASC 606 as revenue arrangements.
Lease agreements under our Managed Services Financings and Portfolio Financings through PPA Entities include non-cancellable lease terms, during which terms the majority of our investment in Energy Servers under lease are typically recovered. We mitigate remaining residual value risk of its Energy Servers through its provision of maintenance on the Energy Servers during the lease term and through insurance whose proceeds are payable in the event of theft, loss, damage, or destruction.
Managed Services - Our Managed Services Financings with financiers that result in failed sale-and-leaseback transactions are accounted for as financing transactions. Payments received from the financier are recognized as financing obligations in our condensed consolidated balance sheets. Proceeds from the financiers in excess of fair value of Energy Servers under successful sale-and-leaseback transactions are also accounted for as a financing liability. These financing obligations are included in each agreements' contract value and are recognized as short-term or long-term liabilities based on the estimated payment dates. The lease agreements expire on various dates through 2034. For successful sale-and-leaseback transactions, we recorded right-of-use assets and lease liabilities and recorded lease expense over the lease term. The recognized lease expense has been immaterial.
At March 31, 2022, future lease payments under the Managed Services Agreements financing obligations and the sublease payments from the customers under the related operating leases were as follows (in thousands):
|Remainder of 2022||$||32,518 |
|Total lease payments||252,123 |
|Less: imputed interest||(142,181)|
|Total lease financing obligations||109,942 |
|Less: current financing obligations||(15,172)|
|Long-term lease financing obligations||$||94,770 |
The long-term financing obligations, as reflected in our condensed consolidated balance sheets, were $452.2 million and $461.9 million as of March 31, 2022 and December 31, 2021, respectively. The difference between these obligations and the principal obligations in the table above will be offset against the carrying value of the related Energy Servers at the end of the lease and the remainder recognized as a gain at that point.
Portfolio Financings through PPA Entities - Customer arrangements entered into prior to January 1, 2020 under Portfolio Financing arrangements through a PPA Entity that qualified as leases are accounted for as either sales-type leases or operating leases. Since January 1, 2020, we have not entered into any new PPAs with customers under such arrangements.
The components of our aggregate net investment in sales-type leases under our Portfolio Financings through PPA entities consisted of the following (in thousands):
|March 31,||December 31,|
Lease payment receivables, net1
|$||42,990 ||$||44,378 |
|Estimated residual value of leased assets (unguaranteed)||890 ||890 |
|Net investment in sales-type leases||43,880 ||45,268 |
|Less: current portion||(5,875)||(5,784)|
|Non-current portion of net investment in sales-type leases||$||38,005 ||$||39,484 |
1 Net of current estimated credit losses of approximately $0.1 million as of March 31, 2022 and December 31, 2021.
As of March 31, 2022, the future scheduled customer payments from sales-type leases were as follows (in thousands):
|Future Minimum Lease Payments|
|Remainder of 2022||$||4,636 |
|Total undiscounted cash flows||44,174 |
|Less: imputed interest||(1,133)|
Present value of lease payments1
1 Amount comprises a current and long-term portion of lease receivables of $5.9 million and $38.0 million, respectively, after giving effect to a $0.1 million current expected credit loss reserve on the long-term portion, which is reflected as a component of the net investment in sales-type leases presented in our condensed consolidated statement of financial position as customer financing receivables.
Future estimated operating lease payments we expect to receive from Portfolio Financing arrangements through PPA Entities as of March 31, 2022, were as follows (in thousands):
|Remainder of 2022||$||32,305 |
|Total lease payments||$||434,322 |
10. Stock-Based Compensation Expense and Employee Benefit Plans
Stock-Based Compensation Expense
The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of operations (in thousands):
| ||Three Months Ended|
|Cost of revenue||$||3,860 ||$||2,999 |
|Research and development||7,082 ||4,908 |
|Sales and marketing||4,775 ||4,085 |
|General and administrative||10,591 ||5,218 |
|$||26,308 ||$||17,210 |
Stock Option and Stock Award Activity
The following table summarizes the stock option activity under our stock plans during the reporting period:
| ||Outstanding Options|
| ||Number of|
| || || ||(in thousands)|
|Balances at December 31, 2021||10,737,295 ||$||21.23 ||5.2||$||60,304 |
|Balances at March 31, 2022||10,399,344 ||21.31 ||5.0||67,413 |
|Vested and expected to vest at March 31, 2022||10,322,713 ||21.40 ||5.0||66,271 |
|Exercisable at March 31, 2022||8,841,572 ||23.30 ||4.7||45,009 |
Stock Options - During the three months ended March 31, 2022 and 2021, we recognized $2.1 million and $4.0 million of stock-based compensation expense for stock options, respectively. We did not grant options in the three months ended March 31, 2022.
As of March 31, 2022 and 2021, we had unrecognized compensation expense related to unvested stock options of $4.4 million and $16.8 million, respectively. This expense is expected to be recognized over the remaining weighted-average period of 0.6 years and 1.6 years, respectively. Cash received from stock options exercised totaled $1.0 million and $53.2 million for the three months ended March 31, 2022 and 2021, respectively.
A summary of our stock awards activity and related information is as follows:
Unvested Balance at December 31, 2021
|8,367,664 ||$||20.52 |
|Granted||3,841,604 ||19.82 |
|Unvested Balance at March 31, 2022||11,155,080 ||20.07 |
Stock Awards - The estimated fair value of restricted stock units ("RSUs") and performance stock units ("PSUs") is based on the fair value of our Class A common stock on the date of grant. For the three months ended March 31, 2022 and 2021, we recognized $21.0 million and $10.7 million of stock-based compensation expense for stock awards, respectively.
As of March 31, 2022 and 2021, we had $192.2 million and $126.2 million of unrecognized stock-based compensation expense related to unvested stock awards, expected to be recognized over a weighted average period of 2.4 years and 2.4 years, respectively.
The following table presents the stock activity for the three months ended March 31, 2022 and the total number of shares available for grant under our stock plans as of March 31, 2022:
| ||Plan Shares Available|
| || |
Balances at December 31, 2021
|Added to plan||8,384,460 |
Balances at March 31, 2022
2018 Employee Stock Purchase Plan
During the three months ended March 31, 2022 and 2021, we recognized $2.5 million and $1.1 million of stock-based compensation expense for the 2018 Employee Stock Purchase Plan, respectively. We issued 420,689 shares in the three months ended March 31, 2022. During the three months ended March 31, 2022, we added an additional 2,055,792 shares and there were 4,179,771 shares available for issuance as of March 31, 2022. We issued 977,508 shares in the three months ended March 31, 2021.
As of March 31, 2022 and 2021, we had $9.1 million and $1.2 million of unrecognized stock-based compensation expense, expected to be recognized over a weighted average period of 1.1 years and 0.5 years, respectively.
11. Portfolio Financings
We have developed various financing options that enable customers' use of the Energy Servers through third-party ownership financing arrangements. For additional information on these financing options, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
On March 31, 2022, we entered into a Membership Interest Purchase Agreement where we bought out the equity interest of the third-party investor, wherein the PPA IIIa Investment Company and Operating Company ("PPA IIIa") became wholly-owned by us and no longer met the definition of a VIE. We therefore consolidate PPA IIIa in our condensed consolidated financial statements commencing March 31, 2022.
PPA Entities’ Aggregate Assets and Liabilities
Generally, the assets of an operating company owned by an investment company can be used to settle only the operating company obligations, and the operating company creditors do not have recourse to us. The following are the aggregate carrying values of our VIEs' assets and liabilities in our condensed consolidated balance sheets, after eliminations of intercompany transactions and balances, including as of March 31, 2022 each of the PPA Entities in the PPA IV transaction and the PPA V transaction, and as of December 31, 2021 each of the PPA Entities in the PPA IIIa transaction, the PPA IV transaction and the PPA V transaction (in thousands):
| ||March 31,||December 31,|
| || || |
|Cash and cash equivalents||$||1,704 ||$||1,541 |
|Restricted cash||1,710 ||3,078 |
|Accounts receivable||3,611 ||5,112 |
|Customer financing receivable||— ||5,784 |
|Prepaid expenses and other current assets||1,682 ||3,071 |
|Total current assets||8,707 ||18,586 |
|Property and equipment, net||219,791 ||228,546 |
|Customer financing receivable, non-current||— ||39,484 |
|Restricted cash, non-current||17,196 ||23,239 |
|Other long-term assets||2,239 ||2,362 |
|Total assets||$||247,933 ||$||312,217 |
|Accrued expenses and other current liabilities||$||96 ||$||194 |
|Deferred revenue and customer deposits||662 ||662 |
|Non-recourse debt||14,283 ||17,483 |
|Total current liabilities||15,041 ||18,339 |
|Deferred revenue and customer deposits, non-current||5,247 ||5,410 |
|Non-recourse debt, non-current||187,819 ||217,417 |
|Total liabilities||$||208,107 ||$||241,166 |
We consolidated each PPA Entity as VIEs in the PPA IV transaction and the PPA V transaction, as we remain the minority shareholder in each of these transactions but have determined that we are the primary beneficiary of these VIEs. These PPA Entities contain debt that is non-recourse to us and own Energy Server assets for which we do not have title.
12. Related Party Transactions
Our operations include the following related party transactions (in thousands):
| ||Three Months Ended|
|Total revenue from related parties||$||7,466 ||$||770 |
Bloom Energy Japan Limited
In May 2013, we entered into a joint venture with Softbank Corp. ("Softbank"), which was accounted for as an equity method investment. Under this arrangement, we sold Energy Servers and provided maintenance services to the joint venture. On July 1, 2021 (the "BEJ Closing Date"), we acquired Softbank's 50% interest in the joint venture for a cash payment of $2.0 million. As of the BEJ Closing Date, Bloom Energy Japan Limited ("Bloom Energy Japan") is no longer considered a related party. For additional information, see Note 17 - Business Combinations.
For the three months ended March 31, 2022 we had no related party revenue and as of March 31, 2021, we recognized related party total revenue of $0.8 million, respectively.
SK ecoplant Joint Venture and Strategic Partnership
In September 2019, we entered into a joint venture agreement with SK ecoplant to establish a light-assembly facility in the Republic of Korea for sales of certain portions of our Energy 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. On October 23, 2021, we expanded our existing relationship with SK ecoplant. In connection with the execution of the strategic partnership, we entered into a Securities Purchase Agreement pursuant to which we agreed to sell and issue to SK ecoplant 10,000,000 shares of Series A Redeemable Convertible Preferred Stock. In addition, SK ecoplant acquired an option to acquire a variable number of shares of our Class A Common Stock and acquired certain rights and provisions relating to the arrangement under this strategic partnership. For additional information, see Note 18 - SK ecoplant Strategic Investment.
For the three months ended March 31, 2022 and 2021, we recognized related party revenue of $7.5 million and none, respectively. As of March 31, 2022, we had $3.9 million outstanding accounts receivable.
13. Commitments and Contingencies
Purchase Commitments with Suppliers and Contract Manufacturers - As of March 31, 2022 and December 31, 2021, we had no material open purchase orders with our component suppliers and third-party manufacturers that are not cancellable.
Portfolio Financings Performance Guarantees - We guarantee the performance of Energy Servers at certain levels of output and efficiency to customers over the contractual term. We paid $0.2 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.
Letters of Credit - In 2019, pursuant to the PPA II upgrade of Energy Servers, we agreed to indemnify our financing partner for losses that may be incurred in the event of certain regulatory, legal or legislative development and established a cash-collateralized letter of credit facility for this purpose. As of March 31, 2022, the balance of this cash-collateralized letter of credit was $91.6 million, of which $41.2 million and $50.4 million is recognized as short-term and long-term restricted cash, respectively.
Pledged Funds - In 2019, pursuant to the PPA IIIb refinancing and energy servers upgrade program, we pledged $20.0 million for a seven-year period to secure our operations and maintenance obligations with respect to the totality of our obligations to the financier. We categorized the $20.0 million as restricted cash on our condensed consolidated balance sheet. It was agreed all or a portion of such funds would be released if we meet certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within the first five-year period, the
funds would still be released to us over the following two years as long as the energy servers continue to perform in compliance with our warranty obligations. As of March 31, 2022, the balance of the long-term restricted cash was $6.7 million.
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.
Contingent Consideration - Our acquisition of Softbank's 50% interest in Bloom Energy Japan included a contingent consideration related to a potential sale of Energy Servers of up to 10.5 megawatts of aggregate baseload. The consideration can be earned on or before the two year anniversary of the BEJ Closing Date. For a further discussion of our acquisition of Softbank's interest in the joint venture, please see Note 17 - Business Combinations.
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. As of March 31, 2022, we have recorded $9.5 million in other long-term liabilities for potential future repayments of this grant.
Investment Tax Credits - Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed of or otherwise ceases to be qualified investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction of the incentives. Energy Servers are purchased by the PPA Entities, other financial sponsors, or customers and, therefore, these parties bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future although in certain limited circumstances we do provide indemnification for such risk.
Legal Matters - We are involved in various legal proceedings that arise in the ordinary course of business. We review all legal matters at least quarterly and assess whether an accrual for loss contingencies needs to be recorded. We record an accrual for loss contingencies when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so the actual liability in any such matters may be materially different from our estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on our consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.
In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a statement of claim with the American Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27, 2014 (the “Confidential Agreement”). On May 7, 2019, KPCB and NEA were dismissed with prejudice. On June 15, 2019, a second amended statement of claim was filed against us alleging securities fraud, fraudulent inducement, a breach of the Confidential Agreement, and violation of the California unfair competition law. On July 16, 2019, we filed our answering statement and affirmative defenses. On September 27, 2019, we filed a motion to dismiss the statement of claim. On March 24, 2020, the Tribunal denied our motion to dismiss in part, and ordered that claimant’s relief is limited to rescission of the Confidential Agreement or remedies consistent with rescission, and not expectation damages. On September 14, 2020, the Tribunal issued an interim order dismissing the claimant’s remaining claims and requesting further briefing on the issue of prevailing party. On November 10, 2020, the Tribunal issued an order declaring us the prevailing party and requesting a motion for award of attorney’s fees. On March 17, 2021, we received the final award for attorneys fees and costs. On March 26, 2021, we filed a petition in the Northern District of California to confirm the award. Messrs. Badger and Daubenspeck have taken the position that the award should be vacated, including on the ground that one of the arbitrators made insufficient disclosures or was biased against them. The Northern District of California rejected the arguments made by Messrs. Badger and Daubenspeck and on September 8, 2021, issued an order granting our petition to confirm the award, and entered judgment in our favor for the attorneys fees and costs awarded by the Tribunal. On October 1, 2021, Mr. Badger and Mr. Daubenspeck filed a notice of appeal with the United States Court of Appeal for the Ninth Circuit.
In June 2019, Messrs. Daubenspeck and Badger filed a complaint against our Chief Executive Officer ("CEO") and our former Chief Financial Officer ("CFO") in the United States District Court for the Northern District of Illinois asserting nearly
identical claims as those in the pending arbitration discussed above. The lawsuit was stayed pending the outcome of the arbitration. The stay was lifted on October 20, 2020. On March 19, 2021 we filed a motion to dismiss the case on several grounds. On May 3, 2021, plaintiffs filed a motion to stay the lawsuit pending the outcome of the petition to confirm the arbitration award in the Northern District of California. We believe the complaint to be without merit and that the issues were previously tried and dismissed in the arbitration. We are unable to estimate any range of reasonably possible losses.
In March 2019, the Lincolnshire Police Pension Fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara, against us, certain members of our senior management, certain of our directors and the underwriters in our July 25, 2018 IPO alleging violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the "Securities Act"), for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with the IPO. Two related class action cases were subsequently filed in the Santa Clara County Superior Court against the same defendants containing the same allegations; Rodriquez vs Bloom Energy et al. was filed on April 22, 2019 and Evans vs Bloom Energy et al. was filed on May 7, 2019. These cases have been consolidated. Plaintiffs' consolidated amended complaint was filed with the court on September 12, 2019. On October 4, 2019, defendants moved to stay the lawsuit pending the federal district court action discussed below. On December 7, 2019, the Superior Court issued an order staying the action through resolution of the parallel federal litigation mentioned below. We believe the complaint to be without merit and we intend to defend this action vigorously. We are unable to estimate any range of reasonably possible losses.
In May 2019, Elissa Roberts filed a class action complaint in the federal district court for the Northern District of California against us, certain members of our senior management team, and certain of our directors alleging violations under Section 11 and 15 of the Securities Act for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with the IPO. On September 3, 2019, the court appointed a lead plaintiff and lead plaintiffs’ counsel. On November 4, 2019, plaintiffs filed an amended complaint adding the underwriters in the IPO and our auditor as defendants for the Section 11 claim, as well as adding claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act" ) against us, and certain members of our senior management team. The amended complaint alleged a class period for all claims from the time of our IPO until September 16, 2019. On April 21, 2020, plaintiffs filed a second amended complaint, which continued to make the same claims and added allegations pertaining to the restatement and, as to claims under the Exchange Act, extended the putative class period through February 12, 2020. On July 1, 2020, we and the other defendants filed a motion to dismiss the second amended complaint. On September 29, 2021, the court entered an order dismissing with leave to amend (1) five of seven statements or groups of statements alleged to violate Sections 11 and 15 of the Securities Act and (2) all allegations under the Exchange Act. All allegations against our auditors were also dismissed. Plaintiffs elected not to amend the complaint and instead on October 22, 2021 filed a motion for entry of final judgment in favor of our auditors so that plaintiffs could appeal the dismissal of those claims. The court denied that motion on December 1, 2021 and in response plaintiffs have filed a motion asking the court to certify an interlocutory appeal as to the accounting claims. The court denied plaintiff’s motion on April 14, 2022. Separately, the claims for violation of Sections 11 and 15 of the Securities Act that were not dismissed by the court are proceeding to discovery. A case schedule has been set, with a trial scheduled for November 2023. We believe the claims to be without merit and we intend to defend this action vigorously. We are unable to predict the outcome of this litigation at this time and accordingly are not able to estimate any range of reasonably possible losses.
In September 2019, we received a books and records demand from purported stockholder Dennis Jacob (“Jacob Demand”). The Jacob Demand cites allegations from the September 17, 2019 report prepared by admitted short seller Hindenburg Research. In November 2019, we received a substantially similar books and records demand from the same law firm on behalf of purported stockholder Michael Bolouri (“Bolouri Demand” and, together with the Jacob Demand, the “Demands”). On January 13, 2020, Messrs. Jacob and Bolouri filed a complaint in the Delaware Court of Chancery to enforce the Demands in the matter styled Jacob, et al. v. Bloom Energy Corp., C.A. No. 2020-0023-JRS. On March 9, 2020, Messrs. Jacob and Bolouri filed an amended complaint in the Delaware Court of Chancery to add allegations regarding the restatement. The court held a one-day trial on December 7, 2020. On February 25, 2021, the Delaware Court of Chancery issued a decision rejecting the Bolouri Demand but granting in part the Jacob Demand allowing limited access to certain books and records pertaining to the allegations made in the Hindenburg Research Report. On March 29, 2021, the Court of Chancery entered a Final Order and Judgment regarding the required production of documents. On April 28, 2021, we produced documents to Mr. Jacob responsive to the Final Order and Judgment. We are unable to estimate any range of reasonably possible losses.
In March 2020, Francisco Sanchez filed a class action complaint in Santa Clara County Superior Court against us alleging certain wage and hour violations under the California Labor Code and Industrial Welfare Commission Wage Orders and that we engaged in unfair business practices under the California Business and Professions Code, and in July 2020 he amended his complaint to add claims under the California Labor Code Private Attorneys General Act ("PAGA"). On November 30, 2020, we filed a motion to compel arbitration and the motion was to be heard on March 5, 2021. On February 24, 2021, Mr.
Sanchez dismissed the individual and class action claims without prejudice, leaving one cause of action for enforcement of the Private Attorney Generals Act. In April 2021, an amended complaint reflecting these changes was filed with the Santa Clara Superior Court. The parties attended a mediation on January 10, 2022, and agreed in principle to resolve the PAGA and individual claims for an amount under $1.0 million. After negotiation of the relevant terms, the parties executed a written agreement in late March 2022. The agreement will be presented by Plaintiff to the court for approval in compliance with PAGA.
In June 2021, we filed a petition for writ of mandate and a complaint for declaratory and injunctive relief in the Santa Clara Superior Court against the City of Santa Clara for failure to issue building permits for two of our customer installations and asking the court to require the City of Santa Clara to process and issue the building permits. In October 2021, we filed an amended petition and complaint that asserts additional constitutional and tort claims based on the City’s failure to timely issue the Energy Server permits. Discovery has commenced and we are aggressively pursuing all claims. On February 4, 2022, the City of Santa Clara filed a Motion for Demurrer, which will be heard on May 19, 2022. If we are unable to secure building permits for these customer installations in a timely fashion, our customers will terminate their contracts with us and select another energy provider. In addition, if we are no longer able to install our Energy Servers in Santa Clara under building permits, we may not be able to secure future customer bookings for installation in the City of Santa Clara.
In February 2022, Plansee SE/Global Tungsten & Powders Corp. ("Plansee/GTP"), a former supplier, filed a request for expedited arbitration with the World Intellectual Property Organization Arbitration and Mediation Center in Geneva Switzerland, for various claims arising under a Supply Agreement between Plansee/GTP and Bloom Energy Corporation including infringement of several claims of U.S. Patent Nos. 8,802,328, 8,753,785 and 9,434,003. On April 3, 2022, we filed a complaint against Plansee/GTP in the Eastern District of Texas to address the dispute between Plansee/GTP and Bloom Energy Corporation in a proper forum before a U.S. Federal District Court. Our complaint seeks the correction of inventorship of U.S. Patent Nos. 8,802,328, 8,753,785 and 9,434,003 (the “Patents-in-Suit”); declaratory judgment of invalidity, unenforceability, and non-infringement of the Patents-in-Suit; and declaratory judgment of no misappropriation. Further, our complaint seeks to recover damages it has suffered in relation to Plansee/GTP’s business dealings that, as alleged, constitute acts of unfair competition, tortious interference contract, breach of contract, violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and violations of the Clayton Antitrust Act. Given that the cases are still in their early stages, we are unable to predict the ultimate outcome of the arbitration and district court action at this time, and accordingly are not able to estimate a range of reasonably possible losses.
14. Segment Information
Our chief operating decision makers ("CODM"), the CEO and the CFO, review financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The CODM allocate resources and make operational decisions based on direct involvement with our operations and product development efforts. We are managed under a functionally-based organizational structure with the head of each function reporting to the CEO. The CODM assess performance, including incentive compensation, based upon consolidated operations performance and financial results on a consolidated basis. As such, we have a single operating unit structure and are a single reporting segment.
15. Income Taxes
For the three months ended March 31, 2022 and 2021, we recorded provisions for income taxes of $0.6 million and $0.1 million on pre-tax losses of $82.2 million and $29.7 million for effective tax rates of (0.7)% and (0.4)%, respectively.
The effective tax rate for the three months ended March 31, 2022 and 2021 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.
16. Net Loss per Share Available to Common Stockholders
The following table sets forth the computation of our net loss per share available to common stockholders, basic and diluted (in thousands, except share and per share amounts):
|Three Months Ended|
| || || |