10-Q 1 a2019q110qbloomenergycorp.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________
FORM 10-Q
________________________________________________________________________
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2019
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ____________to ____________
 
Commission File Number 001-38598 
________________________________________________________________________
download1.jpg
BLOOM ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
________________________________________________________________________
Delaware
77-0565408
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
4353 North First Street, San Jose, California
95134
(Address of principal executive offices)
(Zip Code)
 
 
(408) 543-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
Title of Each Class
Name of each exchange on which registered
Class A Common Stock $0.0001 par value
New York Stock Exchange
Class B Common Stock $0.0001 par value
New York Stock Exchange
Our Class A common stock is approved for trading and listed under the symbol "BE."
________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filer  ¨     Accelerated filer  ¨      Non-accelerated filer  þ      Smaller reporting company  ¨      Emerging growth company  þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  ¨    No  þ
The number of shares of the registrant’s common stock outstanding as of April 30, 2019 was as follows:
Class A Common Stock $0.0001 par value 60,021,168 shares
Class B Common Stock $0.0001 par value 53,543,216 shares




Bloom Energy Corporation
Quarterly Report on Form 10-Q for the Three Months Ended March 31, 2019
Table of Contents
 
Page
PART I - FINANCIAL INFORMATION
 
 
 
PART II - OTHER INFORMATION
 
 
 


2



SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “predict,” “project,” “potential,” ”seek,” “intend,” “could,” “would,” “should,” “expect,” “plan” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our plans and expectations regarding future financial results, expected operating results, business strategies, the sufficiency of our cash and our liquidity, projected costs and cost reductions, development of new products and improvements to our existing products, the impact of recently adopted accounting pronouncements, our manufacturing capacity and manufacturing costs, the adequacy of our agreements with our suppliers, legislative actions and regulatory compliance, competitive position, management’s plans and objectives for future operations, our ability to obtain financing, our ability to comply with debt covenants or cure defaults, if any, our ability to repay our obligations as they come due, trends in average selling prices, the success of our PPA Entities, expected capital expenditures, warranty matters, outcomes of litigation, our exposure to foreign exchange, interest and credit risk, general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, risks related to privacy and data security, the likelihood of any impairment of project assets, long-lived assets and investments, trends in revenue, cost of revenue and gross profit (loss), trends in operating expenses including research and development expense, sales and marketing expense and general and administrative expense and expectations regarding these expenses as a percentage of revenue, future deployment of our Energy Servers, expansion into new markets, our ability to expand our business with our existing customers, our ability to increase efficiency of our product, our ability to decrease the cost of our product, our future operating results and financial position, our business strategy and plans and our objectives for future operations.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors including those discussed in ITEM 1A - Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements we may make in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur. Actual results, events or circumstances could differ materially and adversely from those described or anticipated in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.
Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors including those discussed under ITEM 1A - Risk Factors and elsewhere in this Quarterly Report on Form 10-Q.


3


PART I - FINANCIAL INFORMATION


ITEM 1 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Bloom Energy Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Assets
Current assets:
 
 
 
 
Cash and cash equivalents1
 
$
320,414

 
$
220,728

Restricted cash1
 
18,419

 
28,657

Short-term investments
 

 
104,350

Accounts receivable1
 
84,070

 
84,887

Inventories
 
116,544

 
132,476

Deferred cost of revenue
 
66,316

 
62,147

Customer financing receivable1
 
5,717

 
5,594

Prepaid expense and other current assets1
 
28,362

 
33,742

Total current assets
 
639,842

 
672,581

Property, plant and equipment, net1
 
475,385

 
481,414

Customer financing receivable, non-current1
 
65,620

 
67,082

Restricted cash, non-current1
 
31,101

 
31,100

Deferred cost of revenue, non-current
 
72,516

 
102,699

Other long-term assets1
 
34,386

 
34,792

Total assets
 
$
1,318,850

 
$
1,389,668

Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interests
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable1
 
$
64,425

 
$
66,889

Accrued warranty
 
16,736

 
19,236

Accrued other current liabilities1
 
67,966

 
69,535

Deferred revenue and customer deposits1
 
89,557

 
94,158

Current portion of recourse debt
 
15,683

 
8,686

Current portion of non-recourse debt1
 
19,486

 
18,962

Current portion of non-recourse debt from related parties1
 
2,341

 
2,200

Total current liabilities
 
276,194

 
279,666

Derivative liabilities, net of current portion1
 
11,166

 
10,128

Deferred revenue and customer deposits, net of current portion1
 
201,863

 
241,794

Long-term portion of recourse debt
 
357,876

 
360,339

Long-term portion of non-recourse debt1
 
284,541

 
289,241

Long-term portion of recourse debt from related parties
 
27,734

 
27,734

Long-term portion of non-recourse debt from related parties1
 
33,417

 
34,119

Other long-term liabilities1
 
58,032

 
55,937

Total liabilities
 
1,250,823

 
1,298,958

Commitments and contingencies (Note 13)
 

 

Redeemable noncontrolling interest
 
58,802

 
57,261

Stockholders’ deficit
 
(105,439
)
 
(91,661
)
Noncontrolling interest
 
114,664

 
125,110

Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
 
$
1,318,850

 
$
1,389,668

1We have variable interest entities which represent a portion of the consolidated balances are recorded within the "Cash and cash equivalents," "Restricted cash," "Accounts receivable," "Customer financing receivable," "Prepaid expenses and other current assets," "Property and equipment, net," "Customer financing receivable, non-current," "Restricted cash, non-current," "Other long-term assets," "Accounts payable," "Accrued other current liabilities," "Deferred revenue and customer deposits," "Current portion of non-recourse debt from related parties," "Derivative liabilities, net of current portion," "Deferred revenue and customer deposits, net of current portion," "Long-term portion of non-recourse debt," and "Other long-term liabilities" financial statement line items in the Condensed Consolidated Balance Sheets (see Note 12).


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

4


Bloom Energy Corporation
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
 
 
 
 
Revenue:
 
 
 
 
Product
 
$
141,734

 
$
121,307

Installation
 
22,258

 
14,118

Service
 
23,290

 
19,907

Electricity
 
13,425

 
14,029

Total revenue
 
200,707

 
169,361

Cost of revenue:
 
 
 
 
Product
 
124,000

 
80,355

Installation
 
24,166

 
10,438

Service
 
27,557

 
24,253

Electricity
 
9,229

 
10,649

Total cost of revenue
 
184,952

 
125,695

Gross profit
 
15,755

 
43,666

Operating expenses:
 
 
 
 
Research and development
 
28,859

 
14,731

Sales and marketing
 
20,463

 
8,262

General and administrative
 
39,074

 
14,988

Total operating expenses
 
88,396

 
37,981

Gain (loss) from operations
 
(72,641
)
 
5,685

Interest income
 
1,885

 
415

Interest expense
 
(15,962
)
 
(21,379
)
Interest expense to related parties
 
(1,612
)

(2,627
)
Other income (expense), net
 
265

 
(75
)
Loss on revaluation of warrant liabilities and embedded derivatives
 

 
(4,034
)
Net loss before income taxes
 
(88,065
)
 
(22,015
)
Income tax provision
 
208

 
333

Net loss
 
(88,273
)
 
(22,348
)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
(3,832
)
 
(4,632
)
Net loss attributable to Class A and Class B common stockholders
 
$
(84,441
)
 
$
(17,716
)
Net loss per share attributable to Class A and Class B common stockholders, basic and diluted
 
$
(0.76
)
 
$
(1.70
)
Weighted average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted
 
111,842

 
10,403

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

5


Bloom Energy Corporation
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
 
 
 
 
Net loss attributable to Class A and Class B stockholders
 
$
(84,441
)
 
$
(17,716
)
Other comprehensive income (loss), net of taxes:
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
 
17

 
(9
)
Change in derivative instruments designated and qualifying in cash flow hedges
 
(2,191
)
 
2,867

Other comprehensive income (loss), net of taxes
 
(2,174
)
 
2,858

Comprehensive loss
 
(86,615
)
 
(14,858
)
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
(2,048
)
 
(2,579
)
Comprehensive loss attributable to Class A and Class B stockholders
 
$
(88,663
)
 
$
(17,437
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Bloom Energy Corporation
Condensed Consolidated Statements of Convertible Redeemable Preferred Stock, Redeemable Noncontrolling Interest, Stockholders' Deficit and Noncontrolling Interest
(in thousands, except share amounts)
(unaudited)
 
Convertible Redeemable Preferred Stock
 
Redeemable Noncontrolling Interest
 
 
Class A and Class B
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Gain (Loss)
 
Accumulated
Deficit
 
Stockholders' Deficit
 
Noncontrolling Interest
 
Shares
 
Amount
 
Amount
 
 
Shares
 
Amount
 
 
 
 
 
Balances at December 31, 2018

 
$

 
$
57,261

 
 
109,421,183

 
$
11

 
$
2,480,597

 
$
131

 
$
(2,572,400
)
 
$
(91,661
)
 
$
125,110

Issuance of restricted stock awards

 

 

 
 
2,960,462

 

 

 

 

 

 

ESPP purchase

 

 

 
 
696,036

 

 
6,916

 

 

 
6,916

 

Exercise of stock options

 

 

 
 
136,382

 

 
577

 

 

 
577

 

Stock-based compensation expense

 

 

 
 

 

 
63,166

 

 

 
63,166

 

Unrealized gain on available for sale securities

 

 

 
 

 

 

 
17

 

 
17

 

Change in effective and ineffective portion of interest rate swap agreement

 

 

 
 

 

 

 
(143
)
 

 
(143
)
 
(2,048
)
Distributions to noncontrolling interests

 

 
(282
)
 
 

 

 

 

 

 

 
(2,613
)
Cumulative effect of hedge accounting standard adoption

 

 

 
 

 

 

 

 
130

 
130

 
(130
)
Net income (loss)

 

 
1,823

 
 

 

 

 

 
(84,441
)
 
(84,441
)
 
(5,655
)
Balances at March 31, 2019

 
$

 
$
58,802

 
 
113,214,063

 
$
11

 
$
2,551,256

 
$
5

 
$
(2,656,711
)
 
$
(105,439
)
 
$
114,664

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Convertible Redeemable Preferred Stock
 
Redeemable Noncontrolling Interest
 
 
Common Stock1
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Gain (Loss)
 
Accumulated
Deficit
 
Stockholders' Deficit
 
Noncontrolling Interest
 
Shares
 
Amount
 
Amount
 
 
Shares
 
Amount
 
 
 
 
 
Balances at December 31, 2017
71,740,162

 
$
1,465,841

 
$
58,154

 
 
10,353,269

 
$
1

 
$
150,803

 
$
(162
)
 
$
(2,330,647
)
 
$
(2,180,005
)
 
$
155,372

Issuance of restricted stock awards

 

 

 
 
68,098

 

 
120

 

 

 
120

 

Exercise of stock options

 

 

 
 
3,615

 

 
67

 

 

 
67

 

Stock-based compensation expense

 

 

 
 

 

 
7,614

 

 

 
7,614

 

Unrealized loss on available for sale securities

 

 

 
 

 

 

 
(9
)
 

 
(9
)
 

Change in effective portion of interest rate swap agreement

 

 
3

 
 

 

 

 
288

 

 
288

 
2,576

Distributions to noncontrolling interests

 

 
(1,472
)
 
 

 

 

 

 

 

 
(2,066
)
Net income (loss)

 

 
1,491

 
 

 

 

 

 
(17,716
)
 
(17,716
)
 
(6,123
)
Balances at March 31, 2018
71,740,162

 
$
1,465,841

 
$
58,176

 
 
10,424,982

 
$
1

 
$
158,604

 
$
117

 
$
(2,348,363
)
 
$
(2,189,641
)
 
$
149,759

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
¹ Common Stock issued and converted to Class A Common and Class B Common effective July 2018.

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

7


Bloom Energy Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)  
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(88,273
)
 
$
(22,348
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and Amortization
 
11,271

 
10,847

Write-off of property, plant and equipment, net
 
1

 

Revaluation of derivative contracts
 
(453
)
 
7,157

Stock-based compensation
 
63,882

 
7,956

Loss on long-term REC purchase contract
 
59

 
12

Revaluation of preferred stock warrants
 

 
(3,271
)
Common stock warrant valuation
 

 
(100
)
Amortization of debt issuance cost
 
5,152

 
7,168

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
816

 
(28,203
)
Inventories
 
15,932

 
(6,818
)
Deferred cost of revenue
 
26,014

 
16,282

Customer financing receivable and other
 
1,339

 
1,306

Prepaid expenses and other current assets
 
5,194

 
(446
)
Other long-term assets
 
83

 
1,266

Accounts payable
 
(2,464
)
 
(827
)
Accrued warranty
 
(2,500
)
 
(87
)
Accrued other current liabilities
 
823

 
(10,083
)
Deferred revenue and customer deposits
 
(44,533
)
 
(22,347
)
Other long-term liabilities
 
3,487

 
8,049

Net cash used in operating activities
 
(4,170
)
 
(34,487
)
Cash flows from investing activities:
 
 
 
 
Purchase of property, plant and equipment
 
(8,543
)
 
(223
)
Payments for acquisition of intangible assets
 
(848
)
 

Purchase of marketable securities
 

 
(8,991
)
Proceeds from maturity of marketable securities
 
104,500

 
15,750

Net cash provided by investing activities
 
95,109

 
6,536

Cash flows from financing activities:
 
 
 
 
Repayment of debt
 
(5,016
)
 
(4,489
)
Repayment of debt to related parties
 
(778
)
 
(290
)
Distributions to noncontrolling and redeemable noncontrolling interests
 
(3,189
)
 
(3,832
)
Proceeds from issuance of common stock
 
7,493

 
120

Payments of initial public offering issuance costs
 

 
(578
)
Net cash used in financing activities
 
(1,490
)
 
(9,069
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
 
89,449

 
(37,020
)
Cash, cash equivalents, and restricted cash:
 
 
 
 
Beginning of period
 
280,485

 
180,612

End of period
 
$
369,934

 
$
143,592

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
14,545

 
$
11,216

Cash paid during the period for taxes
 
222

 
401

Non-cash investing and financing activities:
 
 
 
 
Liabilities recorded for property, plant and equipment
 
2,067

 
65

Liabilities recorded for intangible assets
 

 
362

Issuance of restricted stock
 

 
242

Accrued distributions to Equity Investors
 
282

 
282

Accrued interest and issuance for notes
 
439

 
7,808

Accrued interest and issuance for notes to related parties
 

 
1,165

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

8


Bloom Energy Corporation
Notes to Condensed Consolidated Financial Statements
 
1. Nature of Business and Liquidity
Nature of Business
We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems, or Energy Servers, for on-site power generation. Our Energy Servers utilize an innovative fuel cell technology. The Energy Servers provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence. We were originally incorporated in Delaware under the name of Ion America Corporation on January 18, 2001 and were renamed on September 16, 2006 to Bloom Energy Corporation.
Throughout this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “Bloom Energy,” “we,” “us” and “our” refer to Bloom Energy Corporation and its consolidated subsidiaries.
Liquidity
We have incurred operating losses and negative cash flows from operations since our inception. Our ability to achieve our long-term business objectives is dependent upon, among other things, raising additional capital, acceptance of our products and attaining future profitability. We believe we will be successful in raising additional financing from our stockholders or from other sources, in expanding operations and in gaining market share. For example, in July 2018, we successfully completed an initial public stock offering ("IPO") with the sale of 20,700,000 shares of Class A common stock at a price of $15.00 per share, resulting in net cash proceeds of $282.3 million net of underwriting discounts, commissions and offering costs. We believe that our existing cash and cash equivalents and short-term investments will be sufficient to meet our operating and capital cash flow requirements and other cash flow needs for at least the next 12 months from the date of this quarterly report on Form 10-Q. However, there can be no assurance that in the event we require additional financing, such financing will be available on terms which are favorable or at all.

2. Basis of Presentation and Summary of Significant Accounting Policies
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"). Certain information and footnote disclosures normally included in the consolidated balance sheets as of March 31, 2019 and December 31, 2018, the consolidated statements of operations, the consolidated statements of comprehensive loss, the consolidated statements of convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest, and the consolidated statements of cash flows for the three months ended March 31, 2019 and 2018, as well as other information disclosed in the accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles as applied in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures herein are adequate to ensure the information presented is not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
We believe that all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to fairly state the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for our fiscal year ending December 31, 2019.
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, which we refer to as our power purchase agreement entities ("PPA Entities"). This approach focuses on determining whether we have the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPA Entities. For all periods presented, we have determined that we are the primary beneficiary in all of its operational PPA Entities. We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that we continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. For additional information, see Note 12 - Power Purchase Agreement Programs.

9


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 consolidated financial statements and the accompanying notes. Significant estimates include assumptions used to compute the best estimate of selling-prices, the fair value of lease and non-lease components such as estimated output, efficiency and residual value of the Energy Servers, estimates for inventory write-downs, estimates for future cash flows and the economic useful lives of property, plant and equipment, the valuation of other long-term assets, the valuation of certain accrued liabilities such as derivative valuations, estimates for accrued warranty and extended maintenance, estimates for recapture of U.S. Treasury grants and similar grants, estimates for income taxes and deferred tax asset valuation allowances, warrant liabilities, stock-based compensation costs and estimates for the allocation of profit and losses to the noncontrolling interests. Actual results could differ materially from these estimates under different assumptions and conditions.
Concentration of Risk
Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. Additionally, we sell our Energy Servers in Japan, China, India, and the Republic of Korea, collectively our Asia Pacific region. In the three months ended March 31, 2019 and 2018, total revenue in the Asia Pacific region was 24.0% and 17.3%, respectively, of our total revenue.
Credit Risk - At March 31, 2019, customer A and customer B accounted for 58.0% and 12.1%, respectively, of accounts receivable. At December 31, 2018, customer A accounted for 66.8% of accounts receivable. At March 31, 2019 and December 31, 2018, we did not maintain any allowances for doubtful accounts as we deemed all of our receivables fully collectible. To date, we have neither provided an allowance for uncollectible accounts nor experienced any credit loss.

Customer Risk - In the three months ended March 31, 2019, revenue from customer A, customer B and customer C represented 24%, 25%,and 23%, respectively, of our total revenue. Customer A wholly owns a Third-Party PPA which purchases Energy Servers from us, however, such purchases and resulting revenue are made on behalf of various customers of this Third-Party PPA. In the three months ended March 31, 2018, revenue from customer B and customer D represented 53% and 17%, respectively, of our total revenue.
Fair Value Measurement
Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 820 - Fair Value Measurements and Disclosures ("ASC 820"), defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Level 1
 
Quoted prices in active markets for identical assets or liabilities. Financial assets utilizing Level 1 inputs typically include money market securities and U.S. Treasury securities.
 
 
 
Level 2
 
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments utilizing Level 2 inputs include interest rate swaps.
 
 
 
Level 3
 
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Financial liabilities utilizing Level 3 inputs include natural gas fixed price forward contract derivatives. Derivative liability valuations are performed based on a binomial lattice model and adjusted for illiquidity and/or nontransferability and such adjustments are generally based on available market evidence.
    

10


Recent Accounting Pronouncements
Accounting Guidance Implemented in Fiscal Year 2019
Other than the adoption of accounting guidances mentioned below, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements. There have been no changes to our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 that have had a significant impact on our condensed consolidated financial statements or notes thereto as of and for the three months ended March 31, 2019.
Hedging Activities - During the first three months of fiscal 2019, we adopted Accounting Standards Update ("ASU") 2017-12 Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12") to help entities recognize the economic results of their hedging strategies in the financial statements so that stakeholders can better interpret and understand the effect of hedge accounting on reported results. It is intended to more clearly disclose an entity’s risk exposures and how we manage those exposures through hedging, and it is expected to simplify the application of hedge accounting guidance. The new guidance is effective for annual periods beginning after December 15, 2018, with early adoption permitted. We adopted this standard on January 1, 2019. There was not a material impact to our condensed consolidated financial statements upon adoption.
Income Taxes - During the first three months of fiscal 2019, we adopted ASU 2016-16, Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The standard is effective for us in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the adoption period. Adoption of this standard had no impact on our consolidated financial statements.
Income Taxes - During the first three months of fiscal 2019, we adopted ASU 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"), which permits reclassification of certain tax effects in Other Comprehensive Income ("OCI") caused by the U.S. tax reform enacted in December 2017 to retained earnings. We do not have any tax effect (due to full valuation allowance) in our OCI account, thus this guidance has no impact on us.
New Accounting Guidance to be Implemented
Revenue Recognition - In May 2014, the FASB issued ASU 2014-14, Revenue From Contracts With Customers, as amended ("ASU 2014-14"). The guidance provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services, as well as guidance on the recognition of costs related to obtaining and fulfilling customer contracts. The guidance also requires expanded disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-14 is effective for our annual period beginning January 1, 2019, and for our interim periods beginning on January 1, 2020. ASU 2014-14 can be adopted using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance (“full retrospective method”); or (ii) retrospective with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance (“modified retrospective method”). We will adopt ASU 2014-14 for our fiscal year ended December 31, 2019 using the modified retrospective method, resulting in a cumulative-effect adjustment to retained earnings on January 1, 2019.
We are currently evaluating whether ASU 2014-14 will have a material impact on our consolidated financial statements and expect its adoption to have an impact related to the costs of obtaining our contracts, customer deposits, and deferred revenue. Further, in preparation for ASU 2014-14, we are in the process of updating our accounting policies, processes, internal controls over financial reporting, and system requirements.
Leases - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which provides new authoritative guidance on lease accounting. Among its provisions, the standard requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases and also requires additional qualitative and quantitative disclosures about lease arrangements. In March 2019 the FASB issued further guidance in ASU 2019-01, Leases (Topic 842), which provides clarifications to certain lessor transactions and other reporting matters. This guidance will be effective for us beginning January 1, 2020, and requires the modified retrospective method of adoption. Early adoption is permitted. We expect to adopt this guidance on January 1, 2020 and expect to recognize right of use assets and lease liabilities for contracts currently recognized as operating leases where we are the lessee.

11



Cloud Computing - In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), to clarify the guidance on the costs of implementing a cloud computing hosting arrangement that is a service contract. Under ASU 2018-15, the entity is required to follow the guidance in Subtopic 350-40, Internal-Use Software, to determine which implementation costs under the service contract to be capitalized as an asset and which costs to expense. ASU 2018-15 is effective for us for the annual periods beginning in 2021 and the interim periods in 2022 on a retrospective or prospective basis and early adoption is permitted. We are currently evaluating the timing of adoption and impact of ASU 2018-15 on our consolidated financial statements and related disclosures.
3. Financial Instruments
Cash, Cash Equivalents and Restricted Cash
The carrying value of cash and cash equivalents approximate fair value and are as follows (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
As held:
 
 
 
 
Cash
 
$
152,676

 
$
136,642

Money market funds
 
217,258

 
143,843

 
 
$
369,934

 
$
280,485

As reported:
 
 
 
 
Cash and cash equivalents
 
$
320,414

 
$
220,728

Restricted cash
 
49,520

 
59,757

 
 
$
369,934

 
$
280,485

Restricted cash consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
Current
 
 
 
 
Restricted cash
 
$
13,379

 
$
25,740

Restricted cash related to PPA Entities
 
5,040

 
2,917

Restricted cash, current
 
18,419

 
28,657

Non-current
 
 
 
 
Restricted cash
 
3,250

 
3,246

Restricted cash related to PPA Entities
 
27,851

 
27,854

Restricted cash, non-current
 
31,101

 
31,100

 
 
$
49,520

 
$
59,757

Short-Term Investments
As of March 31, 2019 and December 31, 2018, we had no short-term investments and $104.4 million in U.S. Treasury Bills, respectively.
Derivative Instruments
We have derivative financial instruments related to natural gas forward contracts and interest rate swaps. See Note 7 - Derivative Financial Instruments for a full description of our derivative financial instruments.


12


4. Fair Value
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below sets forth, by level, our financial assets that were accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):
 
 
Fair Value Measured at Reporting Date Using
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
217,258

 
$

 
$

 
$
217,258

Interest rate swap agreements
 

 
27

 

 
27

 
 
$
217,258

 
$
27

 
$

 
$
217,285

Liabilities
 
 
 
 
 
 
 
 
Accrued other current liabilities
 
$
1,723

 
$

 
$

 
$
1,723

Derivatives:
 
 
 
 
 
 
 
 
Natural gas fixed price forward contracts
 

 

 
8,796

 
8,796

Interest rate swap agreements1
 

 
5,719

 

 
5,719

 
 
$
1,723

 
$
5,719

 
$
8,796

 
$
16,238

1As of March 31, 2019, $0.1 million of the gain on the interest rate swaps accumulated in other comprehensive income (loss) is expected to be reclassified into earnings in the next twelve months.
 
 
Fair Value Measured at Reporting Date Using
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
143,843

 
$

 
$

 
$
143,843

Short-term investments
 
104,350

 

 

 
104,350

Interest rate swap agreements
 

 
82

 

 
82

 
 
$
248,193

 
$
82

 
$

 
$
248,275

Liabilities
 
 
 
 
 
 
 
 
Accrued other current liabilities
 
$
1,331

 
$

 
$

 
$
1,331

Derivatives:
 
 
 
 
 
 
 
 
Natural gas fixed price forward contracts
 

 

 
9,729

 
9,729

Interest rate swap agreements
 

 
3,630

 

 
3,630

 
 
$
1,331

 
$
3,630

 
$
9,729

 
$
14,690


13


The following table provides the fair value of our natural gas fixed price contracts (dollars in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
Number of
Contracts
(MMBTU)²
 
Fair
Value
 
Number of
Contracts
(MMBTU)²
 
Fair
Value
 
 
 
 
 
 
 
 
 
Liabilities¹
 
 
 
 
 
 
 
 
Natural gas fixed price forward contracts (not under hedging relationships)
 
2,873

 
$
8,796

 
3,096

 
$
9,729

 
 
 
 
 
 
 
 
 
¹ Recorded in current liabilities and derivative liabilities in the condensed consolidated balance sheets.
² One MMBTU, or one million British Thermal Units, is a traditional unit of energy used to describe the heat value (energy content) of fuels.
For the three months ended March 31, 2019 and 2018, we marked-to-market the fair value of its fixed price natural gas forward contracts and recorded a gain of $0.4 million and a loss of $0.9 million, respectively, and recorded gains on the settlement of these contracts of $0.5 million and $1.1 million, respectively, in cost of revenue on the condensed consolidated statement of operations.
Embedded Derivative on 6% Convertible Promissory Notes - Between December 2015 and September 2016, we issued $260.0 million convertible promissory notes due December 2020 ("6% Notes") to certain investors. The 6% Notes bore a 5% fixed interest rate, payable monthly either in cash or in kind, at our election. We amended the terms of the 6% Notes in June 2017 to reduce the collateral securing the notes and to increase the interest rate from 5% to 6%. The 6% Notes are convertible at the option of the holders at a conversion price of $11.25 per share. Upon the IPO, the final value of the conversion feature was $177.2 million and was reclassified from a derivative liability to additional paid-in capital.
There were no transfers between fair value measurement classifications during the periods ended March 31, 2019 and 2018. The changes in the Level 3 financial assets were as follows (in thousands):
 
 
Natural
Gas
Fixed Price
Forward
Contracts
 
Preferred
Stock
Warrants
 
Embedded
Derivative
Liability
 
Total
Balances at December 31, 2018
 
$
9,729

 
$

 
$

 
$
9,729

Settlement of natural gas fixed price forward contracts
 
(527
)
 

 

 
(527
)
Changes in fair value
 
(406
)
 

 

 
(406
)
Balances at March 31, 2019
 
$
8,796

 
$

 
$

 
$
8,796


 
 
Natural
Gas
Fixed Price
Forward
Contracts
 
Preferred
Stock
Warrants
 
Embedded
Derivative
Liability
 
Total
Balances at December 31, 2017
 
$
15,368

 
$
9,825

 
$
140,771

 
$
165,964

Settlement of natural gas fixed price forward contracts
 
(1,102
)
 

 

 
(1,102
)
Changes in fair value
 
855

 
(3,271
)
 
9,732

 
7,316

Balances at March 31, 2018
 
$
15,121

 
$
6,554

 
$
150,503

 
$
172,178

Significant changes in any assumption input in isolation can result in a significant change in fair value measurement. Generally, an increase in the market price of our shares of common stock, an increase in natural gas prices, an increase in the volatility of ours shares of common stock and an increase in the remaining term of the conversion feature would each result in a directionally similar change in the estimated fair value of our derivative liability. Increases in such assumption values would increase the associated liability while decreases in these assumption values would decrease the associated liability. An increase

14


in the risk-free interest rate or a decrease in the market price of our shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability.
Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
Customer Receivables and Debt Instruments - We estimate fair value for customer financing receivables, senior secured notes, term loans and convertible promissory notes 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, 2019
 
December 31, 2018
 
 
Net Carrying
Value
 
Fair Value
 
Net Carrying
Value
 
Fair Value
 
 
 
 
 
 
 
 
 
Customer receivables:
 
 
 
 
 
 
 
 
Customer financing receivables
 
$
71,337

 
$
51,312

 
$
72,676

 
$
51,541

Debt instruments:
 
 
 
 
 
 
 
 
Recourse
 
 
 
 
 
 
 
 
LIBOR + 4% term loan due November 2020
 
2,795

 
2,914

 
3,214

 
3,311

5% convertible promissory note due December 2020
 
35,136

 
33,832

 
34,706

 
31,546

6% convertible promissory notes due December 2020
 
267,289

 
418,999

 
263,284

 
353,368

10% notes due July 2024
 
96,073

 
99,598

 
95,555

 
99,260

Non-recourse
 
 
 
 
 
 
 
 
5.22% senior secured notes due March 2025
 
75,786

 
79,341

 
78,566

 
80,838

7.5% term loan due September 2028
 
35,758

 
41,759

 
36,319

 
39,892

LIBOR + 5.25% term loan due October 2020
 
23,734

 
25,679

 
23,916

 
25,441

6.07% senior secured notes due March 2030
 
81,806

 
88,715

 
82,337

 
85,917

LIBOR + 2.5% term loan due December 2021
 
122,701

 
125,770

 
123,384

 
123,040

Long-Lived Assets - Our long-lived assets include property, plant and equipment. The carrying amounts of our long-lived assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. No material impairment of any long-lived assets was identified in the three months ended March 31, 2019 and 2018.

5. Balance Sheet Components
Inventories
The components of inventory consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Raw materials
 
$
42,965

 
$
53,273

Work-in-progress
 
23,672

 
22,303

Finished goods
 
49,907

 
56,900

 
 
$
116,544

 
$
132,476


15


Prepaid Expense and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Government incentives receivable
 
$
960

 
$
1,001

Prepaid expenses and other current assets
 
27,402

 
32,741

 
 
$
28,362

 
$
33,742

Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Energy Servers
 
$
511,485

 
$
511,485

Computers, software and hardware
 
18,796

 
16,536

Machinery and equipment
 
100,311

 
99,209

Furniture and fixtures
 
8,669

 
4,337

Leasehold improvements
 
34,126

 
18,629

Building
 
40,512

 
40,512

Construction in progress
 
10,496

 
29,084

 
 
724,395

 
719,792

Less: Accumulated depreciation
 
(249,010
)
 
(238,378
)
 
 
$
475,385

 
$
481,414


Our construction in progress decreased $18.6 million, as compared to December 31, 2018, primarily due to our investment in leasehold improvements and furniture and fixtures related to our move to our new corporate headquarters.
Our property, plant and equipment under operating leases by the PPA Entities was $397.5 million and $397.5 million as of March 31, 2019 and December 31, 2018, respectively. The accumulated depreciation for these assets was $83.8 million and $77.4 million as of March 31, 2019 and December 31, 2018, respectively. Depreciation expense related to our property, plant and equipment was $6.4 million and $6.4 million for the three months ended March 31, 2019 and 2018, respectively.
Customer Financing Leases, Receivable
The components of investment in sales-type financing leases consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Total minimum lease payments to be received
 
$
98,632

 
$
100,816

Less: Amounts representing estimated executing costs
 
(24,522
)
 
(25,180
)
Net present value of minimum lease payments to be received
 
74,110

 
75,636

Estimated residual value of leased assets
 
1,051

 
1,051

Less: Unearned income
 
(3,824
)
 
(4,011
)
Net investment in sales-type financing leases
 
71,337

 
72,676

Less: Current portion
 
(5,717
)
 
(5,594
)
Non-current portion of investment in sales-type financing leases
 
$
65,620

 
$
67,082


16


The future scheduled customer payments from sales-type financing leases were as follows as of March 31, 2019 (in thousands):
 
 
Remainder of 2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
 
 
 
 
 
 
 
 
 
 
 
 
Future minimum lease payments, less interest
 
$
4,256

 
$
6,022

 
$
6,415

 
$
6,853

 
$
7,310

 
$
39,430

Other Long-Term Assets
Other long-term assets consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Prepaid and other long-term assets
 
$
26,321

 
$
27,086

Equity-method investments
 
6,292

 
6,046

Long-term deposits
 
1,773

 
1,660

 
 
$
34,386

 
$
34,792

Equity-method investments
In May 2013, we entered into a joint venture with Softbank Corp., and established Bloom Energy Japan limited which is accounted for as an equity method investment. Under this arrangement, we sell Energy Servers and provide maintenance services to the joint venture. Accounts receivable from this joint venture was $2.7 million and $2.4 million as of March 31, 2019 and December 31, 2018, respectively.
Accrued Warranty
Accrued warranty liabilities consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Product warranty
 
$
9,183

 
$
10,935

Operations and maintenance services agreements
 
7,553

 
8,301

 
 
$
16,736

 
$
19,236

Changes during the current period in the standard product warranty liability were as follows (in thousands):
Balances at December 31, 2018
$
10,935

Accrued warranty, net
629

Warranty expenditures during period
(2,381
)
Balances at March 31, 2019
$
9,183


17


Accrued Other Current Liabilities
Accrued other current liabilities consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Compensation and benefits
 
$
18,327

 
$
16,742

Current portion of derivative liabilities
 
3,349

 
3,232

Managed services liabilities
 
4,633

 
5,091

Accrued installation
 
6,408

 
6,859

Sales tax liabilities
 
2,202

 
1,700

Interest payable
 
3,631

 
4,675

Other
 
29,416

 
31,236

 
 
$
67,966

 
$
69,535

Other Long-Term Liabilities
Accrued other long-term liabilities consisted of the following (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Delaware grant
 
$
10,469

 
$
10,469

Managed services liabilities
 
29,062

 
29,741

Other
 
18,501

 
15,727

 
 
$
58,032

 
$
55,937

We have entered into managed services agreements that provide for the payment of property taxes and insurance premiums on behalf of customers. These obligations are included in each agreements' contract value and are recorded as short-term or long-term liabilities based on the estimated payment dates. The long-term managed services liabilities accrued were $29.1 million and $29.7 million as of March 31, 2019 and December 31, 2018, respectively.



18


6. Outstanding Loans and Security Agreements
The following is a summary of our debt as of March 31, 2019 (in thousands):
 
 
Unpaid
Principal
Balance
 
Net Carrying Value
 
Unused
Borrowing
Capacity
 
 
Current
 
Long-
Term
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
LIBOR + 4% term loan due November 2020
 
$
2,857

 
$
1,683

 
$
1,112

 
$
2,795

 
$

5% convertible promissory note due December 2020
 
33,104

 

 
35,136

 
35,136

 

6% convertible promissory notes due December 2020
 
296,233

 

 
267,289

 
267,289

 

10% notes due July 2024
 
100,000

 
14,000

 
82,073

 
96,073

 

Total recourse debt
 
432,194

 
15,683

 
385,610

 
401,293

 

5.22% senior secured term notes due March 2025
 
76,827

 
12,151

 
63,635

 
75,786

 

7.5% term loan due September 2028
 
39,759

 
2,341

 
33,417

 
35,758

 

LIBOR + 5.25% term loan due October 2020
 
24,438

 
926

 
22,808

 
23,734

 

6.07% senior secured notes due March 2030
 
82,889

 
2,634

 
79,172

 
81,806

 

LIBOR + 2.5% term loan due December 2021
 
124,593

 
3,775

 
118,926

 
122,701

 

Letters of Credit due December 2021
 

 

 

 

 
1,220

Total non-recourse debt
 
348,506

 
21,827

 
317,958

 
339,785

 
1,220

Total debt
 
$
780,700

 
$
37,510

 
$
703,568

 
$
741,078

 
$
1,220

The following is a summary of our debt as of December 31, 2018 (in thousands):
 
 
Unpaid
Principal
Balance
 
Net Carrying Value
 
Unused
Borrowing
Capacity
 
 
Current
 
Long-
Term
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
LIBOR + 4% term loan due November 2020
 
$
3,286

 
$
1,686

 
$
1,528

 
$
3,214

 
$

5% convertible promissory notes due December 2020
 
33,104

 

 
34,706

 
34,706

 

6% convertible promissory notes due December 2020
 
296,233

 

 
263,284

 
263,284

 

10% notes due July 2024
 
100,000

 
7,000

 
88,555

 
95,555

 

Total recourse debt
 
432,623

 
8,686

 
388,073

 
396,759

 

5.22% senior secured term notes due March 2025
 
79,698

 
11,994

 
66,572

 
78,566

 

7.5% term loan due September 2028
 
40,538

 
2,200

 
34,119

 
36,319

 

LIBOR + 5.25% term loan due October 2020
 
24,723

 
827

 
23,089

 
23,916

 

6.07% senior secured notes due March 2030
 
83,457

 
2,469

 
79,868

 
82,337

 

LIBOR + 2.5% term loan due December 2021
 
125,456

 
3,672

 
119,712

 
123,384

 

Letters of Credit due December 2021
 

 

 

 

 
1,220

Total non-recourse debt
 
353,872

 
21,162

 
323,360

 
344,522

 
1,220

Total debt
 
$
786,495

 
$
29,848

 
$
711,433

 
$
741,281

 
$
1,220

Recourse debt refers to debt that Bloom Energy Corporation has an obligation to pay. Non-recourse debt refers to debt that is recourse to only specified assets or our subsidiaries. The differences between the unpaid principal balances and the net carrying values apply to debt discounts and deferred financing costs. We were in compliance with all financial covenants as of March 31, 2019 and December 31, 2018.

19


Recourse Debt Facilities
LIBOR + 4% Term Loan due November 2020 - In May 2013, we entered into a $5.0 million credit agreement and a $12.0 million financing agreement to help fund the building of a new facility in Newark, Delaware. The $5.0 million credit agreement expired in December 2016. The $12.0 million financing agreement has a term of 90 months, payable monthly at a variable rate equal to one-month LIBOR plus the applicable margin. The weighted average interest rate as of March 31, 2019 and December 31, 2018 was 6.5% and 5.9%, respectively. The loan requires monthly payments and is secured by the manufacturing facility. In addition, the credit agreements also include a cross-default provision which provides that the remaining balance of borrowings under the agreements will be due and payable immediately if a lien is placed on the Newark facility in the event we default on any indebtedness in excess of $100,000 individually or $300,000 in the aggregate. Under the terms of these credit agreements, we are required to comply with various restrictive covenants. As of March 31, 2019 and December 31, 2018, the debt outstanding was $2.9 million and $3.3 million, respectively.
5% Convertible Promissory Notes due 2020 (Originally 8% Convertible Promissory Notes due December 2018) - Between December 2014 and June 2016, we issued $193.2 million of three-year convertible promissory notes ("8% Notes") to certain investors. The 8% Notes had a fixed interest rate of 8% compounded monthly, due at maturity or at the election of the investor with accrued interest due in December of each year.
On January 18, 2018, amendments were finalized to extend the maturity dates for all the 8% Notes to December 2019. At the same time, the portion of the notes that was held by Constellation NewEnergy, Inc. (Constellation) was extended to December 2020 and the interest rate decreased from 8% to 5% ("5% Notes").
Investors held the right to convert the unpaid principal and accrued interest of both the 8% and 5% notes to Series G convertible preferred stock at any time at the price of $38.64. In July 2018, upon the Company’s IPO, the $221.6 million of principal and accrued interest of outstanding 8% Notes automatically converted into additional paid-in capital, the conversion of which included all the related-party noteholders. The 8% Notes converted to shares of Series G convertible preferred stock and, concurrently, each such share of Series G convertible preferred stock converted automatically into one share of Class B common stock. Upon the IPO, conversions of 5,734,440 shares of Class B common stock were issued and the 8% Notes were retired. Constellation, the holder of the 5% Notes, had not elected to convert as of March 31, 2019. The outstanding unpaid principal and accrued interest debt balance of the 5% Notes of $35.1 million was classified as non-current as of March 31, 2019, and the outstanding unpaid principal and accrued interest debt balances of the 5% Notes of $34.7 million as of December 31, 2018.
6% Convertible Promissory Notes due December 2020 - Between December 2015 and September 2016, we issued $260.0 million convertible promissory notes due December 2020 ("6% Notes") to certain investors. The 6% Notes bore a 5% fixed interest rate, payable monthly either in cash or in kind, at our election. We amended the terms of the 6% Notes in June 2017 to reduce the collateral securing the notes and to increase the interest rate from 5% to 6%.
As of March 31, 2019 and 2018, the amount outstanding on the 6% Notes, which includes interest paid in kind through the IPO date, was $296.2 million and $290.4 million, respectively. Upon the IPO, the debt was convertible at the option of the holders at the conversion price of $11.25 per share into common stock at any time through the maturity date. In January 2018, we amended the terms of the 6% Notes to extend the convertible put option, which investors could elect only if the IPO did not occur prior to December 2019. After the IPO, we paid the interest in cash when due and no additional interest accrued on the consolidated balance sheet on the 6% Notes.
On or after July 27, 2020, we may redeem, at our option, all or part of the 6% Notes if the last reported sale price of our common stock has been at least $22.50 for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the three trading days immediately preceding the date on which we provide written notice of redemption. In certain circumstances, the 6% Notes are also redeemable at our option in connection with a change of control.
Under the terms of the indenture governing the 6% Notes, we are required to comply with various restrictive covenants, including meeting reporting requirements, such as the preparation and delivery of audited consolidated financial statements, and restrictions on investments. In addition, we are required to maintain collateral which secures the 6% Notes in an amount equal to 200% of the principal amount of and accrued and unpaid interest on the outstanding notes. This minimum collateral test is not a negative covenant and does not result in a default if not met. However, the minimum collateral test does restrict us with respect to investing in non-PPA subsidiaries. If we do not meet the minimum collateral test, we cannot invest cash into any non-PPA subsidiary that is not a guarantor of the notes. The 6% Notes also include a cross-acceleration provision which provides that the holders of at least 25% of the outstanding principal amount of the 6% Notes may cause such notes to become immediately due and payable if we or any of our subsidiaries default on any indebtedness in excess of $15.0 million such that the repayment of such indebtedness is accelerated.

20


In connection with the issuance of the 6% Notes, we agreed to issue to J.P. Morgan and CPPIB, upon the occurrence of certain conditions, warrants to purchase our common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. On August 31, 2017, J.P. Morgan transferred its rights to CPPIB. Upon completion of the IPO, the 312,888 warrants were net exercised for 312,575 shares of Class B Common stock.
10% Notes due July 2024 - In June 2017, we issued $100.0 million of senior secured notes ("10% Notes"). The 10% Notes mature between 2019 and 2024 and bear a 10% fixed rate of interest, payable semi-annually. The 10% Notes have a continuing security interest in the cash flows payable to us as servicing, operations and maintenance fees and administrative fees from the five active power purchase agreements in our Bloom Electrons program. Under the terms of the indenture governing the notes, we are required to comply with various restrictive covenants including, among other things, to maintain certain financial ratios such as debt service coverage ratios, to incur additional debt, issue guarantees, incur liens, make loans or investments, make asset dispositions, issue or sell share capital of our subsidiaries and pay dividends, meet reporting requirements, including the preparation and delivery of audited consolidated financial statements, or maintain certain restrictions on investments and requirements in incurring new debt. In addition, we are required to maintain collateral which secures the 10% Notes based on debt ratio analyses. This minimum collateral test is not a negative covenant and does not result in a default if not met. However, the minimum collateral test does restrict us with respect to investing in non-PPA subsidiaries. If we do not meet the minimum collateral test, we cannot invest cash into any non-PPA subsidiary that is not a guarantor of the notes.
Non-recourse Debt Facilities
5.22% Senior Secured Term Notes - In March 2013, PPA Company II refinanced its existing debt by issuing 5.22% Senior Secured Notes due March 30, 2025. The total amount of the loan proceeds was $144.8 million, including $28.8 million to repay outstanding principal of existing debt, $21.7 million for debt service reserves and transaction costs and $94.3 million to fund the remaining system purchases. The loan is a fixed rate term loan that bears an annual interest rate of 5.22% payable quarterly. The loan has a fixed amortization schedule of the principal, payable quarterly, which began March 30, 2014 that requires repayment in full by March 30, 2025. The Note Purchase Agreement requires the Company to maintain a debt service reserve, the balance of which was $11.2 million and $11.2 million as of March 31, 2019 and December 31, 2018, respectively, and 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 PPA II.
7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreement to help fund the purchase and installation of 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 $3.7 million and $3.7 million as of March 31, 2019 and December 31, 2018, respectively, and 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.
LIBOR + 5.25% Term Loan due October 2020 - In September 2013, PPA IIIb entered into a credit agreement to help fund the purchase and installation of Energy Servers. In accordance with that agreement, PPA IIIb issued floating rate debt based on LIBOR plus a margin of 5.2%, paid quarterly. The aggregate amount of the debt facility is $32.5 million. The loan is secured by all assets of PPA IIIb and requires quarterly principal payments which began in July 2014. The credit agreement requires us to maintain a debt service reserve for all funded systems, the balance of which was $1.7 million and $1.7 million March 31, 2019 and December 31, 2018, respectively, and which was included as part of long-term restricted cash in the condensed consolidated balance sheets. In September 2013, PPA IIIb entered into pay-fixed, receive-float interest rate swap agreement to convert the floating-rate loan into a fixed-rate loan.
6.07% Senior Secured Notes due March 2025 - In July 2014, PPA IV issued senior secured notes amounting to $99.0 million to third parties to help fund the purchase and installation of Energy Servers. The notes bear a fixed interest rate of 6.07% payable quarterly which began in December 2015 and ends in March 2030. The notes are secured by all the assets of the PPA IV. The Note Purchase Agreement requires us to maintain a debt service reserve, the balance of which was $7.6 million as of March 31, 2019 and $7.5 million as of December 31, 2018, and which was included as part of long-term restricted cash in the condensed consolidated balance sheets.
LIBOR + 2.5% Term Loan due December 2021 - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of Energy Servers. The lenders are a group of five financial institutions and the terms included commitments to a letter of credit facility (see below). The loan was initially advanced as a construction loan during the development of the PPA V Project and converted into a term loan on February 28, 2017 (the “Term Conversion Date”). As part of the term loan’s conversion, the LC facility commitments were adjusted.
In accordance with the credit agreement, PPA V was issued a floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. For the Lenders’ commitments to the loan and the commitments to the LC loan, the PPA V also pays

21


commitment fees at 0.50% per annum over the outstanding commitments, paid quarterly. The loan is secured by all the assets of the PPA V and requires quarterly principal payments which began in March 2017. In connection with the floating-rate credit agreement, in July 2015 the PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.
Letters of Credit due December 2021 - In connection with the June 2015 PPA V credit agreement, the agreement also included commitments to a letter of credit facility with the aggregate principal amount of $6.4 million, later adjusted down to $6.2 million. The amount reserved under the letter of credit as of March 31, 2019 and December 31, 2018 was $5.0 million and $5.0 million, respectively. The unused letter of credit borrowing capacity was $1.2 million as of March 31, 2019 and December 31, 2018.
Debt Repayment Schedule and Interest Expense
The following table presents our total outstanding debt's unpaid principal balance repayment schedule as of March 31, 2019 (in thousands):
Remainder of 2019
$
24,082

2020
391,442

2021
153,639

2022
40,059

2023
44,209

Thereafter
127,269

 
$
780,700

Interest expense of $17.6 million and $24.0 million for the three months ended March 31, 2019 and 2018, respectively, was recorded in interest expense on the condensed consolidated statements of operations.
Related Party Debt
Portions of the above described recourse and non-recourse debt is held by various related parties. See Note 15 - Related Party Transactions for a full description.


22


7. Derivative Financial Instruments
Interest Rate Swaps
We use various financial instruments to minimize the impact of variable market conditions on its results of operations. We use interest rate swaps to minimize the impact of fluctuations of interest rate changes on its outstanding debt where LIBOR is applied. We do not enter into derivative contracts for trading or speculative purposes.
The fair values of the derivatives related to interest rate swap agreements applied to two of our PPA companies designated as cash flow hedges as of March 31, 2019 and December 31, 2018 on our consolidated balance sheets were as follows (in thousands):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Assets
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$
42

Other long-term assets
 
27

 
40

 
 
$
27

 
$
82

 
 
 
 
 
Liabilities
 
 
 
 
Accrued other current liabilities
 
$
108

 
$
4

Derivative liabilities
 
5,611

 
3,626

 
 
$
5,719

 
$
3,630

PPA Company IIIb - In September 2013, PPA Company IIIb entered into an interest rate swap arrangement to convert a variable interest rate debt to a fixed rate. We designated and documented our interest rate swap arrangement as a cash flow hedge. The swap’s term ends on October 1, 2020, which is concurrent with the final maturity of the debt floating interest rates reset on a quarterly basis. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swap were $24.4 million and $25.4 million as of March 31, 2019 and March 31, 2018, respectively. We measure the swap at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk.
We recorded a loss of $12,000 and a loss of $37,000 during the three months ended March 31, 2019 and 2018, respectively, attributable to the change in swap’s fair value. These gains and losses were included in gain (loss) on revaluation of warrant liabilities and embedded derivatives in the condensed consolidated statement of operations.
PPA Company V - In July 2015, PPA Company V entered into nine interest rate swap agreements to convert a variable interest rate debt to a fixed rate. The loss on the swaps prior to designation was recorded in current-period earnings. In July 2015, we designated and documented its interest rate swap arrangements as cash flow hedges. Three of these swaps matured in 2016, three will mature on December 21, 2021 and the remaining three will mature on September 30, 2031. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swaps were $186.1 million and $188.1 million as of March 31, 2019 and March 31, 2018, respectively.
We measure the swaps at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk. We recorded a gain of $24,000 and a gain of $54,000 attributable to the change in valuation during the three months ended March 31, 2019 and 2018, respectively. These gains were included in gain (loss) on revaluation of warrant liabilities and embedded derivatives in the condensed consolidated statement of operations.

23


The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive income (loss) and in earnings for the three months ended March 31, 2019 and 2018 were as follows (in thousands):
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
Beginning balance
$
3,548

 
$
5,853

Loss (gain) recognized in other comprehensive income (loss)
2,130

 
(2,640
)
Amounts reclassified from other comprehensive income (loss) to earnings
61

 
(212
)
Net loss (gain) recognized in other comprehensive income (loss)
2,191

 
(2,852
)
Gain recognized in earnings
(47
)
 
(92
)
Ending balance
$
5,692

 
$
2,909

Natural Gas Derivatives
On September 1, 2011, we entered into a fixed price fixed quantity fuel forward contract with a gas supplier. This fuel forward contract is used as part of our program to manage the risk for controlling the overall cost of natural gas. Our PPA Company I is the only PPA Company for which natural gas was provided by us. The fuel forward contract meets the definition of a derivative under U.S. GAAP. We have not elected to designate this contract as a hedge and, accordingly, any changes in its fair value is recorded within cost of revenue in the condensed consolidated statements of operations. The fair value of the contract is determined using a combination of factors including the counterparty’s credit rate and estimates of future natural gas prices.
For the three months ended March 31, 2019 and 2018, we marked-to-market the fair value of our fixed price natural gas forward contract and recorded a gain of $0.4 million and a loss of $0.9 million, respectively. For the three months ended March 31, 2019 and 2018, we recorded gains of $0.5 million and $1.1 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue - electricity in the condensed consolidated statements of operations.
6% Convertible Promissory Notes
On December 15, 2015, January 29, 2016, and September 10, 2016, we issued $160.0 million, $25.0 million, and $75.0 million, respectively, of 6% Convertible Promissory Notes ("6% Notes") that mature in December 2020. The 6% Notes are contractually convertible at the option of the holders at a conversion price per share equal to the lower of $20.61 or 75% of the offering price of our common stock sold in an initial public offering. Upon the IPO, the options are convertible at the option of the holders at the conversion price of $11.25 per share.
The valuation of this embedded put feature was recorded as a derivative liability in the consolidated balance sheet, measured each reporting period. Fair value was determined using the binomial lattice method. We recorded $0 and a loss of $7.5 million attributable to the change in valuation for the three months ended March 31, 2019 and 2018, respectively. These gains and losses were included within loss on revaluation of warrant liabilities and embedded derivatives in gain (loss) on revaluation of warrant liabilities and embedded derivatives in the condensed consolidated statements of operations. Upon the IPO, the final value of the conversion feature was $177.2 million and was reclassified from a derivative liability to additional paid-in capital.
8. Common Stock Warrants
During 2018, all of the preferred and common stock warrants we issued in connection with loan agreements and a dispute settlement converted to warrants to purchase shares of Class B common stock. As of March 31, 2019 and December 31, 2018, we had Class B common stock warrants outstanding to purchase 481,182 and 312,939 shares of Class B common stock at exercise prices of $27.78 and $38.64, respectively.

9. Income Taxes
For the three months ended March 31, 2019 and 2018, we recorded a provision for income taxes of $0.2 million on a pre-tax loss of $88.1 million, and a provision for income taxes of $0.3 million on a pre-tax loss of $22.0 million, respectively. The effective tax impact for the three month periods presented is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.

24



10. Net Loss per Share Attributable to Common Stockholders
Net loss per share (basic) attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding for the period. Net loss per share (diluted) is computed by using the "if-converted" method when calculating the potential dilutive effect, if any, of convertible shares whereby net loss attributable to common stockholders is adjusted by the effect of dilutive securities such as awards under equity compensation plans and inducement awards under separate restricted stock unit ("RSU") award agreements. Net loss per share (diluted) attributable to common stockholders is then calculated by dividing the resulting adjusted net loss attributable to common stockholders by the combined weighted-average number of fully diluted common shares outstanding.
In July 2018, the Company completed an initial public offering of its common shares wherein 20,700,000 s