10-Q 1 a2019_q2x10qxbloomenergyv4.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: June 30, 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 (1)
Trading Symbol
Name of each exchange on which registered
Class A Common Stock $0.0001 par value
BE
New York Stock Exchange
(1) Our Class B Common Stock is not registered but is convertible into shares of Class A Common Stock at the election of the holder.
________________________________________________________________________
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 August 5, 2019 was as follows:
Class A Common Stock $0.0001 par value 69,993,919 shares
Class B Common Stock $0.0001 par value 46,347,002 shares




Bloom Energy Corporation
Quarterly Report on Form 10-Q for the Six Months Ended June 30, 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)
(unaudited)
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Assets
Current assets:
 
 
 
 
Cash and cash equivalents1
 
$
308,009

 
$
220,728

Restricted cash1
 
23,706

 
28,657

Short-term investments
 

 
104,350

Accounts receivable1
 
38,296

 
84,887

Inventories
 
104,934

 
132,476

Deferred cost of revenue
 
86,434

 
62,147

Customer financing receivable1
 
5,817

 
5,594

Prepaid expense and other current assets1
 
25,088

 
33,742

Total current assets
 
592,284

 
672,581

Property, plant and equipment, net1
 
406,610

 
481,414

Customer financing receivable, non-current1
 
64,146

 
67,082

Restricted cash, non-current1
 
39,351

 
31,100

Deferred cost of revenue, non-current
 
59,213

 
102,699

Other long-term assets1
 
60,975

 
34,792

Total assets
 
$
1,222,579

 
$
1,389,668

Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interests
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable1
 
$
61,427

 
$
66,889

Accrued warranty
 
12,393

 
19,236

Accrued other current liabilities1
 
109,722

 
69,535

Deferred revenue and customer deposits1
 
129,321

 
94,158

Current portion of recourse debt
 
15,681

 
8,686

Current portion of non-recourse debt1
 
7,654

 
18,962

Current portion of non-recourse debt from related parties1
 
2,889

 
2,200

Total current liabilities
 
339,087

 
279,666

Derivative liabilities, net of current portion1
 
13,079

 
10,128

Deferred revenue and customer deposits, net of current portion1
 
181,221

 
241,794

Long-term portion of recourse debt
 
362,424

 
360,339

Long-term portion of non-recourse debt1
 
219,182

 
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
 
32,643

 
34,119

Other long-term liabilities1
 
58,417

 
55,937

Total liabilities
 
1,233,787

 
1,298,958

Commitments and contingencies (Note 13)
 

 

Redeemable noncontrolling interest
 
505

 
57,261

Stockholders’ deficit
 
(115,785
)
 
(91,661
)
Noncontrolling interest
 
104,072

 
125,110

Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
 
$
1,222,579

 
$
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 - Power Purchase Agreement Programs).
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
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Product
 
$
179,899

 
$
108,654

 
$
321,633

 
$
229,961

Installation
 
17,285

 
26,245

 
39,543

 
40,363

Service
 
23,659

 
19,975

 
46,949

 
39,882

Electricity
 
12,939

 
14,007

 
26,364

 
28,036

Total revenue
 
233,782

 
168,881

 
434,489

 
338,242

Cost of revenue:
 
 
 
 
 
 
 
 
Product
 
131,952

 
70,802

 
255,952

 
151,157

Installation
 
22,116

 
37,099

 
46,282

 
47,537

Service
 
19,599

 
19,260

 
47,156

 
43,513

Electricity
 
18,442

 
8,949

 
27,671

 
19,598

Total cost of revenue
 
192,109

 
136,110

 
377,061

 
261,805

Gross profit
 
41,673

 
32,771

 
57,428

 
76,437

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
29,772

 
14,413

 
58,631

 
29,144

Sales and marketing
 
18,359

 
8,254

 
38,822

 
16,516

General and administrative
 
43,662

 
15,359

 
82,736

 
30,347

Total operating expenses
 
91,793

 
38,026

 
180,189

 
76,007

Gain (loss) from operations
 
(50,120
)
 
(5,255
)
 
(122,761
)
 
430

Interest income
 
1,700

 
444

 
3,585

 
859

Interest expense
 
(16,725
)
 
(22,525
)
 
(32,687
)
 
(43,904
)
Interest expense to related parties
 
(1,606
)

(2,672
)

(3,218
)

(5,299
)
Other income (expense), net
 
(222
)
 
(855
)
 
43

 
(930
)
Loss on revaluation of warrant liabilities and embedded derivatives
 

 
(19,197
)
 

 
(23,231
)
Net loss before income taxes
 
(66,973
)
 
(50,060
)
 
(155,038
)
 
(72,075
)
Income tax provision
 
258

 
128

 
466

 
461

Net loss
 
(67,231
)
 
(50,188
)
 
(155,504
)
 
(72,536
)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
(5,015
)
 
(4,512
)
 
(8,847
)
 
(9,143
)
Net loss attributable to Class A and Class B common stockholders
 
$
(62,216
)
 
$
(45,677
)
 
$
(146,657
)
 
$
(63,393
)
Net loss per share attributable to Class A and Class B common stockholders, basic and diluted
 
$
(0.55
)
 
$
(4.34
)
 
$
(1.30
)
 
$
(6.05
)
Weighted average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted
 
113,622

 
10,536

 
112,737

 
10,470

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
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net loss attributable to Class A and Class B stockholders
 
$
(62,216
)
 
$
(45,677
)
 
$
(146,657
)
 
$
(63,393
)
Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
 
9

 
100

 
26

 
91

Change in derivative instruments designated and qualifying in cash flow hedges
 
(3,502
)
 
986

 
(5,693
)
 
3,853

Other comprehensive income (loss), net of taxes
 
(3,493
)
 
1,086

 
(5,667
)
 
3,944

Comprehensive loss
 
(65,709
)
 
(44,591
)
 
(152,324
)
 
(59,449
)
Comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
3,340

 
(984
)
 
5,388

 
(3,563
)
Comprehensive loss attributable to Class A and Class B stockholders
 
$
(62,369
)
 
$
(45,575
)
 
$
(146,936
)
 
$
(63,012
)
 

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)
 
Three Months Ended June 30, 2019
 
 
 
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 March 31, 2019

 
$

 
$
58,802

 
 
113,214,063

 
$
11

 
$
2,551,256

 
$
5

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

Issuance of restricted stock awards

 

 

 
 
543,636

 

 

 

 

 

 

Exercise of stock options

 

 

 
 
191,644

 

 
828

 

 

 
828

 

Stock-based compensation expense

 

 

 
 

 

 
51,195

 

 

 
51,195

 

Unrealized gain on available for sale securities

 

 

 
 

 

 

 
9

 

 
9

 

Change in effective and ineffective portion of interest rate swap agreement

 

 

 
 

 

 

 
(162
)
 

 
(162
)
 
(3,340
)
Distributions to noncontrolling interests

 

 
(3,255
)
 
 

 

 

 

 

 

 
(1,595
)
Mandatory redemption of noncontrolling interests

 

 
(55,684
)
 
 

 

 

 

 

 

 

Cumulative effect of hedge accounting standard adoption

 

 

 
 

 

 

 

 

 

 

Net income (loss)

 

 
642

 
 

 

 

 

 
(62,216
)
 
(62,216
)
 
(5,657
)
Balances at June 30, 2019

 
$

 
$
505

 
 
113,949,343

 
$
11

 
$
2,603,279

 
$
(148
)
 
$
(2,718,927
)
 
$
(115,785
)
 
$
104,072

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
 
 
 
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

 

 

 
 
3,504,098

 

 

 

 

 

 

ESPP purchase

 

 

 
 
696,036

 

 
6,916

 

 

 
6,916

 

Exercise of stock options

 

 

 
 
328,026

 

 
1,405

 

 

 
1,405

 

Stock-based compensation expense

 

 

 
 

 

 
114,361

 

 

 
114,361

 

Unrealized gain on available for sale securities

 

 

 
 

 

 

 
26

 

 
26

 

Change in effective and ineffective portion of interest rate swap agreement

 

 

 
 

 

 

 
(305
)
 

 
(305
)
 
(5,388
)
Distributions to noncontrolling interests

 

 
(3,537
)
 
 

 

 

 

 

 

 
(4,208
)
Mandatory redemption of noncontrolling interests

 

 
(55,684
)
 
 

 

 

 

 

 

 

Cumulative effect of hedge accounting standard adoption

 

 

 
 

 

 

 

 
130

 
130

 
(130
)
Net income (loss)

 

 
2,465

 
 

 

 

 

 
(146,657
)
 
(146,657
)
 
(11,312
)
Balances at June 30, 2019

 
$

 
$
505

 
 
113,949,343

 
$
11

 
$
2,603,279

 
$
(148
)
 
$
(2,718,927
)
 
$
(115,785
)
 
$
104,072

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


7


 
Three Months Ended June 30, 2018
 
 

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 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

Revaluation of common stock warrants

 

 

 
 
 
 
 
 
(66
)
 
 
 
 
 
(66
)
 

Issuance of restricted stock awards

 

 

 
 

 

 

 

 

 

 

Exercise of stock options

 

 

 
 
145,659

 

 
623

 

 

 
623

 

Stock-based compensation expense

 

 

 
 

 

 
7,642

 

 

 
7,642

 

Unrealized gain on available for sale securities

 

 

 
 

 

 
 
 
100

 

 
100

 

Change in effective portion of interest rate swap agreement

 

 
(1
)
 
 

 

 

 

 

 

 
987

Distributions to noncontrolling interests

 

 
(4,741
)
 
 

 

 

 

 

 

 
(3,296
)
Net income (loss)

 

 
1,506

 
 

 

 

 

 
(45,677
)
 
(45,677
)
 
(6,017
)
Balances at June 30, 2018
71,740,162

 
$
1,465,841

 
$
54,940

 
 
10,570,641

 
$
1

 
$
166,803

 
$
217

 
$
(2,394,040
)
 
$
(2,227,019
)
 
$
141,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
¹ Common Stock issued and converted to Class A Common and Class B Common effective July 2018.
 
Six Months Ended June 30, 2018
 
 
 
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

Revaluation of common stock warrants

 

 

 
 

 

 
(66
)
 

 

 
(66
)
 

Issuance of restricted stock awards

 

 

 
 
3,615

 

 
67

 

 

 
67

 

Exercise of stock options

 

 

 
 
213,757

 

 
743

 

 

 
743

 

Stock-based compensation expense

 

 

 
 

 

 
15,256

 

 

 
15,256

 

Unrealized gain on available for sale securities

 

 

 
 

 

 

 
91

 

 
91

 

Change in effective portion of interest rate swap agreement

 

 
2

 
 

 

 

 
288

 

 
288

 
3,563

Distributions to noncontrolling interests

 

 
(6,213
)
 
 

 

 

 

 

 

 
(5,362
)
Net income (loss)

 

 
2,997

 
 

 

 

 

 
(63,393
)
 
(63,393
)
 
(12,140
)
Balances at June 30, 2018
71,740,162

 
$
1,465,841

 
$
54,940

 
 
10,570,641

 
$
1

 
$
166,803

 
$
217

 
$
(2,394,040
)
 
$
(2,227,019
)
 
$
141,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.

8


Bloom Energy Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)  
 
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(155,504
)
 
$
(72,536
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and Amortization
 
31,023

 
21,554

Write-off of property, plant and equipment, net
 
2,704

 
661

Write-off of PPA II decommissioned assets
 
25,613

 

Debt make-whole penalty
 
5,934

 

Revaluation of derivative contracts
 
555

 
28,611

Stock-based compensation
 
115,100

 
15,773

Loss on long-term REC purchase contract
 
60

 
100

Revaluation of stock warrants
 

 
(7,456
)
Revaluation of preferred stock warrants
 

 
(166
)
Amortization of debt issuance cost
 
11,255

 
14,420

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
46,591

 
(6,486
)
Inventories
 
27,542

 
(46,172
)
Deferred cost of revenue
 
19,198

 
48,760

Customer financing receivable and other
 
2,713

 
2,439

Prepaid expenses and other current assets
 
8,477

 
4,544

Other long-term assets
 
1,028

 
15

Accounts payable
 
(5,461
)
 
5,217

Accrued warranty
 
(6,843
)
 
(1,883
)
Accrued other current liabilities
 
7,213

 
(12,815
)
Deferred revenue and customer deposits
 
(25,411
)
 
(31,817
)
Other long-term liabilities
 
3,419

 
18,652

Net cash provided by (used in) operating activities
 
115,206

 
(18,585
)
Cash flows from investing activities:
 
 
 
 
Purchase of property, plant and equipment
 
(18,882
)
 
(1,595
)
Payments for acquisition of intangible assets
 
(970
)
 

Purchase of marketable securities
 

 
(15,732
)
Proceeds from maturity of marketable securities
 
104,500

 
27,000

Net cash provided by investing activities
 
84,648

 
9,673

Cash flows from financing activities:
 
 
 
 
Repayment of debt
 
(83,997
)
 
(9,201
)
Repayment of debt to related parties
 
(1,220
)
 
(627
)
Debt make-whole payment
 
(5,934
)
 

Payments to redeemable noncontrolling interests related to the PPA II decommissioning
 
(18,690
)
 

Distributions to noncontrolling and redeemable noncontrolling interests
 
(7,753
)
 
(11,582
)
Proceeds from issuance of common stock
 
8,321

 
742

Payments of initial public offering issuance costs
 

 
(1,160
)
Net cash used in financing activities
 
(109,273
)
 
(21,828
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
 
90,581

 
(30,740
)
Cash, cash equivalents, and restricted cash:
 
 
 
 
Beginning of period
 
280,485

 
180,612

End of period
 
$
371,066

 
$
149,872

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
23,867

 
$
16,540

Cash paid during the period for taxes
 
497

 
625

Non-cash investing and financing activities:
 
 
 
 
Liabilities recorded for property, plant and equipment
 
4,662

 
512

Liabilities recorded for intangible assets
 

 
169

Liabilities recorded for mandatorily redeemable noncontrolling interest
 
36,994

 

Equity investment in PPA II assets
 
27,809

 

Issuance of restricted stock
 

 
532

Accrued distributions to Equity Investors
 
566

 
566

Accrued interest and issuance for notes
 
888

 
16,920

Accrued interest and issuance for notes to related parties
 

 
1,195

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

9


Bloom Energy Corporation
Notes to Condensed Consolidated Financial Statements
 
1. Nature of Business and Liquidity
Nature of Business
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.
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. 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 on September 16, 2006 were renamed to Bloom Energy Corporation.
Liquidity
We have incurred operating losses and negative cash flows from operations since our inception. Our ability to achieve our long-term business objectives depends 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 June 30, 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 for the three and six months ended June 30, 2019 and 2018, and the consolidated statements of cash flows for the six months ended June 30, 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") and 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, as filed with the SEC on March 22, 2019.
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.
Certain prior year's amounts reported herein have been reclassified to conform to 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 ("VIE"), 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

10


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 other than with respect to PPA II, as discussed below.
We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that we continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. On June 14, 2019, we entered into a transaction with SP Diamond State Class B Holdings, LLC (“SPDS”), a wholly owned subsidiary of Southern Power Company, in which SPDS will purchase a majority interest in PPA II, which operates in Delaware providing alternative energy generation for state tariff rate payers (the "PPA II Project"). PPA II will use the funds received to purchase current generation Bloom Energy Servers in connection with the upgrade of its energy generation assets fleet. In connection with the closing of this transaction, SPDS was admitted as a member of Diamond State Generation Partners, LLC ("DSGP"). DSGP, an operating company, is now owned by Diamond State Generation Holdings, LLC ("DSGH") and SPDS. As a result of the PPA II Project, we determined that we no longer retain a controlling interest in PPA II and therefore DSPG will no longer be consolidated as a VIE into our condensed consolidated financial statements as of June 30, 2019. For additional information, see Note 12 - Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers.
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 fair value of investment in PPA Entities, 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 and six months ended June 30, 2019, total revenue in the Asia Pacific region was 17.7% and 20.6%, respectively, of our total revenue. In the three and six months ended June 30, 2018, total revenue in the Asia Pacific region was 0.9% and 9.1%, respectively, of our total revenue.
Credit Risk - At June 30, 2019, customer A and customer B accounted for 38.2% and 13.4%, respectively, of accounts receivable. At December 31, 2018, customer A accounted for 66.8% of accounts receivable. At June 30, 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 June 30, 2019, revenue from customer A, customer B and customer C represented 17%, 52%, and 2%, respectively, of our total revenue. In the six months ended June 30, 2019, revenue from customer A, customer B and customer C represented 20%, 40%, and 12%, 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 June 30, 2018, revenue from customer B represented 45% of our total revenue. In the six months ended June 30, 2018, revenue from customer B represented 49% of our total revenue.

11


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.
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 six months ended June 30, 2019.
Hedging Activities - As of January 1, 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. There was not a material impact to our condensed consolidated financial statements upon adoption of ASU 2017-12.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; Topic 815, Derivatives and Hedging; and Topic 825, Financial Instruments, that clarifies and improves areas of guidance related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01), respectively. The amendments generally have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of a company’s next annual reporting period. Early adoption is permitted. As discussed above, we adopted ASU 2017-12 on January 1, 2019 and do not expect the amendments of ASU 2019-04 will have a material impact on our consolidated financial statements.
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

12


("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. Most notably, the accounting for incremental costs to obtain customer contracts, which primarily consist of sales commissions, will be allocated to the various elements of the transaction and the portion allocated to obtain extended warranty contracts will be deferred and amortized over the expected service period. 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. Early adoption is permitted. We will adopt this guidance on January 1, 2020, prospectively, and expect to recognize right of use assets and lease liabilities for new contracts recognized as operating leases where we are the lessee.
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.

13


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):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
As held:
 
 
 
 
Cash
 
$
168,271

 
$
136,642

Money market funds
 
202,795

 
143,843

 
 
$
371,066

 
$
280,485

As reported:
 
 
 
 
Cash and cash equivalents
 
$
308,009

 
$
220,728

Restricted cash
 
63,057

 
59,757

 
 
$
371,066

 
$
280,485

Restricted cash consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Current
 
 
 
 
Restricted cash
 
$
21,858

 
$
25,740

Restricted cash related to PPA Entities
 
1,848

 
$
2,917

Restricted cash, current
 
$
23,706

 
28,657

Non-current
 
 
 
 
Restricted cash
 
$
2,615

 
$
3,246

Restricted cash related to PPA Entities
 
36,736

¹
27,854

Restricted cash, non-current
 
39,351

 
31,100

 
 
$
63,057

 
$
59,757

¹ Non-current restricted cash related to PPA Entities includes $20.0 million reclassified for certain contingent indemnification for SPDS under the PPA II Project in the form of a letter of credit to SPDS. See Note 12 - Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers for additional information.
Short-Term Investments
As of June 30, 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.


14


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
June 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
202,795

 
$

 
$

 
$
202,795

Interest rate swap agreements
 

 
12

 

 
12

 
 
$
202,795

 
$
12

 
$

 
$
202,807

Liabilities
 
 
 
 
 
 
 
 
Accrued other current liabilities
 
$
1,636

 
$

 
$

 
$
1,636

Derivatives:
 
 
 
 
 
 
 
 
Natural gas fixed price forward contracts
 

 

 
8,769

 
8,769

Interest rate swap agreements1
 

 
9,158

 

 
9,158

 
 
$
1,636

 
$
9,158

 
$
8,769

 
$
19,563

1As of June 30, 2019, $0.6 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



15


The following table provides the fair value of our natural gas fixed price forward contracts (dollars in thousands):
 
 
June 30, 2019
 
December 31, 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)
 
2,581

 
$
8,769

 
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 June 30, 2019 and 2018, we marked-to-market the fair value of fixed price natural gas forward contracts and recorded a loss of $1.1 million and a gain of $0.8 million, respectively, and recorded gains on the settlement of these contracts of $1.1 million and $1.2 million, respectively, in cost of electricity revenue on the condensed consolidated statement of operations. For the six months ended June 30, 2019 and 2018, we marked-to-market the fair value of fixed price natural gas forward contracts and recorded a loss of $0.7 million and a loss of $0.1 million, respectively, and recorded gains on the settlement of these contracts of $1.6 million and $2.3 million, respectively, in cost of electricity 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 June 30, 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
 
(1,610
)
 

 

 
(1,610
)
Changes in fair value
 
650

 

 

 
650

Balances at June 30, 2019
 
$
8,769

 
$

 
$

 
$
8,769


 
 
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 June 30, 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

16


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 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):
 
 
June 30, 2019
 
December 31, 2018
 
 
Net Carrying
Value
 
Fair Value
 
Net Carrying
Value
 
Fair Value
 
 
 
 
 
 
 
 
 
Customer receivables:
 
 
 
 
 
 
 
 
Customer financing receivables
 
$
69,963

 
$
52,517

 
$
72,676

 
$
51,541

Debt instruments:
 
 
 
 
 
 
 
 
Recourse
 
 
 
 
 
 
 
 
LIBOR + 4% term loan due November 2020
 
2,376

 
2,458

 
3,214

 
3,311

5% convertible promissory note due December 2020
 
35,576

 
33,524

 
34,706

 
31,546

6% convertible promissory notes due December 2020
 
271,503

 
393,395

 
263,284

 
353,368

10% notes due July 2024
 
96,384

 
96,859

 
95,555

 
99,260

Non-recourse
 
 
 
 
 
 
 
 
5.22% senior secured notes due March 2025
 

 

 
78,566

 
80,838

7.5% term loan due September 2028
 
35,532

 
41,368

 
36,319

 
39,892

LIBOR + 5.25% term loan due October 2020
 
23,661

 
25,028

 
23,916

 
25,441

6.07% senior secured notes due March 2030
 
81,223

 
90,136

 
82,337

 
85,917

LIBOR + 2.5% term loan due December 2021
 
121,952

 
123,046

 
123,384

 
123,040

Long-Lived Assets - Our long-lived assets include property, plant and equipment and equity investments in PPA II assets. 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.
During the three months ended June 30, 2019, there was a decommissioning in PPA II, including the replacement and scheduled future replacement during 2019 of installed Energy Servers, resulting in charges related to the decommissioning of PPA II Energy Servers on these assets of $8.1 million which was recognized in cost of electricity revenue in our condensed consolidated statement of operations. As a result of the deconsolidation of DSGP, we remeasured our remaining equity interest in DSGP at fair value. The fair value of our interest in DSGP was determined based upon the projected discounted cash flows of DSGP that are attributable to DSGH’s remaining interest in DSGP, a level 3 fair value measurement. The most significant inputs into the valuation were a projection of future cash inflows from the PPA II tariff and future cash outflows from operations and maintenance of the Energy Servers not subject to SPDS’s purchase interests and the discount rate applied to those cash flows. As a result of our remeasurement, we determined a fair value of $27.8 million as of June 30, 2019, resulting in an immaterial loss relating to the deconsolidation of DSGP for the three and six months ended June 30, 2019. Equity investments in PPA II assets are also financial assets that are not measured on a recurring basis. See Note 12 - Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers for additional information.
No material impairment in the fair value assessment of any long-lived assets was identified in the six months ended June 30, 2019 and 2018.


17


5. Balance Sheet Components
Inventories
The components of inventory consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Raw materials
 
$
42,996

 
$
53,273

Work-in-progress
 
28,313

 
22,303

Finished goods
 
33,625

 
56,900

 
 
$
104,934

 
$
132,476

Prepaid Expense and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Government incentives receivable
 
$
956

 
$
1,001

Prepaid expenses and other current assets
 
24,132

 
32,741

 
 
$
25,088

 
$
33,742

Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Energy Servers
 
$
431,444

 
$
511,485

Computers, software and hardware
 
19,516

 
16,536

Machinery and equipment
 
102,532

 
99,209

Furniture and fixtures
 
8,986

 
4,337

Leasehold improvements
 
36,092

 
18,629

Building
 
40,512

 
40,512

Construction in progress
 
9,324

 
29,084

 
 
648,406

 
719,792

Less: Accumulated depreciation
 
(241,796
)
 
(238,378
)
 
 
$
406,610

 
$
481,414


Our construction in progress decreased $19.8 million, as compared to December 31, 2018, primarily due to our capitalization of leasehold improvements and furniture and fixtures placed in service during the period related to our move to our new corporate headquarters.
Our PPA Entities' property, plant and equipment under operating leases was $397.5 million and $397.5 million as of June 30, 2019 and December 31, 2018, respectively. The accumulated depreciation for these assets was $90.2 million and $77.4 million as of June 30, 2019 and December 31, 2018, respectively. Depreciation expense related to our property, plant and equipment under operating leases was $6.4 million and $6.4 million for the three months ended June 30, 2019 and 2018, respectively, and $12.7 million and $12.7 million for the six months ended June 30, 2019 and 2018, respectively.
During the three months ended June 30, 2019, there was a decommissioning in PPA II, including the replacement and scheduled future replacement during 2019 of installed Energy Servers, resulting in: (i) charges related to the decommissioning of PPA II Energy Servers of $8.1 million recognized in cost of electricity revenue in our condensed consolidated statement of

18


operations; (ii) decommissioning and write-off 10 megawatts of PPA II Energy Servers at net book value of $25.6 million recognized in cost of product revenue in our condensed consolidated statement of operations; and (iii) deconsolidation of our remaining interest in DSGP, primarily related to the Energy Server assets held in PPA II of $27.8 million, and recognition as an equity investment included in other long-term assets on our condensed consolidated balance sheet. See Note 12 - Power Purchase Agreement Programs - PPA II Upgrade of Energy Servers for additional information.
Customer Financing Leases, Receivable
The components of investment in sales-type financing leases consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Total minimum lease payments to be received
 
$
96,417

 
$
100,816

Less: Amounts representing estimated executing costs
 
(23,862
)
 
(25,180
)
Net present value of minimum lease payments to be received
 
72,555

 
75,636

Estimated residual value of leased assets
 
1,051

 
1,051

Less: Unearned income
 
(3,643
)
 
(4,011
)
Net investment in sales-type financing leases
 
69,963

 
72,676

Less: Current portion