10-Q 1 a2019_q3x10qxbloomenergy.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: September 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 November 4, 2019 was as follows:
Class A Common Stock $0.0001 par value 75,593,984 shares
Class B Common Stock $0.0001 par value 42,413,662 shares




Bloom Energy Corporation
Quarterly Report on Form 10-Q for the Three and Nine Months Ended September 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)
 
 
September 30,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Assets
Current assets:
 
 
 
 
Cash and cash equivalents1
 
$
226,499

 
$
220,728

Restricted cash1
 
14,486

 
28,657

Short-term investments
 

 
104,350

Accounts receivable1
 
26,737

 
84,887

Inventories
 
140,372

 
132,476

Deferred cost of revenue
 
50,707

 
62,147

Customer financing receivable1
 
5,919

 
5,594

Prepaid expense and other current assets1
 
25,639

 
33,742

Total current assets
 
490,359

 
672,581

Property, plant and equipment, net1
 
384,377

 
481,414

Customer financing receivable, non-current1
 
62,615

 
67,082

Restricted cash, non-current1
 
116,890

 
31,100

Deferred cost of revenue, non-current
 
57,286

 
102,699

Other long-term assets1
 
58,400

 
34,792

Total assets
 
$
1,169,927

 
$
1,389,668

Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interests
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable1
 
$
81,060

 
$
66,889

Accrued warranty
 
15,295

 
19,236

Accrued other current liabilities1
 
82,150

 
69,535

Deferred revenue and customer deposits1
 
88,060

 
94,158

Current portion of recourse debt
 
15,678

 
8,686

Current portion of non-recourse debt1
 
7,983

 
18,962

Current portion of non-recourse debt from related parties1
 
3,500

 
2,200

Total current liabilities
 
293,726

 
279,666

Derivative liabilities, net of current portion1
 
14,648

 
10,128

Deferred revenue and customer deposits, net of current portion1
 
179,712

 
241,794

Long-term portion of recourse debt
 
359,959

 
360,339

Long-term portion of non-recourse debt1
 
217,334

 
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
 
31,781

 
34,119

Other long-term liabilities1
 
56,117

 
55,937

Total liabilities
 
1,181,011

 
1,298,958

Commitments and contingencies (Note 13)
 

 

Redeemable noncontrolling interest
 
557

 
57,261

Stockholders’ deficit
 
(106,847
)
 
(91,661
)
Noncontrolling interest
 
95,206

 
125,110

Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest
 
$
1,169,927

 
$
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
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Product
 
$
182,616

 
$
125,690

 
$
504,249

 
$
355,651

Installation
 
19,010

 
29,690

 
58,553

 
70,053

Service
 
23,597

 
20,751

 
70,546

 
60,633

Electricity
 
8,248

 
14,059

 
34,612

 
42,095

Total revenue
 
233,471

 
190,190

 
667,960

 
528,432

Cost of revenue:
 
 
 
 
 
 
 
 
Product
 
94,056

 
95,357

 
350,008

 
246,514

Installation
 
26,162

 
40,118

 
72,444

 
87,655

Service
 
36,539

 
22,651

 
83,695

 
66,164

Electricity
 
23,249

 
8,679

 
50,920

 
28,277

Total cost of revenue
 
180,006

 
166,805

 
557,067

 
428,610

Gross profit
 
53,465

 
23,385

 
110,893

 
99,822

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
23,389

 
27,021

 
82,020

 
56,165

Sales and marketing
 
18,125

 
21,476

 
56,947

 
37,992

General and administrative
 
36,599

 
40,999

 
119,335

 
71,346

Total operating expenses
 
78,113

 
89,496

 
258,302

 
165,503

Loss from operations
 
(24,648
)
 
(66,111
)
 
(147,409
)
 
(65,681
)
Interest income
 
1,214

 
1,467

 
4,799

 
2,326

Interest expense
 
(15,280
)
 
(16,853
)
 
(47,967
)
 
(60,757
)
Interest expense to related parties
 
(1,605
)

(1,966
)

(4,823
)

(7,265
)
Other income (expense), net
 
525

 
(705
)
 
568

 
(1,635
)
Gain (loss) on revaluation of warrant liabilities and embedded derivatives
 

 
1,655

 

 
(21,576
)
Net loss before income taxes
 
(39,794
)
 
(82,513
)
 
(194,832
)
 
(154,588
)
Income tax provision (benefit)
 
136

 
(3
)
 
602

 
458

Net loss
 
(39,930
)
 
(82,510
)
 
(195,434
)
 
(155,046
)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
(5,027
)
 
(3,931
)
 
(13,874
)
 
(13,074
)
Net loss attributable to Class A and Class B common stockholders
 
$
(34,903
)
 
$
(78,579
)
 
$
(181,560
)
 
$
(141,972
)
Net loss per share attributable to Class A and Class B common stockholders, basic and diluted
 
$
(0.30
)
 
$
(0.97
)
 
$
(1.59
)
 
$
(4.13
)
Weighted average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted
 
116,330

 
81,321

 
113,948

 
34,347

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
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net loss attributable to Class A and Class B stockholders
 
$
(34,903
)
 
$
(78,579
)
 
$
(181,560
)
 
$
(141,972
)
Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
 
(12
)
 
1

 
14

 
25

Change in derivative instruments designated and qualifying in cash flow hedges
 
(2,444
)
 
1,236

 
(8,137
)
 
5,156

Other comprehensive income (loss), net of taxes
 
(2,456
)
 
1,237

 
(8,123
)
 
5,181

Comprehensive loss
 
(37,359
)
 
(77,342
)
 
(189,683
)
 
(136,791
)
Comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
2,457

 
(1,182
)
 
7,845

 
(4,745
)
Comprehensive loss attributable to Class A and Class B stockholders
 
$
(34,902
)
 
$
(78,524
)
 
$
(181,838
)
 
$
(141,536
)
 

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 September 30, 2019
 
 
 
 
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
 
 
Amount
 
 
Shares
 
Amount
 
 
 
 
 
Balances at June 30, 2019
 
$
505

 
 
113,949,343

 
$
11

 
$
2,603,279

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

Issuance of restricted stock awards
 

 
 
2,837,343

 
1

 

 

 

 
1

 

ESPP purchase
 

 
 
1,022,397

 

 
4,267

 

 

 
4,267

 

Exercise of stock options
 

 
 
8,546

 

 
35

 

 

 
35

 

Stock-based compensation expense
 

 
 

 

 
39,537

 

 

 
39,537

 

Unrealized gain/(loss) on available for sale securities
 

 
 

 

 

 
(12
)
 

 
(12
)
 

Change in effective and ineffective portion of interest rate swap agreement
 

 
 

 

 

 
13

 

 
13

 
(2,457
)
Distributions to noncontrolling interests
 
(288
)
 
 

 

 

 

 

 

 
(1,042
)
Net income (loss)
 
340

 
 

 

 

 

 
(34,903
)
 
(34,903
)
 
(5,367
)
Balances at September 30, 2019
 
$
557

 
 
117,817,629

 
$
12

 
$
2,647,118

 
$
(147
)
 
$
(2,753,830
)
 
$
(106,847
)
 
$
95,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Nine Months Ended September 30, 2019
 
 
 
 
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
 
 
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
 

 
 
6,341,441

 
1

 

 

 

 
1

 

ESPP purchase
 

 
 
1,718,433

 

 
11,183

 

 

 
11,183

 

Exercise of stock options
 

 
 
336,572

 

 
1,440

 

 

 
1,440

 

Stock-based compensation expense
 

 
 

 

 
153,898

 

 

 
153,898

 

Unrealized gain/(loss) on available for sale securities
 

 
 

 

 

 
14

 

 
14

 

Change in effective and ineffective portion of interest rate swap agreement
 

 
 

 

 

 
(292
)
 

 
(292
)
 
(7,845
)
Distributions to noncontrolling interests
 
(3,825
)
 
 

 

 

 

 

 

 
(5,250
)
Mandatory redemption of noncontrolling interests
 
(55,684
)
 
 

 

 

 

 

 

 

Cumulative effect of hedge accounting standard adoption
 

 
 

 

 

 

 
130

 
130

 
(130
)
Net income (loss)
 
2,805

 
 

 

 

 

 
(181,560
)
 
(181,560
)
 
(16,679
)
Balances at September 30, 2019
 
$
557

 
 
117,817,629

 
$
12

 
$
2,647,118

 
$
(147
)
 
$
(2,753,830
)
 
$
(106,847
)
 
$
95,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


7


 
Three Months Ended September 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 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

Issuance of class A common stock upon public offering, net of underwriting discounts and commissions, and net of offering costs

 

 

 
 
20,700,000

 
2

 
282,278

 

 

 
282,280

 

Issuance of class B common stock on convertible notes

 

 

 
 
5,734,440

 
1

 
221,579

 

 

 
221,580

 

Issuance of class A and B common stock upon exercise of common stock warrants

 

 

 
 
312,575

 

 

 

 

 

 

Conversion of redeemable convertible preferred stock Series A through G (to common stock upon public offering)
(71,740,162
)
 
(1,465,841
)
 

 
 
71,740,162

 
7

 
1,465,834

 

 

 
1,465,841

 

Reclassification of redeemable convertible preferred stock warrant liability to additional paid in capital

 

 

 
 

 

 
882

 

 

 
882

 

Reclassification of derivative liability into additional paid-in capital

 

 

 
 

 

 
177,208

 

 

 
177,208

 

Issuance of common stock

 

 

 
 
166,667

 

 
2,500

 

 

 
2,500

 

Issuance of restricted stock awards

 

 

 
 
14,178

 

 
238

 

 

 
238

 

Exercise of stock options

 

 

 
 
161,634

 

 
713

 

 

 
713

 

Stock-based compensation expense

 

 

 
 

 

 
69,325

 

 

 
69,325

 

Unrealized gain on available for sale securities

 

 

 
 

 

 

 
1

 

 
1

 

Change in effective portion of interest rate swap agreement

 

 

 
 

 

 

 
54

 

 
54

 
1,182

Distributions to noncontrolling interests

 

 
(288
)
 
 

 

 

 

 

 

 
(2,041
)
Net income (loss)

 

 
1,794

 
 

 

 

 

 
(78,579
)
 
(78,579
)
 
(5,725
)
Balances at September 30, 2018

 
$

 
$
56,446

 
 
109,400,297

 
$
11

 
$
2,387,360

 
$
272

 
$
(2,472,619
)
 
$
(84,976
)
 
$
134,849

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


8


 
Nine Months Ended September 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

Issuance of class A common stock upon public offering, net of underwriting discounts and commissions, and net of offering costs

 

 

 
 
20,700,000

 
2

 
282,278

 

 

 
282,280

 

Issuance of class B common stock on convertible notes

 

 

 
 
5,734,440

 
1

 
221,579

 

 

 
221,580

 

Issuance of class A and B common stock upon exercise of common stock warrants

 

 

 
 
312,575

 

 

 

 

 

 

Conversion of redeemable convertible preferred stock Series A through G (to common stock upon public offering)
(71,740,162
)
 
(1,465,841
)
 

 
 
71,740,162

 
7

 
1,465,834

 

 

 
1,465,841

 

Reclassification of redeemable convertible preferred stock warrant liability to additional paid in capital

 

 

 
 

 

 
882

 

 

 
882

 

Reclassification of derivative liability into additional paid-in capital

 

 

 
 

 

 
177,208

 

 

 
177,208

 

Issuance of common stock

 

 

 
 
166,667

 

 
2,500

 

 

 
2,500

 

Revaluation of common stock warrants

 

 

 
 

 

 
(66
)
 

 

 
(66
)
 

Issuance of restricted stock awards

 

 

 
 
17,793

 

 
305

 

 

 
305

 

Exercise of stock options

 

 

 
 
375,391

 

 
1,456

 

 

 
1,456

 

Stock-based compensation expense

 

 

 
 

 

 
84,581

 

 

 
84,581

 

Unrealized gain on available for sale securities

 

 

 
 

 

 

 
92

 

 
92

 

Change in effective portion of interest rate swap agreement

 

 
2

 
 

 

 

 
342

 

 
342

 
4,745

Distributions to noncontrolling interests

 

 
(6,501
)
 
 

 

 

 

 

 

 
(7,403
)
Net income (loss)

 

 
4,791

 
 

 

 

 

 
(141,972
)
 
(141,972
)
 
(17,865
)
Balances at September 30, 2018

 
$

 
$
56,446

 
 
109,400,297

 
$
11

 
$
2,387,360

 
$
272

 
$
(2,472,619
)
 
$
(84,976
)
 
$
134,849

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.

9


Bloom Energy Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)  
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(195,434
)
 
$
(155,046
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and Amortization
 
55,816

 
32,141

Write-off of property, plant and equipment, net
 
2,987

 
901

Write-off of PPA II decommissioned assets
 
25,613

 

Debt make-whole penalty
 
5,934

 

Revaluation of derivative contracts
 
1,335

 
26,761

Stock-based compensation
 
154,955

 
87,451

Loss on long-term REC purchase contract
 
61

 
150

Revaluation of stock warrants
 

 
(9,109
)
Amortization of debt issuance cost
 
16,295

 
20,279

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
58,150

 
(11,168
)
Inventories
 
(7,896
)
 
(44,465
)
Deferred cost of revenue
 
56,854

 
47,945

Customer financing receivable and other
 
4,142

 
3,736

Prepaid expenses and other current assets
 
7,928

 
(6,514
)
Other long-term assets
 
3,281

 
1,052

Accounts payable
 
14,171

 
11,236

Accrued warranty
 
(3,941
)
 
1,164

Accrued other current liabilities
 
5,029

 
1,885

Deferred revenue and customer deposits
 
(68,180
)
 
(32,203
)
Other long-term liabilities
 
2,083

 
10,156

Net cash provided by (used in) operating activities
 
139,183

 
(13,648
)
Cash flows from investing activities:
 
 
 
 
Purchase of property, plant and equipment
 
(23,474
)
 
(4,333
)
Payments for acquisition of intangible assets
 
(1,478
)
 
(2,762
)
Purchase of marketable securities
 

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

 
38,250

Net cash provided by investing activities
 
79,548

 
15,423

Cash flows from financing activities:
 
 
 
 
Repayment of debt
 
(93,263
)
 
(14,036
)
Repayment of debt to related parties
 
(1,691
)
 
(990
)
Debt make-whole payment
 
(5,934
)
 

Payments to redeemable noncontrolling interests related to the PPA II decommissioning
 
(43,713
)
 

Distributions to noncontrolling and redeemable noncontrolling interests
 
(9,363
)
 
(14,192
)
Proceeds from issuance of common stock
 
12,623

 
1,456

Proceeds from public offerings, net of underwriting discounts and commissions
 

 
292,529

Payments of initial public offering issuance costs
 

 
(2,928
)
Net cash (used in) provided by financing activities
 
(141,341
)
 
261,839

Net increase in cash, cash equivalents, and restricted cash
 
77,390

 
263,614

Cash, cash equivalents, and restricted cash:
 
 
 
 
Beginning of period
 
280,485

 
180,612

End of period
 
$
357,875

 
$
444,226

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
35,894

 
$
30,601

Cash paid during the period for taxes
 
715

 
1,052

Non-cash investing and financing activities:
 
 
 
 
Liabilities recorded for property, plant and equipment
 
2,574

 
1,874

Liabilities recorded for intangible assets
 

 
3,180

Reclassification of redeemable convertible preferred stock warrant liability to additional paid-in capital
 

 
882

Conversion of redeemable convertible preferred stock into additional paid-in capital
 

 
1,465,841

Conversion of 8% convertible promissory notes into additional paid-in capital
 

 
221,579

Reclassification of derivative liability into additional paid-in capital
 

 
177,208

Liabilities recorded for initial public offering in accounts payable
 

 
1,431

Reclassification of prior year prepaid initial public offering costs to additional paid-in capital
 

 
5,894

Liabilities recorded for mandatorily redeemable noncontrolling interest
 
11,971

 

Equity investment in PPA II assets
 
27,809

 

Accrued distributions to Equity Investors
 
288

 
288

Accrued interest and issuance for notes
 
1,347

 
20,101

Accrued interest and issuance for notes to related parties
 

 
1,229

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

10


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 and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence. We were originally incorporated in Delaware under the name of Ion America Corporation on January 18, 2001 and on September 16, 2006, we changed our name to Bloom Energy Corporation.
Liquidity
We have incurred losses from operations 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 capital financing from our stockholders or from other sources and refinancing existing debt upon its maturity. 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 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, we have long-term debt of $312.3 million due December 1, 2020. We are currently evaluating options to refinance or restructure this debt, however, there can be no assurances that we will be successful in such efforts. Further, there can be no assurance that in the event we require additional capital, such capital will be available on terms that 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 September 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 nine months ended September 30, 2019 and 2018, and the consolidated statements of cash flows for the nine months ended September 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.

11


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 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 the PPA II Entity, 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 upgrade of Energy Servers"). 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 upgrade of Energy Servers, we determined that we no longer retain a controlling interest in PPA II and therefore DSGP 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 nine months ended September 30, 2019, total revenue in the Asia Pacific region was 15.2% and 18.7%, respectively, of our total revenue. In the three and nine months ended September 30, 2018, total revenue in the Asia Pacific region was 0.1% and 5.9%, respectively, of our total revenue.
Credit Risk - At September 30, 2019, customer E and customer F accounted for 14.7% and 11.1%, respectively, of accounts receivable. At December 31, 2018, customer A accounted for 66.8% of accounts receivable. At September 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 September 30, 2019, revenue from customer A and customer B represented 15% and 52%, respectively, of our total revenue. In the nine months ended September 30, 2019, revenue from customer A, customer B, and customer C represented 18%, 44%, and 8%, 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 September 30, 2018, revenue from customer B and customer D represented 54% and 12% of our total revenue, respectively. In the nine months ended September 30, 2018, revenue from customer B represented 51% of our total revenue.

12


Fair Value Measurement
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 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
Other than the adoption of the accounting guidance mentioned below, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements. 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 nine months ended September 30, 2019.
Accounting Guidance Implemented in Fiscal Year 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 ("ASU 2019-04"), 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.

13


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, 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 our consolidated financial statements.
New Accounting Guidance to be Implemented
Revenue Recognition - In May 2014, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (Topic 606), as amended ("Topic 606"). 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. Topic 606 is effective for our annual period beginning January 1, 2019, and for our interim periods beginning on January 1, 2020. Topic 606 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 Topic 606 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 Topic 606 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 Topic 606, 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, applying ASU 2018-11, Leases (Topic 842) Targeted Improvements using the prospective method. We 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 will early adopt ASU 2018-15 on a retrospective basis for our fiscal year ending December 31, 2019 and we do not expect a material impact on the consolidated financial statements and related disclosures.


14


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):
 
 
September 30,
 
December 31,
 
 
2019
 
2018
As held:
 
 
 
 
Cash
 
$
231,311

 
$
136,642

Money market funds
 
126,564

 
143,843

 
 
$
357,875

 
$
280,485

As reported:
 
 
 
 
Cash and cash equivalents
 
$
226,499

 
$
220,728

Restricted cash
 
131,376

 
59,757

 
 
$
357,875

 
$
280,485

Restricted cash consisted of the following (in thousands):
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Current
 
 
 
 
Restricted cash
 
$
12,683

 
$
25,740

Restricted cash related to PPA Entities
 
1,803

 
2,917

Restricted cash, current
 
14,486

 
28,657

Non-current
 
 
 
 
Restricted cash
 
2,677

 
3,246

Restricted cash related to PPA Entities
 
114,213

¹
27,854

Restricted cash, non-current
 
116,890

 
31,100

 
 
$
131,376

 
$
59,757

¹ Non-current restricted cash related to PPA Entities as of September 30, 2019 includes $97.2 million reclassified for certain contingent indemnification for SPDS under the PPA II upgrade of Energy Servers 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 September 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.


15


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
September 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
126,564

 
$

 
$

 
$
126,564

Interest rate swap agreements
 

 
6

 

 
6

 
 
$
126,564

 
$
6

 
$

 
$
126,570

Liabilities
 
 
 
 
 
 
 
 
Accrued other current liabilities
 
$
433

 
$

 
$

 
$
433

Derivatives:
 
 
 
 
 
 
 
 
Natural gas fixed price forward contracts
 

 

 
8,465

 
8,465

Interest rate swap agreements1
 

 
11,548

 

 
11,548

 
 
$
433

 
$
11,548

 
$
8,465

 
$
20,446

1As of September 30, 2019, $0.8 million of the gain on the interest rate swaps accumulated in other comprehensive gain (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



16


The following table provides the fair value of our natural gas fixed price forward contracts (dollars in thousands):
 
 
September 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)
 
2,286

 
$
8,465

 
3,096

 
$
9,729

 
 
 
 
 
 
 
 
 
¹ Recorded in accrued other current liabilities and derivative liabilities, net of current portion, 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 September 30, 2019 and 2018, we marked-to-market the fair value of fixed price natural gas forward contracts and recorded a loss of $0.8 million and a gain of $1.1 million, respectively, and recorded gains on the settlement of these contracts of $1.1 million and $0.6 million, respectively, in cost of electricity revenue on the condensed consolidated statement of operations. For the nine months ended September 30, 2019 and 2018, we marked-to-market the fair value of fixed price natural gas forward contracts and recorded a loss of $1.5 million and a gain of $1.1 million, respectively, and recorded gains on the settlement of these contracts of $2.7 million and $2.9 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 of 6% 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 September 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
 
(2,741
)
 

 

 
(2,741
)
Changes in fair value
 
1,477

 

 

 
1,477

Balances at September 30, 2019
 
$
8,465

 
$

 
$

 
$
8,465



17


 
 
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
 
(2,871
)
 

 

 
(2,871
)
Embedded derivative on notes
 

 

 
5,533

 
5,533

Changes in fair value
 
(1,052
)
 
(8,943
)
 
30,904

 
20,909

Reclassification of preferred stock warrants liability to common stock warrants and derivative liability into additional paid-in-capital
 

 
(882
)
 
(177,208
)
 
(178,090
)
Balances at September 30, 2018
 
$
11,445

 
$

 
$

 
$
11,445

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 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):
 
 
September 30, 2019
 
December 31, 2018
 
 
Net Carrying
Value
 
Fair Value
 
Net Carrying
Value
 
Fair Value
 
 
 
 
 
 
 
 
 
Customer receivables:
 
 
 
 
 
 
 
 
Customer financing receivables
 
$
68,535

 
$
52,495

 
$
72,676

 
$
51,541

Debt instruments:
 
 
 
 
 
 
 
 
Recourse
 
 
 
 
 
 
 
 
LIBOR + 4% term loan due November 2020
 
1,956

 
2,016

 
3,214

 
3,311

5% convertible promissory note due December 2020
 
36,026

 
34,509

 
34,706

 
31,546

6% convertible promissory notes due December 2020
 
275,716

 
289,887

 
263,284

 
353,368

10% notes due July 2024
 
89,673

 
94,974

 
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
 
35,281

 
41,335

 
36,319

 
39,892

LIBOR + 5.25% term loan due October 2020
 
23,571

 
24,637

 
23,916

 
25,441

6.07% senior secured notes due March 2030
 
80,677

 
88,243

 
82,337

 
85,917

LIBOR + 2.5% term loan due December 2021
 
121,069

 
121,417

 
123,384