BLOOM ENERGY CORPORATION This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management's beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products, services, business strategies, impact of COVID-19, our expanded strategic partnership with SK ecoplant, operations, supply chain (including any direct or indirect effects from theRussia -Ukraine conflict), new markets, government incentive programs, growth of the hydrogen market and the sufficiency of our cash and our liquidity. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "targets," "forecasts," "will," "would," "could," "can," "may" and similar terms. These statements are based on the beliefs and assumptions of our management based on information currently available to management at the time they are made. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed onFebruary 25, 2022 . Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Overview
Description of
Our mission is to make clean, reliable energy affordable for everyone in the world. We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform that empowers businesses, essential services, critical infrastructure and communities to responsibly take charge of their energy. Our technology, invented inthe United States , is one of the most advanced electricity and hydrogen producing technologies on the market today. Our fuel-flexible Bloom Energy Servers can use biogas, hydrogen, natural gas, or a blend of fuels to create resilient, sustainable and cost-predictable power at significantly higher efficiencies than traditional, combustion-based resources. In addition, our same solid oxide platform that powers our fuel cells can be used to create hydrogen, which is increasingly recognized as a critically important tool necessary for the full decarbonization of the energy economy. Our enterprise customers include some of the largest multinational corporations in the world. We also have strong relationships with some of the largest utility companies inthe United States and theRepublic of Korea . AtBloom Energy , we look forward to a net-zero future. Our technology is designed to help enable this future in order to deliver reliable, low-carbon, electricity in a world facing unacceptable levels of power disruptions. Our resilient platform has kept electricity available for our customers through hurricanes, earthquakes, typhoons, forest fires, extreme heat and grid failures. Unlike traditional combustion power generation, our platform is community-friendly and designed to significantly reduce emissions of criteria air pollutants. We have made tremendous progress making renewable fuel production a reality through our biogas, hydrogen and electrolyzer programs, and we believe that we are well-positioned as a core platform and fixture in the new energy paradigm to help organizations and communities achieve their net-zero objectives. We market and sell our Energy Servers directly and through indirect channels to our customers both in the United states and abroad. In order to appeal to the largest variety of customers, we have developed a number of financing options to enable customers' use of our Energy Servers on a pay-as-you-go model, made available through third-party ownership financing arrangements. For information about our different financing options, see Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Purchase and Financing Options in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . Our typical target commercial or industrial customer has historically been either an investment-grade entity or a customer with investment-grade attributes such as size, assets and revenue, liquidity, geographically diverse operations and general financial stability. We have also expanded our product and financing options to the below-investment-grade customer 30 -------------------------------------------------------------------------------- and have also expanded internationally to target customers with deployments on a wholesale grid. Given that our customers are typically large institutions with multi-level decision making processes, we generally experience a lengthy sales process.Strategic Investment OnOctober 23, 2021 , we entered into the SPA with SK ecoplant in connection with a strategic partnership. Pursuant to the SPA, onDecember 29, 2021 , we sold to SK ecoplant 10 million shares of zero coupon, non-voting redeemable convertible Series A preferred stock in us, par value$0.0001 per share ("RCPS"), at a purchase price of$25.50 per share for an aggregate purchase price of$255 million (the "Initial Investment "). Simultaneous with the execution of the SPA, we and SK ecoplant executed an amendment to the Joint Venture Agreement ("JVA"), an amendment and restatement to our Preferred Distribution Agreement ("PDA Restatement") and a new Commercial Cooperation Agreement regarding initiatives pertaining to the hydrogen market and general market expansion for the Bloom Energy Server andBloom Energy Electrolyzer.
Certain Factors Affecting our Performance
Manufacturing and Labor Market Constraints
We are experiencing impacts from the ongoing labor shortage and continue to face challenges in hiring for our manufacturing facilities, which is exacerbated by absences for any employees who are recovering from or have been exposed to COVID-19. While we continue to dedicate resources to supporting our capacity expansion efforts, we are experiencing difficulties with hiring and retention, particularly for our new manufacturing facility inFremont, California . In addition, the current inflationary environment has led to rising wages and labor rates and increased competition for labor. To date, we have been able to mitigate any impact to production through a contingent workforce and other measures. In the event we are unable to mitigate the impacts of these challenges, it could delay the manufacturing and installation of our Energy Servers and we may be unable to meet customer demand, which would adversely impact our cash flows and results of operations, including revenue and gross margin. We expect the hiring and retention challenges arising from the labor shortages to continue for the foreseeable future.
Supply Chain Constraints
We continue to see effects from the global supply chain disruptions and are experiencing supply chain challenges and logistics constraints. While we have not experienced any component shortages to date, we are facing pressures from longer lead times, shipping and freight delays, and increased costs of raw materials. In addition, the current inflationary environment and conflict inUkraine has led to an increase in the price of components and raw materials. In the event we are unable to mitigate the impacts of delays and/or price increases in raw materials, components and freight, it could delay the manufacturing and installation of our Energy Servers and increase the cost of our Energy Server, which would adversely impact our cash flows and results of operations, including revenue and gross margin. We expect these supply chain challenges and logistics constraints to continue for the foreseeable future. For additional information on our manufacturing and supply chain matters, see Part I Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
COVID-19 Pandemic
We continue to monitor and adjust as appropriate our operations in response to the COVID-19 pandemic. We maintain protocols to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning and masking if required by the local authorities, as well as providing testing for all employees. We will continue to follow CDC and local guidelines when notified of possible exposures. The full extent of the ongoing impact of the COVID-19 pandemic on our business remains uncertain due to a variety of factors, including for example, the duration and severity of the pandemic, new variants of the virus, the distribution, effectiveness and public acceptance of vaccines, and any other ongoing and future actions taken to in response to the pandemic. For more information regarding the risks posed to our company by the COVID-19 pandemic, refer to Part I, Item 1A, Risk Factors - Risks Related to Our Products and Manufacturing - Our business has been and continues to be adversely affected by the COVID-19 pandemic in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . Our Energy Server Product runs on a variety of fuels, including natural gas. The rising cost of natural gas increases the cost of our product to the end customer. To date, the potential impact of this on customer demand has been offset by the customer needs for resiliency and time to power that our Energy Server provides. 31 --------------------------------------------------------------------------------
Liquidity and Capital Resources
While we improved our liquidity in 2021, we increased our working capital spend in the first half of 2022. We have entered into new leases to maintain sufficient manufacturing facilities to meet anticipated demand in 2022 and beyond, including new product line expansion. In addition, we also increased our working capital spend and resources to enhance our marketing efforts and to expand into new geographies both domestically and internationally. As ofJune 30, 2022 , we had cash and cash equivalents of$235.6 million . Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with high credit quality counterparties, continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk. As ofJune 30, 2022 , we had$291.0 million of total outstanding recourse debt,$198.3 million of non-recourse debt and$18.6 million of other long-term liabilities. For a complete description of our outstanding debt, please see Note 7 - Outstanding Loans and Security Agreements in Part I, Item 1, Financial Statements (unaudited). The combination of our existing cash and cash equivalents is expected to be sufficient to meet our anticipated cash flow needs for at least the next 12 months. If these sources of cash are insufficient to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, in particular, our manufacturing capacity, product development and market expansion requirements, to timely respond to competitive market pressures or strategic opportunities, or otherwise. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our Energy Servers, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through an equity or debt financing. Failure to obtain this financing or financing in future quarters may affect our results of operations, including revenue and cash flows.
As of
A summary of our consolidated sources and uses of cash, cash equivalents and restricted cash was as follows (in thousands):
Six Months Ended
June 30,
2022 2021
Net cash (used in) provided by :
Operating activities $ (98,514) $ (35,302)
Investing activities (44,728) (34,460)
Financing activities (56,946) 53,804
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Net cash provided by (used in) our PPA Entities, which are incorporated into the
condensed consolidated statements of cash flows, was as follows (in thousands):
Six Months Ended
June 30,
2022 2021
PPA Entities ¹
Net cash provided by PPA operating activities $ 92,085 Net cash provided by (used in) PPA financing activities (99,297)
(13,462)
1 The PPA Entities' operating and financing cash flows are a subset of our consolidated cash flows and represent the stand-alone cash flows prepared in accordance withU.S. GAAP. Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase of Energy Servers from us and principal reductions in loan balances. Financing activities consist primarily of changes in debt carried by our PPAs, and payments from and distributions to noncontrolling partnership interests. We believe this presentation of net cash provided by (used in) PPA activities is useful to provide the reader with the impact to consolidated cash flows of the PPA Entities in which we have only a minority interest.
Operating Activities
Our operating activities have consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. The increase in cash used in operating activities during the six months endedJune 30, 2022 as compared to the prior year period was primarily the result of an increase in our net loss and a decrease in our net working capital of$47.2 million in the six months endedJune 30, 2022 due to the timing of revenue transactions and corresponding collections, the increase in inventory levels to support future demand, and the timing of payments to vendors.
Investing Activities
Our investing activities have consisted of capital expenditures that include investment to increase our production capacity. We expect to continue such activities as our business grows. Cash used in investing activities of$44.7 million during the six months endedJune 30, 2022 was primarily the result of expenditures on tenant improvements for a newly leased engineering building inFremont, California . We expect to continue to make capital expenditures over the next few quarters to prepare our new manufacturing facility inFremont, California for production, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital expenditures from cash on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures.
Financing Activities
Historically, our financing activities have consisted of borrowings and repayments of debt, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests, and the proceeds from the issuance of our common stock. Net cash used in financing activities during the six months endedJune 30, 2022 was$56.9 million , an increase of$110.8 million compared to the prior year period, primarily due to the repayment of debt related to PPA IIIa of$30.2 million and other debt of 10.7 million, and repayment of financing obligations of$16.5 million , partially offset by proceeds from issuance of common stock of$6.0 million . We believe we have the sufficient capital to run our business over the next 12 months, including the completion of the build out of our manufacturing facilities. Our working capital was strengthened with the initial investment by SK ecoplant. In addition, we may still enter the equity or debt market as needed to support the expansion of our business. Please refer to Note 7 - Outstanding Loans and Security Agreements in Part 1, Item 1, Financial Statements (unaudited); and Part I, Item 1A, Risk Factors - Risks Related to Our Liquidity - Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities' outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, and We may not be able to generate sufficient cash to meet our debt service obligations, in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 for more information regarding the terms of and risks associated with our debt.
Purchase and Financing Options
For information on purchase and financing options, see the Purchasing and
Financing Options section in Part I, Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report
on Form 10-K for the fiscal year ended
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--------------------------------------------------------------------------------There were no significant changes in our international channel partners during the three and six months endedJune 30, 2022 . For information on international channel partners, see theInternational Channel Partners section in Part I, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
Community Distributed Generation Programs
We have entered into sales, installation, operations and maintenance agreements with three developers for the deployment of our Energy Servers pursuant to the New York CDG program for a total of 441 systems. As ofJune 30, 2022 , we have recognized revenue associated with 271 systems. We continue to believe that these types of subscriber-based programs could be a source of future revenue and will continue to look to generate sales through these programs in the future. For further information on Community Distributed Generation Programs, see the Community Distributed Generation Programs section in Part I, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . 34
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Key Operating Metrics - Comparison of the Three and Six Months Ended
For a description of the key operating metrics we use to evaluate business activity, to measure performance, to develop financial forecasts and to make strategic decisions, see Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 under the subheading "Key Operation Metrics".
Purchase Options
The portion of acceptances attributable to each purchase option in the three and
six months ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Direct Purchase 100 % 99 % 100 % 99 %
Managed Services - % 1 % - % 1 %
The portion of revenue attributable to each purchase option in the three and six
months ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Direct Purchase 89 % 89 % 88 % 89 %
Traditional Lease 1 % 1 % 1 % 1 %
Managed Services 6 % 5 % 6 % 5 %
Bloom Electrons 4 % 5 % 5 % 5 %
Product Acceptances
Three Months Ended Change Six Months Ended Change
June 30, June 30,
2022 2021 Amount % 2022 2021 Amount %
Product accepted during the
period
(in 100 kilowatt systems) 471 433 38 8.8 % 846 791 55 7.0 %
Product accepted increased approximately 38 systems, or 8.8%, for the three
months ended
Product accepted increased approximately 55 systems, or 7.0%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Acceptance volume increased as demand increased for theBloom Energy servers. Megawatts accepted, net, increased approximately 183 megawatts, or 28.3%, for the six months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . Acceptances achieved increased fromJune 30, 2021 toJune 30, 2022 were added to our installed base and therefore, increased our megawatts accepted, net, from 647 megawatts to 830 megawatts. 35 --------------------------------------------------------------------------------
Costs Related to Our Products
Total product related costs for the three and six months endedJune 30, 2022 and 2021 was as follows: Three Months Ended Change Six Months Ended Change June 30, June 30, 2022 2021 Amount % 2022 2021 Amount % Product costs of product accepted in the period$2,462 /kW$2,369 /kW$93 /kW 3.9 %$2,506 /kW$2,330 /kW$176 /kW 7.6 % Period costs of manufacturing related expenses not included in product costs (in thousands)$ 13,489 $ 6,450 $7,039 109.1 %$ 23,176 $ 11,879 $11,297 95.1 % Installation costs on product accepted in the period$355 /kW$844 /kW$-489 /kW (57.9) %$349 /kW$520 /kW$-171 /kW (32.9) % Product costs of product accepted increased approximately$93 per kilowatt, or 3.9%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . This increase in cost is primarily driven by some of the cost pressures seen in the external environment with commodity pricing and logistics increasing significantly from one year ago. Our ongoing cost reduction efforts to reduce material costs, labor and overhead through improved automation of our manufacturing facilities, our better facility utilization and our ongoing material cost reduction programs with our vendors continued but were offset by the temporary increases in cost that we experienced. Product costs of product accepted increased approximately$176 per kilowatt, or 7.6%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . This increase in cost is primarily driven by some of the cost pressures seen in the external environment with commodity pricing and logistics increasing significantly from one year ago. Our ongoing cost reduction efforts to reduce material costs, labor and overhead through improved automation of our manufacturing facilities, our better facility utilization and our ongoing material cost reduction programs with our vendors continued but were offset by the temporary increases in cost that we experienced. Period costs of manufacturing related expenses increased approximately$7.0 million , or 109.1%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . Our period costs of manufacturing related expenses increased primarily as a result of costs incurred to support capacity expansion efforts which will be brought online in future periods. Period costs of manufacturing related expenses increased approximately$11.3 million , or 95.1%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Our period costs of manufacturing related expenses increased primarily as a result of costs incurred to support capacity expansion efforts which will be brought online in future periods. Installation costs on product accepted decreased approximately$489 per kilowatt, or 57.9%, for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . This decrease in cost is primarily driven by the change in the mix of sites requiring Bloom installation and changes in installation process. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, etc. As such, installation on a per kilowatt basis can vary significantly from period-to-period. In addition, some customers do their own installation for which we have little to no installation cost. Installation costs on product accepted decreased approximately$171 per kilowatt, or 32.9%, for the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . This increase in cost is primarily driven by the change in the mix of sites requiring Bloom installation. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, etc. As such, installation on a per kilowatt basis can vary significantly from period-to-period. In addition, some customers do their own installation for which we have little to no installation cost. 36 --------------------------------------------------------------------------------
Results of Operations
A discussion regarding the comparison of our financial condition and results of operations for the three and six months endedJune 30, 2022 and 2021 is presented below. Revenue Three Months Ended Six Months Ended June 30, Change June 30, Change 2022 2021 Amount % 2022 2021 Amount % (dollars in thousands) (dollars in thousands) Product$ 173,625 $ 146,867 $ 26,758 18.2 % $ 307,172$ 284,797 $ 22,375 7.9 % Installation 12,729 28,879 (16,150) (55.9) % 26,282 31,538 (5,256) (16.7) % Service 38,426 35,707 2,719 7.6 % 73,665 72,124 1,541 2.1 % Electricity 18,456 17,017 1,439 8.5 % 37,156 34,018 3,138 9.2 % Total revenue$ 243,236 $ 228,470 $ 14,766 6.5 % $ 444,275$ 422,477 $ 21,798 5.2 % Total Revenue Total revenue increased by$14.8 million , or 6.5%, for the three months endedJune 30, 2022 as compared to the prior year period. This increase was driven by a$26.8 million increase in product revenue, a$2.7 million increase in service revenue and a$1.4 million increase in electricity revenue, offset by a$16.2 million decrease in installation revenue. Total revenue increased by$21.8 million , or 5.2%, for the six months endedJune 30, 2022 as compared to the prior year period. This increase was primarily driven by a$22.4 million increase in product revenue, a$1.5 million increase in service revenue and a$3.1 million increase in electricity revenue, offset by a$5.3 million decrease in installation revenue.
Product Revenue
Product revenue increased by$26.8 million , or 18.2%, for the three months endedJune 30, 2022 as compared to the prior year period. The product revenue increase was driven primarily by an 8.8% increase in product acceptances resulting from expansion in existing markets and revenue recognized from the PPA IIIa Upgrade of$36.9 million . Product revenue increased by$22.4 million , or 7.9%, for the six months endedJune 30, 2022 as compared to the prior year period. The product revenue increase was driven primarily by a 7.0% increase in product acceptances resulting from expansion in existing markets and revenue recognized from the PPA IIIa Upgrade of$36.9 million . Installation Revenue Installation revenue decreased by$16.2 million , or 55.9%, for the three months endedJune 30, 2022 as compared to the prior year period. This decrease in installation revenue was driven by the change in mix of product acceptances requiring installations by us, as fewer sites had installation costs in the three months endedJune 30, 2022 , offset by the revenue recognized from the PPA IIIa Upgrade of$1.1 million . Installation revenue decreased by$5.3 million , or 16.7%, for the six months endedJune 30, 2022 as compared to the prior year period. This decrease in installation revenue was driven by the change in mix of product acceptances requiring installations by us, as fewer sites had installation costs in the six months endedJune 30, 2022 , offset by the revenue recognized from the PPA IIIa Upgrade of$1.1 million . Service Revenue Service revenue increased by$2.7 million , or 7.6%, for the three months endedJune 30, 2022 as compared to the prior year period. This increase was primarily due to the increase in the renewal of existing service contracts. We expect our service revenue to grow in the future. Service revenue increased by$1.5 million , or 2.1%, for the six months endedJune 30, 2022 as compared to the prior year period. This increase was primarily due to the increase in new acceptances and renewal of existing service contracts, 37 -------------------------------------------------------------------------------- partially offset by delays in execution of long-term service agreements and the impact of product performance guarantees. We expect our service revenue to grow in the future. Electricity Revenue Electricity revenue increased by$1.4 million , or 8.5%, for the three months endedJune 30, 2022 as compared to the prior year period due to the increase in installed units as a result of the increase in Managed Services transactions recorded in the second half of fiscal year 2021. Electricity revenue increased by$3.1 million , or 9.2%, for the six months endedJune 30, 2022 as compared to the prior year period due to the increase in installed units as a result of the increase in Managed Services transactions recorded in the second half of fiscal year 2021. Cost of Revenue Three Months Ended Six Months Ended June 30, Change June 30, Change 2022 2021 Amount % 2022 2021 Amount % (dollars in thousands) (dollars in thousands) Product$ 129,419 $ 108,891 $ 20,528 18.9 %$ 235,161 $ 196,185 $ 38,976 19.9 % Installation 16,730 36,515 (19,785) (54.2) % 29,503 41,140 (11,637) (28.3) % Service 41,028 35,565 5,463 15.4 % 82,854 71,683 11,171 15.6 % Electricity 58,029 10,155 47,874 471.4 % 70,790 21,474 49,316 229.7 % Total cost of revenue$ 245,206 $ 191,126 $ 54,080 28.3 %$ 418,308 $ 330,482 $ 87,826 26.6 % Total Cost of Revenue Total cost of revenue increased by$54.1 million , or 28.3%, for the three months endedJune 30, 2022 as compared to the prior year period primarily driven by a$47.9 million increase in cost of electricity revenue, a$20.5 million increase in cost of product revenue, and a$5.5 million increase in cost of service revenue, offset by a$19.8 million decrease in costs of installation revenue. The increase was primarily driven by the write-off of old Energy Servers of$44.8 million as a result of the PPA IIIa Upgrade, increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This increase was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. Total cost of revenue increased by$87.8 million , or 26.6%, for the six months endedJune 30, 2022 as compared to the prior year period primarily driven by a$49.3 million increase in cost of electricity revenue, a$39.0 million increase in cost of product revenue, an$11.2 million increase in cost of service revenue, offset by a$11.6 million decrease in costs of installation revenue. The increase was primarily driven by the write-off of old Energy Servers of$44.8 million as a result of the PPA IIIa Upgrade, increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This increase was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. Cost of Product Revenue Cost of product revenue increased by$20.5 million , or 18.9%, for the three months endedJune 30, 2022 as compared to the prior year period. The cost of product revenue increase was in line with the increase in product revenue and was driven primarily by a 8.8% increase in product acceptances, the sale new Energy Servers of$15.9 million as a result of the PPA IIIa Upgrade, increased freight charges and other supply chain-related pricing pressures and costs incurred in support of upcoming capacity expansion efforts which will be brought online in future periods. This increase was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. 38 -------------------------------------------------------------------------------- Cost of product revenue increased by$39.0 million , or 19.9%, for the six months endedJune 30, 2022 as compared to the prior year period. The cost of product revenue increase was driven primarily by a 7.0% increase in product acceptances, the sale of new Energy Servers of$15.9 million as a result of the PPA IIIa Upgrade, increased freight charges and other supply chain-related pricing pressures and costs incurred in support of upcoming capacity expansion efforts which will be brought online in future periods. This increase was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. Cost of Installation Revenue Cost of installation revenue decreased by$19.8 million , or 54.2%, for the three months endedJune 30, 2022 as compared to the prior year period. This decrease was driven by the change in mix of product acceptances requiringBloom Energy installations, as fewer sites had installation costs in the three months endedJune 30, 2022 . Cost of installation revenue decreased by$11.6 million , or 28.3%, for the six months endedJune 30, 2022 as compared to the prior year period. This decrease was driven by the change in mix of product acceptances requiringBloom Energy installations, as fewer sites had installation costs in the six months endedJune 30, 2022 . Cost of Service Revenue Cost of service revenue increased by$5.5 million , or 15.4%, for the three months endedJune 30, 2022 as compared to the prior year period. This increase was primarily due to the 8.8% increase in acceptances plus the maintenance contract renewals associated with the increase in our fleet of Energy Servers, partially offset by the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations. Cost of service revenue increased by$11.2 million , or 15.6%, for the six months endedJune 30, 2022 as compared to the prior year period. This increase was primarily due to the 7.0% increase in acceptances plus the maintenance contract renewals associated with the increase in our fleet of Energy Servers, partially offset by the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Cost of Electricity Revenue
Cost of electricity revenue increased by$47.9 million , or 471.4%, for the three months endedJune 30, 2022 as compared to the prior year period, primarily due to the write-off of old Energy Servers of$44.8 million as a result of the PPA IIIa Upgrade and the increase in installed units driven by Managed Services transactions recorded in the second half of fiscal year 2021. Cost of electricity revenue increased by$49.3 million , or 229.7%, for the six months endedJune 30, 2022 as compared to the prior year period, primarily due to the write-off of old Energy Servers of$44.8 million as a result of the PPA IIIa Upgrade and an increase in installed units driven by Managed Services transactions recorded in the second half of fiscal year 2021. 39 --------------------------------------------------------------------------------
Gross Profit (Loss) and Gross Margin
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
(dollars in thousands)Gross profit (loss): Product$ 44,206 $ 37,976 $ 6,230 $ 72,011 $ 88,612 $ (16,601) Installation (4,001) (7,636) 3,635 (3,221) (9,602) 6,381 Service (2,602) 142 (2,744) (9,189) 441 (9,630) Electricity (39,573) 6,862 (46,435) (33,634) 12,544 (46,178) Total gross (loss) profit$ (1,970) $ 37,344 $ (39,314) $ 25,967 $ 91,995 $ (66,028) Gross margin: Product 25 % 26 % 23 % 31 % Installation (31) % (26) % (12) % (30) % Service (7) % - % (12) % 1 % Electricity (214) % 40 % (91) % 37 % Total gross margin (1) % 16 % 6 % 22 % Total Gross (Loss) Profit Gross profit decreased by$39.3 million in the three months endedJune 30, 2022 as compared to the prior year period which was primarily driven by the$46.4 million decrease in electricity gross profit primarily due to the write-off of old Energy Servers of$44.8 million as a result of the PPA IIIa Upgrade, increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This decrease was partially offset by the$6.2 million increase in product gross profit, driven by an 8.8% increase in acceptances, recognized revenue of$36.9 million from the sale of new Energy Servers as a result of PPA IIIa Upgrade, offset by the increase in the respective cost of product revenue of$15.9 million , and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. Gross profit decreased by$66.0 million in the six months endedJune 30, 2022 as compared to the prior year period which was primarily driven by the$46.2 million decrease in electricity gross profit primarily due to the write-off of old Energy Servers of$44.8 million as a result of the PPA IIIa Upgrade; the$16.6 million decrease in product gross profit due to a 7.0% increase in product acceptances, the cost of sale of new Energy Servers of$15.9 million as a result of the PPA IIIa Upgrade, offset by respective product revenue recognized of$36.9 million ; the$9.6 million decrease in service gross profit due to a 7.0% increase in acceptances plus the maintenance contract renewals associated with the increase in our fleet of Energy Servers; increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This decrease was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. 40 --------------------------------------------------------------------------------
Product Gross Profit
Product gross profit increased by$6.2 million in the three months endedJune 30, 2022 as compared to the prior year period. The increase is primarily driven by an 8.8% increase in product acceptances, revenue recognized from the PPA IIIa Upgrade of$36.9 million , and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities, partially offset by the cost of sale of new Energy Servers of$15.9 million as a result of the PPA IIIa Upgrade, increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. Product gross profit decreased by$16.6 million in the six months endedJune 30, 2022 as compared to the prior year period. The decrease is primarily driven by increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This decrease was partially offset by a 7.0% increase in product acceptances, revenue recognized from the PPA IIIa Upgrade of$36.9 million and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. Installation Gross Loss Installation gross loss improved by$3.6 million in the three months endedJune 30, 2022 as compared to the prior year period driven by the change in site mix and other site related factors such as site complexity, size, local ordinance requirements and location of the utility interconnect. Installation gross loss improved by$6.4 million in the six months endedJune 30, 2022 as compared to the prior year period driven by the change in site mix and other site related factors such as site complexity, size, local ordinance requirements and location of the utility interconnect.
Service Gross (Loss) Profit
Service gross loss worsened by$2.7 million in the three months endedJune 30, 2022 as compared to the prior year period. This was primarily due to unfavorable timing of long-term service agreement and the impact of product performance guarantees offset by improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations. Service gross loss worsened by$9.6 million in the six months endedJune 30, 2022 as compared to the prior year period. This was primarily due to unfavorable timing of long-term service agreement and the impact of product performance guarantees offset by improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Electricity Gross (Loss) Profit
Electricity gross profit decreased by$46.4 million in the three months endedJune 30, 2022 as compared to the prior year period mainly due to the write-off of old Energy Servers from the PPA IIIa Upgrade of$44.8 million partially offset by the increase in Managed Services transactions recorded in the second half of fiscal year 2021. Electricity gross profit decreased by$46.2 million in the six months endedJune 30, 2022 as compared to the prior year period mainly due to the write-off of old Energy Servers from the PPA IIIa Upgrade of$44.8 million partially offset by the increase in Managed Services transactions recorded in the second half of fiscal year 2021. 41 --------------------------------------------------------------------------------
Operating Expenses
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 Amount % 2022 2021 Amount %
(dollars in thousands) (dollars in thousands)
Research and development $ 41,614 $ 25,673 $ 15,941 62.1 % $ 76,140 $ 48,968 $ 27,172 55.5 %
Sales and marketing 20,475 22,727 (2,252) (9.9) % 41,809 42,679 (870) (2.0) %
General and administrative 38,114 31,655 6,459 20.4 % 75,850 57,456 18,394 32.0 %
Total operating expenses $ 100,203 $ 80,055 $ 20,148 25.2 % $ 193,799 $ 149,103 $ 44,696 30.0 %
Total Operating Expenses
Total operating expenses increased by $20.1 million in the three months ended
June 30, 2022 as compared to the prior year period. This increase was primarily
attributable to our continued investment in R&D capabilities to support our
technology roadmap and our investment in business development, partially offset
by the decrease in outside services.
Total operating expenses increased by $44.7 million in the six months ended June
30, 2022 as compared to the prior year period. This increase was primarily
attributable to our continued investment in R&D capabilities to support our
technology roadmap and our investment in business development, partially offset
by the decrease in outside services.
Research and Development
Research and development expenses increased by$15.9 million in the three months endedJune 30, 2022 as compared to the prior year period. This increase was primarily driven by increases in employee compensation and benefits to expand our employee base in order to support our technology roadmap, including our hydrogen, electrolyzer, carbon capture, marine and biogas solutions, along with an increase in manufacturing-related expense. Research and development expenses increased by$27.2 million in the six months endedJune 30, 2022 as compared to the prior year period. This increase was primarily driven by increases in employee compensation and benefits to expand our employee base in order to support our technology roadmap, including our hydrogen, electrolyzer, carbon capture, marine and biogas solutions, along with an increase in manufacturing-related expense.
Sales and Marketing
Sales and marketing expenses decreased by$2.3 million in the three months endedJune 30, 2022 as compared to the prior year period. This decrease was primarily driven by the decrease in outside services, partially offset by increases in employee compensation and benefits to expand ourU.S. and international sales force, as well as increased investment in brand and product management. Sales and marketing expenses decreased by$0.9 million in the six months endedJune 30, 2022 as compared to the prior year period. This decrease was primarily driven by the decrease in outside services, partially offset by increases in employee compensation and benefits to expand ourU.S. and international sales force, as well as increased investment in brand and product management.
General and Administrative
General and administrative expenses increased by
General and administrative expenses increased by
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Stock-Based Compensation
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 Amount % 2022 2021 Amount %
(dollars in thousands) (dollars in thousands)
Cost of revenue $ 4,767 $ 3,804 $ 963 25.3 % $ 8,627 $ 6,803 $ 1,824 26.8 %
Research and development 13,213 5,291 7,922 149.7 % 20,295 10,199 10,096 99.0 %
Sales and marketing 4,805 4,010 795 19.8 % 9,580 8,095 1,485 18.3 %
General and administrative 9,814 6,028 3,786 62.8 % 20,405 11,246 9,159 81.4 %
Total stock-based compensation $ 32,599 $ 19,133 $ 13,466 70.4 % $ 58,907 $ 36,343 $ 22,564 62.1 %
Total stock-based compensation for the three months ended
Total stock-based compensation for the six months ended
Other Income and Expense
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Change 2022 2021 Change
(in thousands)Interest income$ 196 $ 76 $ 120 $ 255 $ 150 $ 105 Interest expense (13,814) (14,553) 739 (27,901) (29,284) 1,383 Other (expense) income, net (1,191) 22 (1,213) (4,218) (63) (4,155) Loss on extinguishment of debt (4,233) - (4,233) (4,233) -
(4,233)
Gain (loss) on revaluation of embedded derivatives 38 (942) 980 569 (1,460) 2,029 Total$ (19,004) $ (15,397) $ (3,607) $ (35,528) $ (30,657) $ (4,871) Interest Income
Interest income is derived from investment earnings on our cash balances
primarily from money market funds. Change in interest income for the three and
six months ended
Interest Expense
Interest expense is from our debt held by third parties.
Interest expense for the three months endedJune 30, 2022 as compared to the prior year period decreased by$0.7 million . This decrease was primarily due to lower interest expense as a result of our repayment of the 7.5% Term Loan dueSeptember 2028 and refinancing our notes at a lower interest rate. Interest expense for the six months endedJune 30, 2022 as compared to the prior year period decreased by$1.4 million . This decrease was primarily due to lower interest expense as a result of our repayment of the 7.5% Term Loan dueSeptember 2028 and refinancing our notes at a lower interest rate.
Other (Expense) Income, net
Other (expense) income, net is primarily derived from investments in joint ventures, the impact of foreign currency translation, and adjustments to fair value for derivatives.
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Other income (expense), net for the three months ended June 30, 2022 as compared
to the prior year period decrease by $1.2 million primarily as a result of the
loss on remeasurement of our equity investment in the Bloom Energy Japan joint
venture and loss on foreign currency translation, partially offset by a gain on
the revaluation of the Option to purchase Class A common stock.
Other income (expense), net for the six months ended June 30, 2022 as compared
to the prior year period decreased by $4.2 million primarily as a result of the
loss on remeasurement of our equity investment in the Bloom Energy Japan joint
venture, loss on foreign currency translation, and loss on the revaluation of
the Option to purchase Class A common stock.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the three and six months endedJune 30, 2022 was$4.2 million , which was recognized as a result of repayment of 7.5% Term Loan dueSeptember 2028 as part of the PPA IIIa Upgrade.
Gain (Loss) on Revaluation of Embedded Derivatives
Gain (loss) on revaluation of embedded derivatives is derived from the change in fair value of our sales contracts of embedded EPP derivatives valued using historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. Loss on revaluation of embedded derivatives for the three months endedJune 30, 2022 as compared to the prior year period increased by$1.0 million due to the change in fair value of our embedded EPP derivatives in our sales contracts Loss on revaluation of embedded derivatives for the six months endedJune 30, 2022 as compared to the prior year period increased by$2.0 million due to the change in fair value of our embedded EPP derivatives in our sales contracts. Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests Three Months Ended Six Months Ended June 30, Change June 30, Change 2022 2021 Amount % 2022 2021 Amount % (dollars in thousands) Net loss attributable to noncontrolling interests$ (2,365) $ (4,536) $ (2,171) (47.9) %$ (6,453) $ (9,424) $ (2,971) (31.5) % Net loss attributable to redeemable noncontrolling interest $ -$ (22) $ (22) (100.0) %$ (300) $ (26) $ 274 1,053.8 % Net loss attributable to noncontrolling interests is the result of allocating profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities. Net loss attributable to noncontrolling interests for the three months endedJune 30, 2022 as compared to the prior year period changed by$2.2 million due to decreased losses in our PPA Entities, which are allocated to our noncontrolling interests. Net loss attributable to noncontrolling interests for the six months endedJune 30, 2022 as compared to the prior year period changed by$3.0 million due to decreased losses in our PPA Entities, which are allocated to our noncontrolling interests.
Changes in net loss attributable to redeemable noncontrolling interest for the
three and six months ended
Off-Balance Sheet Arrangements
We include in our condensed consolidated financial statements all assets and liabilities and results of operations of our PPA Entities that we have entered into and over which we have substantial control. For additional information, see Part II, Item 8, Note 11 - Portfolio Financings in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
We have not entered into any other transactions that have generated
relationships with unconsolidated entities or financial partnerships or special
purpose entities. Accordingly, as of
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied inthe United States ("U.S. GAAP") The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations above are based on our audited results of operations, which we have prepared in accordance withU.S. GAAP. In preparing these condensed consolidated financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are representative of estimation uncertainty, and are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating the consolidated financial condition and results of operations. The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, include:
•Discussion of Earliest Year of Changes in Financial Condition and Results of Operations;
•Revenue Recognition;
•Leases: Incremental Borrowing Rate;
•Valuation of Escalator Protection Plan Agreements ("EPP");
•Valuation of Certain Financial Instruments and Customer Financing Receivables;
•Valuation of Assets and Liabilities of the SK ecoplant
•Incremental Borrowing Rate ("IBR") by Lease Class;
•Stock-Based Compensation;
•Income Taxes;
•Principles of Consolidation; and
•Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests and Redeemable Noncontrolling Interests.
Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year endedDecember 31, 2021 provides a more complete discussion of our critical accounting policies and estimates. During the six months endedJune 30, 2022 , there were no significant changes to our critical accounting policies and estimates.
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