OPERATIONS


You should read the following discussion of our financial condition and results
of operations in conjunction with the condensed consolidated financial
statements and the notes thereto included elsewhere in this Quarterly Report on
Form 10-Q. Some of the information contained in this discussion and analysis or
set forth elsewhere in this Quarterly Report on Form 10-Q, including information
with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties as described
under the heading Special Note Regarding Forward-Looking Statements following
the   Table of Contents   of this Quarterly Report on Form 10-Q. You should
review the disclosure under Part II, Item 1A - Risk Factors in this Quarterly
Report on Form 10-Q for a discussion of important factors that could cause
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis.

Overview


Restatement of Previously Issued Condensed Consolidated Financial Statements
We have restated our previously reported financial information as of and for the
three and six months ended June 30, 2019 in this Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations, including but not
limited to information within Results of Operations and Liquidity and Capital
Resources sections.
See Note 2, Restatement of Previously Issued Condensed Consolidated Financial
Statements, in Part I, Item 1, Financial Statements, for additional information
related to the restatement, including descriptions of the misstatements and the
impacts on our condensed consolidated financial statements.
Description of Bloom Energy
Our solution, the Bloom Energy Server, is a stationary power generation platform
built for the digital age and capable of delivering highly reliable,
uninterrupted, 24x7 constant power that is also clean and sustainable. The Bloom
Energy Server converts standard low-pressure natural gas, biogas or hydrogen
into electricity through an electrochemical process without combustion,
resulting in very high conversion efficiencies and lower harmful emissions than
conventional fossil fuel generation. A typical configuration produces 250
kilowatts of power in a footprint roughly equivalent to that of half of a
standard thirty-foot shipping container, or approximately 125 times more
space-efficient than solar power generation. 250 kilowatts of power is roughly
equivalent to the constant power requirement of a typical big box retail store.
Any number of our Energy Server systems can be clustered together in various
configurations to form solutions from hundreds of kilowatts to many tens of
megawatts. We currently primarily target commercial and industrial customers.
We market and sell our Energy Servers primarily through our direct sales
organization in the United States, and also have direct and indirect sales
channels internationally. Recognizing that deploying our solutions requires a
material financial commitment, we have developed a number of financing options
to support sales of our Energy Servers to customers who lack the financial
capability to purchase our Energy Servers directly, who prefer to finance the
acquisition using third party financing or who prefer to contract for our
services on a pay-as-you-go model.
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 recently expanded our product and
financing options to the below-investment-grade customers 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.

COVID-19 Pandemic
General
We have been and will continue monitoring and adjusting as appropriate our
operations in response to the COVID-19 pandemic. As a technology company that
supplies resilient, reliable and clean energy, we have been able to conduct the
majority of operations as an "essential business" in California and Delaware,
where we manufacture and perform many of our R&D activities, as well as in other
states and countries where we are installing or maintaining our Energy Servers,
notwithstanding government "shelter in place" orders. For the safety of our
employees and others, many of our employees are still working from home unless
they are directly supporting essential manufacturing production operations,
installation work,
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service and maintenance activities and R&D. We have established protocols to
minimize the risk of COVID-19 transmission within our facilities, including
enhanced cleaning, and temperature screenings upon entry. In addition, all
individuals entering Bloom facilities are required to wear face coverings and
are directed not to enter if they have COVID-19-like symptoms. We follow all CDC
guidelines when notified of possible exposures. For more information regarding
the risks posed to our company by the COVID-19 pandemic, refer to Risk Factors -
Risks Relating to Our Products and Manufacturing - Our business has been and
will continue to be adversely affected by the COVID-19 pandemic.
Liquidity and Capital Resources
We have implemented measures to preserve cash and enhance liquidity, including
suspending salary increases and bonuses, instituting a company-wide hiring
freeze, eliminating business travel, reducing capital expenditures, and delaying
or eliminating discretionary spending. We are also focused on managing our
working capital needs, maintaining as much flexibility as possible around timing
of taking and paying for inventory and manufacturing our product while managing
potential changes or delays in installations.
In March 2020, we extended the terms of the 10% Convertible Notes and the 10%
Constellation Note to December 2021. Since then, the 10% Constellation Note was
converted into equity and the potential liabilities associated with the 10%
Constellation Notes have been extinguished. This relieves some pressure on our
liquidity position in the near term. While we will likely need to access the
capital markets to raise sufficient capital to redeem the 10% Convertible Notes,
we do not expect that it will be necessary to access capital markets for cash to
operate our business for the next 12 months, unless the impact of COVID-19 to
our business and financial position is more extensive than expected. Capital
markets have been volatile and there is no assurance that we would have access
to capital markets at a reasonable cost, or at all, at times when capital is
needed. In addition, our existing debt has restrictive covenants that limit our
ability to raise new debt or to sell assets, which would limit our ability to
access liquidity by those means without obtaining consent from existing
noteholders. The redemption penalty on our 10% Convertible Notes starting in
October 2020 could also adversely affect our financial position if we are unable
to access capital markets to refinance them on reasonable terms. Refer to Note
7, Outstanding Loans and Security Agreements; Management's Discussion and
Analysis of Financial Condition and Results of Operations, Liquidity and Capital
Resources; and Risk Factors - Risks Relating 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, for more information regarding the terms of and risks
associated with our debt.
Operations and maintenance cash flows for certain PPAs, direct purchases and
leases are pledged to the 10% Senior Secured Notes and 10.25% Senior Secured
Notes. If there is delay in payment from customers, or if a customer does not
renew a contract with us that we expect to be renewed, our ability to service
existing debt would be adversely affected, which could trigger a default if
non-payment extends beyond the grace period. Even if we are able to sustain debt
service payments, if we do not meet certain minimum debt service coverage ratio
levels specified in our debt agreements, excess cash after the debt has been
serviced could not be released to support our operations and would negatively
affect our liquidity position.
Sales
In some markets, we have experienced an increase in time to obtain new business
as our customers deal with the impact of the COVID-19 pandemic. Decision makers
in organizations such as education and entertainment have shifted their focus to
the immediate needs of the pandemic, thus delaying their purchase decisions and
capital outlays. While there may ultimately be a reduction in electricity needs
due to decrease in economic activity, the current impact generally equates to a
longer transaction cycle.
Our ability to continue to expand our business both domestically and
internationally and develop customer relationships also has been negatively
impacted by current travel restrictions. Our marketing efforts historically have
often involved customer visits to our manufacturing centers in California or
Delaware, which we have suspended.
On the other hand, a significant portion of our customers are hospitals,
healthcare companies, retailers and data centers. These industries are composed
of essential businesses that still need the resiliency and reliability offered
by our products. We have seen an increase in demand for our products in these
sectors where the COVID-19 pandemic has highlighted the benefits of always-on,
on-site power in times of disaster and uncertainty. In addition, the pandemic
has had no significant effect on our business in the Republic of Korea.
We have also had some unique opportunities to deploy our systems on an emergency
basis to support temporary hospitals. We believe deploying clean electrical
power with no oxides of nitrogen (NOx) or sulfur (SOx) emissions, especially as
atmospheric pollutants, is important for facilities preparing to treat a
respiratory disease like COVID-19. As a result of this opportunity to introduce
our products to more healthcare providers, demand for our products at some
permanent hospitals has also increased.
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Customer Financing
COVID-19 has not yet had any significant impact on our ability to obtain
financing for our customers' use of our products, but we are finding it more
difficult to find financiers who are able to monetize tax credit. A majority of
the installations we have planned in the United States in 2020 have obtained
financing. However, we have actively been working with new sources of capital
that could finance projects for our 2021 installations. We believe the current
environment may increase the time to solidify new relationships, and thus
negatively impact the time required to achieve funding. In addition, our ability
to obtain financing for our Energy Servers partly depends on the
creditworthiness of our customers. Some of our customers' credit ratings have
recently fallen, which may make it difficult for us to obtain financing for
their use of an Energy Server. Our recent experience has been that financing
parties have capital to deploy and are interested in financing our Energy
Servers and, at present, cash flow and results of operations including revenue
have not been impacted by our inability to obtain financing for customer
installations.
Installations of Energy Servers
The COVID-19 pandemic has caused delays that affected nearly all of our
installations with varying degrees of severity. Since we do not recognize
revenue on the sales of our products until installation and acceptance,
installation delays have a negative impact on our results of operations
including revenue. Since we generally earn cash as we progress through the
installation process, delays to installation activity also adversely affects our
cash flows.
While our installation activity has been deemed "essential business" and allowed
to proceed in many jurisdictions, the essential business designations for our
activities (and those of our suppliers and other third party organizations that
are critical to our success) has been inconsistent from region to region and
across the various third parties upon whom we are critically dependent to
complete our installations. As an example, in New York City, one of our
installations was deemed essential while the other was not deemed essential and
the utilities on whom we rely for water, gas and electric inter-connections were
also not uniformly affected. This resulted in all of the projects in New York
City being adversely affected to some extent. As another example, while the
State of Massachusetts designated construction as an essential business, some
local authorities in Massachusetts did not apply the same designation, resulting
in delays and additional compliance costs.
In addition, we have experienced delays and interruptions to our installations
where customers have shut down or otherwise limited access to their facilities.
Some of our backlog can only be deployed when the customer brings on sufficient
load for our systems. Facility closings and diminished economic activity delay
that load coming online, leading customers to postpone the completion of
installations.
We use general contractors and sub-contractors, and need supplies of various
types of ancillary equipment, for our installations. Some of our suppliers have
had COVID-19 outbreaks among their workforces, which have caused installation
delays. In addition, the availability and productivity of contractors,
sub-contractors, and suppliers has generally been negatively impacted by social
distancing requirements and other safety measures.
Nearly all of our installations completed in the quarter ended June 30, 2020
were impacted by COVID-19 to some extent and some installations were unable to
achieve acceptance in light of the delays which impacted our cash flows and
results of operation including revenue for the quarter ended June 30, 2020. As
examples, our pre-contract installation planning activity was affected by access
to potential customer sites, our permitting activity was affected in virtually
all jurisdictions by delays in the permitting process as various cities and
municipalities shut down or implemented limited services in response to
COVID-19, and our utility related work was impacted as our gas and electric
utility suppliers facing challenges brought on by COVID-19. We expect
disruptions like those noted above to continue with the current COVID-19
restrictions.
Supply Chain
We have experienced COVID-19 related delays from certain vendors and suppliers,
however, we have been able to find and qualify alternative suppliers and our
production to date has not been impacted. At present, our supply chain has
stabilized; however, if spikes in COVID-19 occur in regions in which our supply
chain operates we could experience a delay in materials which could in turn
impact production and installations and our cash flow and results of operations
including revenue.
Manufacturing
As an essential business, we have continued to manufacture Energy Servers, but
have adopted strict measures to keep our employees safe. These measures have
decreased productivity to an extent, but our deployments, maintenance and
installations have not yet been constrained by our current pace of
manufacturing. As described above, we have established protocols to minimize the
risk of COVID-19 transmission within our manufacturing facilities and follow all
CDC guidelines when notified of possible exposures. We also are now instituting
testing of anyone who comes into any of our facilities. Even with these
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precautions, it is possible an asymptomatic individual could enter our
facilities and transmit the virus to others. We have had a couple positive tests
and in such cases, we have followed CDC Guidelines. To date, it has not impacted
our production.
If we become aware of any cases of COVID-19 among any of our employees, we
notify those with whom the person is known to have been in contact, send the
exposed employees home for at least 14 days and require each employee to be
tested negative before returning to work. Certain roles within our facilities
involve greater mobility throughout our facilities and potential exposure to
more employees. In the event one of such employees suffers from COVID-19, or if
we otherwise believe that a significant number of employees have been exposed
and sent home, particularly in our manufacturing facilities, our production
could be significantly impacted. Furthermore, since our manufacturing process
requires tasks performed at both our California facility and Delaware facility,
significant exposure at either facility would have a substantial impact on our
overall production, and could adversely affect our cash flow and results of
operations including revenue.
Purchase and Lease Options
Initially, we only offered our Energy Servers on a direct purchase basis, in
which the customer purchases the product directly from us. In order to expand
our offerings to customers who lack the financial capability to purchase our
Energy Servers directly (including customers who are unable to monetize the tax
credits available to purchasers of our Energy Servers) and/or who prefer to
lease the product or contract for our services on a pay-as-you-go model, we
subsequently developed the traditional lease ("Traditional Lease"), Managed
Services, and power purchase agreement ("PPA") programs ("PPA Programs").
Our capacity to offer our Energy Servers through any of these financed
arrangements depends in large part on the ability of the financing party or
parties involved to monetize the related investment tax credits, accelerated tax
depreciation and other incentives. Interest rate fluctuations may also impact
the attractiveness of any financing offerings for our customers, and currency
exchange fluctuations may also impact the attractiveness of international
offerings. The Traditional Lease, Managed Services and PPA Program options are
limited by the creditworthiness of the customer. Additionally, the Managed
Services and Traditional Lease options, as with all leases, are also limited by
the customer's willingness to commit to making fixed payments regardless of the
performance of the Energy Servers or our performance of our obligations under
the customer agreement.
In each of our purchase options, we typically perform the functions of a project
developer, including identifying end customers and financiers, leading the
negotiations of the customer agreements and financing agreements, securing all
necessary permitting and interconnections approvals, and overseeing the design
and construction of the project up to and including commissioning the Energy
Servers.
Under each purchase option, we provide warranties and performance guaranties
regarding our Energy Servers' efficiency and output. We refer to a "warranty" as
a commitment where the failure of the Energy Servers to satisfy the stated
performance level obligates us to repair or replace the Energy Servers as
necessary to improve performance. If we fail to complete such repair or
replacement, or if repair or replacement is impossible, we may be obligated to
repurchase the Energy Servers from the customer or financier. We refer to a
"guaranty" as a commitment where the failure of the Energy Servers to satisfy
the stated performance level obligates us to make a payment to compensate the
beneficiary of such guaranty for the resulting increased cost or diminution in
benefits resulting from such failure. Our obligation to make payments under the
guaranty is always contractually capped and represents a contingency linked to
our services obligation with no economic incentive for us to default and force
an exercise of the payment obligation.
Under direct purchase and Traditional Lease, the warranties and guaranties are
typically included in the price of our Energy Server for the first year. The
warranties and guaranties may be renewed annually at the customer's option, as
an operations and maintenance services agreement, at predetermined prices for a
period of up to 30 years. Historically, our customers and financiers have almost
always exercised their option to renew the warranties and guaranties under these
operations and maintenance services agreements.
Under the Managed Services Program, the warranties and guaranties are included
for the fixed period specified in the customer agreement. This period is
typically 10 years, which may be extended at the option of the parties for
additional years.
Under the PPA Programs, we typically provide warranties and guaranties regarding
our Energy Servers' efficiency to the customer (i.e., the end user of the
electricity generated by our Energy Servers, who is also responsible for the
purchase of the fuel required for our Energy Servers' operations), and we
provide warranties and guaranties regarding our Energy Servers' output to the
financier(s) that purchases our Energy Servers. The warranties and guaranties
are typically included in the price of our Energy Server for the first year and
may be renewed annually at the financier's option, as an operations and
maintenance services agreement, at predetermined prices for a period of up to 30
years. Historically, our financiers have almost always exercised their option to
renew the warranties and guaranties under these operations and maintenance
services agreements. We
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also provide a fixed schedule of prices for each year of the term of our
agreements with our customers and none of our customers have failed to renew our
operations and maintenance agreements.
The substantial majority of bookings made in recent periods are pursuant to the
PPA and the Managed Services Programs.
Each of our financing structures is described in further detail below.

Traditional Lease
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Under the Traditional Lease arrangement, the customer enters into a lease
directly with a financier, which pays us for our Energy Servers purchased
pursuant to a sales agreement (see the description of the Financing Agreement
below). We recognize product and installation revenue upon acceptance. After the
standard one-year warranty period, our customers have almost always exercised
the option to enter into operations and maintenance services agreements with us,
under which we receive annual service payments from the customer. The price for
the annual operations and maintenance services is set at the time we enter into
the Financing Agreement. The term of a lease in a Traditional Lease ranges from
five to eight years.
Under a Financing Agreement, we are generally paid the full price of our Energy
Servers as if sold as a purchase by the customer based on four milestones. The
four payment milestones are typically as follows: (i) 15% upon execution of the
financier's entry into the lease with a customer, (ii) 25% on the day that is
180 days prior to delivery of the Energy Servers, (iii) 40% upon shipment of the
Energy Servers, and (iv) 20% upon acceptance of the Energy Servers. The
financier receives title to the Energy Servers upon installation at the customer
site and the financier has risk of loss while our Energy Server is in operation
on the customer's site.
The Financing Agreement provides for the installation of our Energy Servers and
includes a standard one-year warranty, to the financier, which includes the
performance guaranties described below, with the warranty offered on an annually
renewing basis at the discretion of, and to, the customer. The customer must
provide fuel for the Bloom Energy Servers to operate.
Our direct lease deployments typically provide for warranties and guaranties of
both the efficiency and output of our Energy Servers, all of which are written
in favor of the customer and contained in the operations and maintenance
services agreement. These warranties and guaranties may be measured on a
monthly, annual, cumulative or other basis. As of June 30, 2020, we had incurred
no liabilities due to failure to repair or replace our Energy Servers pursuant
to these warranties. Our obligation to make payments for underperformance
against the performance guaranties for Traditional Lease projects was capped
contractually under the sales agreements between us and each customer at an
aggregate total of approximately $6.0 million (including payments both for low
output and for low efficiency), and our aggregate remaining potential liability
under this cap was approximately $4.1 million.
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Remarketing at Termination of Lease
In the event the customer does not renew or purchase our Energy Servers to the
end of any customer lease, we may remarket any such Energy Servers to a third
party. Any proceeds of such sale would be allocated between us and the
applicable financing partner as agreed between them at the time of such sale.

Managed Services Financing



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Under our Managed Services Programs, we enter into a Managed Services Agreement
with a customer, pursuant to which the customer is able to use the Energy Server
for a certain term. Under the Managed Services Agreement, the customer makes a
monthly payment for the use of the Energy Server. The customer payment typically
has two components: (i) a fixed monthly capacity-based payment and (ii) a
performance-based payment based on the output of electricity that month from the
Energy Server. The fixed capacity-based payments made by the customer under the
Managed Services Agreement are applied toward our obligation to pay down our
liability under the master lease with the financier. The performance payment is
transferred to us as compensation for operations and maintenance services and
recorded as services revenue within the condensed consolidated statements of
operations. In some cases, the customer's monthly payment consists solely of the
first component, a fixed monthly capacity-based payment.
Once a financier is identified and the Energy Server's installation is complete,
we sell the Energy Server contemplated by the Managed Services Agreement
directly to a financier and the financier, as lessor, leases it back to us, as
lessee, pursuant to a master lease in a sale-leaseback transaction. The proceeds
from the sale are recorded as a financing obligation within the condensed
consolidated balance sheets. Any ongoing operations and maintenance service
payments are scheduled in the Managed Services Agreement in the form of the
performance-based payment described above. The financier typically pays the
financing proceeds for the Energy Server contemplated by the Managed Services
Agreement on or shortly after acceptance.
The fixed capacity payments made by the customer under the Managed Services
Agreement are recognized as electricity revenue when billed and applied toward
our obligation to pay the financing obligation under the master lease. Our
Managed Services financings have historically shifted customer credit risk to
the financier, as lessor, by providing in the master lease agreement that we
have no liability for payment of rent except in certain enumerated
circumstances, including in the event we are in breach of the Managed Services
Agreement between us and the customer.
The duration of the master lease in a Managed Services financing is typically 10
years. The term of the master lease is typically the same as the term of the
related Managed Services Agreement, but in some cases the term of the master
lease is shorter than that of the Managed Services Agreement.
Our Managed Services deployments typically provide only for warranties of both
the efficiency and output of the Energy Server(s), all of which are written in
favor of the customer and contained in the operations and maintenance services
agreement. These warranties may be measured on a monthly, annual, cumulative or
other basis. Managed Services projects typically do not
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include guaranties above the warranty commitments, but in projects where the
customer agreement includes a service payment for our operations and
maintenance, that payment is typically proportionate to the output generated by
the Energy Server(s) and our pricing assumes service revenues at the 95% output
level. This means that our service revenues may be lower than expected if output
is less than 95% and higher if output exceeds 95%. As of June 30, 2020, we had
incurred no liabilities due to failure to repair or replace our Energy Servers
pursuant to these warranties and the fleet of our Energy Servers deployed
pursuant to the Managed Services Program was performing at a lifetime average
output of approximately 87%.
Power Purchase Agreement Programs
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*Under the Third Party PPA arrangements, there is no link with an investment
company, as we do not have an equity investment in these arrangements.
Under our PPA Programs, we sell our Energy Servers to an Operating Company,
which sells the electricity generated by the Energy Servers to the ultimate end
customers pursuant to a PPA, energy services agreement, or similar contract.
Because the end customer's payment is stated on a dollar-per-kilowatt-hour
basis, we refer to these agreements as Power Purchase Agreements ("PPAs").
Currently, our offerings for PPA Programs primarily include our Third-Party PPA
Programs pursuant to which we recognize revenue on acceptance. Through 2017, as
part of our PPA Programs, we had also offered the Bloom Electrons Program, which
included an equity investment by us in the Operating Company and in which we
recognized revenue as the electricity was produced. For further discussion on
our Bloom Electrons Programs, see Note 13, Power Purchase Agreement Programs, in
Part I, Item 1, Financial Statements.
In our PPA Program, we enter into an Energy Server sales, operations and
maintenance agreement ("EPC and O&M Agreement") with the Operating Company that
will own the Energy Servers. The Operating Company then enters into the PPA with
the end customer which purchases electricity generated by the Energy Servers.
The Operating Company receives all cash flows generated under the PPA(s), in
addition to all investment tax credits, all accelerated tax depreciation
benefits, and any other cash flows generated by the operation of the Energy
Servers not allocated to the end customer under the PPA.
The sales of our Energy Servers to the Operating Company in connection with the
various PPA Programs have many of the same terms and conditions as a direct
sale. Payment of the purchase price is generally broken down into multiple
installments, which may include payments prior to shipment, upon shipment or
delivery of the Energy Server, and upon acceptance of the Energy Server.
Acceptance typically occurs when the Energy Server is installed and running at
full power as
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defined in the applicable EPC and O&M Agreement. A one-year service warranty is
provided with the initial sale. After the expiration of the initial standard
one-year warranty, the Operating Company has the option to extend our operations
and maintenance services under the EPC and O&M Agreement on an annual basis at a
price determined at the time of purchase of our Energy Server, which may be
renewed annually for each Energy Server for up to 30 years. After the standard
one-year warranty period, the Operating Company has almost always exercised the
option to renew our operations and maintenance obligations under the EPC and O&M
Agreement.
We typically provide output warranties and output guaranties to the Operating
Company pursuant to the applicable EPC and O&M Agreement with the Operating
Company. The end customer agreement between the Operating Company and the end
customer also provides efficiency warranties and efficiency guaranties to the
end user, and we provide a backstop of all of the Operating Company's
obligations under those agreements, including both the repair or replacement
obligations pursuant to the warranties and any payment liabilities under the
guaranties.
As of June 30, 2020, we had incurred no liabilities due to failure to repair or
replace Energy Servers pursuant to these warranties. Our obligation to make
payments for underperformance against the performance guaranties for PPA Program
projects was capped at an aggregate total of approximately $106.5 million
(including payments both for low output and for low efficiency) and our
aggregate remaining potential liability under this cap was approximately $101.4
million.
Obligations to Operating Companies
In addition to our obligations to the end customers, our PPA Programs involve
many obligations to the Operating Company that purchases our Energy Servers.
These obligations are set forth in the applicable EPC and O&M Agreement(s), and
may include some or all of the following obligations:
•designing, manufacturing, and installing the Energy Servers, and selling such
Energy Servers to the Operating Company,
•obtaining all necessary permits and other governmental approvals necessary for
the installation and operation of the Bloom Energy Servers, and maintaining such
permits and approvals throughout the term of the EPC and O&M Agreements,
•operating and maintaining the Bloom Energy Servers in compliance with all
applicable laws, permits and regulations,
•satisfying the efficiency and output warranties set forth in such EPC and O&M
Agreements and the PPAs ("performance warranties"), and
•complying with any specific requirements contained in the PPAs with individual
end-customers.
The EPC and O&M Agreements obligate us to repurchase the Energy Servers in the
event the Energy Servers fail to comply with the performance warranties and in
the event we otherwise breach the terms of the applicable EPC and O&M Agreements
and we fail to remedy such failure or breach after a cure period, or in the
event that a PPA terminates as a result of any failure by us to comply with the
applicable EPC and O&M Agreements. In some PPA Program projects, our obligation
to repurchase Energy Servers extends to the entire fleet of Energy Servers sold
pursuant to the applicable EPC and O&M Agreements in the event such failure
affects more than a specified number of Energy Servers.
In some PPA Programs, we have also agreed to pay liquidated damages to the
applicable Operating Company in the event of delays in the manufacture and
installation of our Energy Servers, either in the form of a cash payment or a
reduction in the purchase price for the applicable Energy Servers.
Both the upfront purchase price for our Energy Servers and the ongoing fees for
our operations and maintenance are paid on a fixed dollar-per-kilowatt basis.
Indemnification of Performance Warranty Expenses Under PPAs - In addition to the
performance warranties and guaranties in the EPC and O&M Agreements, we also
have agreed to indemnify certain Operating Companies for any expenses they incur
to any of the end customers resulting from failures of the applicable Energy
Servers to satisfy any of the performance warranties and guaranties set forth in
the applicable PPAs.
Administration of Operating Companies - In each of the Bloom Electrons programs,
we perform certain administrative services on behalf of the applicable Operating
Company, including invoicing the end customers for amounts owed under the PPAs,
administering the cash receipts of the Operating Company in accordance with the
requirements of the financing arrangements, interfacing with applicable
regulatory agencies, and other similar obligations. We are compensated for these
services on a fixed dollar-per-kilowatt basis.
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The Operating Company in each of the Bloom Electrons Programs (other than PPA I)
has incurred debt in order to finance the acquisition of Energy Servers. The
lenders for these projects are a combination of banks and/or institutional
investors. In each case, the debt is secured by all of the assets of the
applicable Operating Company, such assets being primarily comprised of the
Energy Servers and a collateral assignment of each of the contracts to which the
Operating Company is a party, including the O&M Agreement entered into with us
and the off take agreements entered into with the Operating Company's customers,
and is senior to all other debt obligations of the Operating Company. As further
collateral, the lenders receive a security interest in 100% of the membership
interest of the Operating Company. However, as is typical in structured finance
transactions of this nature, although the project debt is secured by all of the
Operating Company's assets, the lenders have no recourse to us or to any of the
other equity investors in the project. The applicable debt agreements include
provisions that implement a customary "payment waterfall" that dictates the
priority in which the Operating Company will use its available funds to satisfy
its payment obligations to us, the lenders, the tax equity investors and other
third parties.
We have determined that we are the primary beneficiary in the PPA Entities,
subject to reassessments performed as a result of upgrade transactions (see Note
13, Power Purchase Agreement Programs, in Part I, Item 1, Financial Statements.)
Accordingly, we consolidate 100% of the assets, liabilities and operating
results of these entities, including the Energy Servers and lease income, in our
consolidated financial statements. We recognize the tax equity investors' share
of the net assets of the investment entities as noncontrolling interests in
subsidiaries in our condensed consolidated balance sheet. We recognize the
amounts that are contractually payable to these investors in each period as
distributions to noncontrolling interests in our condensed consolidated
statements of redeemable noncontrolling interest, stockholders' deficit and
noncontrolling interest. Our condensed consolidated statements of cash flows
reflect cash received from these investors as proceeds from investments by
noncontrolling interests in subsidiaries. Our condensed consolidated statements
of cash flows also reflect cash paid to these investors as distributions paid to
noncontrolling interests in subsidiaries. We reflect any unpaid distributions to
these investors as distributions payable to noncontrolling interests in
subsidiaries on our condensed consolidated balance sheets. However, the PPA
Entities are separate and distinct legal entities, and Bloom Energy Corporation
may not receive cash or other distributions from the PPA Entities except in
certain limited circumstances and upon the satisfaction of certain conditions,
such as compliance with applicable debt service coverage ratios and the
achievement of a targeted internal rate of return to the tax equity investors,
or otherwise.
For further information about our PPA Programs, see Note 13, Power Purchase
Agreement Programs, in Part I, Item 1, Financial Statements.
Delivery and Installation
The timing of delivery and installations of our products have a significant
impact on the timing of the recognition of product and installation revenue.
Many factors can cause a lag between the time that a customer signs a purchase
order and our recognition of product revenue. These factors include the number
of Energy Servers installed per site, local permitting and utility requirements,
environmental, health and safety requirements, weather, and customer facility
construction schedules. Many of these factors are unpredictable and their
resolution is often outside of our or our customers' control. Customers may also
ask us to delay an installation for reasons unrelated to the foregoing,
including delays in their obtaining financing. Further, due to unexpected
delays, deployments may require unanticipated expenses to expedite delivery of
materials or labor to ensure the installation meets the timing objectives. These
unexpected delays and expenses can be exacerbated in periods in which we deliver
and install a larger number of smaller projects. In addition, if even relatively
short delays occur, there may be a significant shortfall between the revenue we
expect to generate in a particular period and the revenue that we are able to
recognize. For our installations, revenue and cost of revenue can fluctuate
significantly on a periodic basis depending on the timing of acceptance and the
type of financing used by the customer. As described in the Power Purchase
Agreement Programs section above, we offered the Bloom Electrons purchase
program through the end of 2016 and no longer offer this financing structure to
potential customers.
International Channel Partners
Prior to 2018, we consummated a small number of sales outside the United States,
including in India and Japan.
India. In India, sales activities are currently conducted by Bloom Energy
(India) Pvt. Ltd., our wholly-owned indirect subsidiary; however, we are
currently evaluating the Indian market to determine whether the use of channel
partners would be a beneficial go-to-market strategy to grow our India market
sales.
Japan. In Japan, sales are conducted pursuant to a Japanese joint venture
established between us and subsidiaries of SoftBank Corp, called Bloom Energy
Japan Limited ("Bloom Energy Japan"). Under this arrangement, we sell Energy
Servers to Bloom Energy Japan and we recognize revenue once the Energy Servers
leave the port in the United States. Bloom Energy Japan enters into the contract
with the end customer and performs all installation work as well as some of the
operations and maintenance work.
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The Republic of Korea. In 2018, Bloom Energy Japan consummated a sale of Energy
Servers in the Republic of Korea to Korea South-East Power Company. Following
this sale, we entered into a Preferred Distributor Agreement with SK Engineering
& Construction Co., Ltd. ("SK E&C") to enable us to sell directly into the
Republic of Korea.
Under our agreement with SK E&C, SK E&C has a right of first refusal during the
term of the agreement, with certain exceptions, to serve as distributor of
Energy Servers for any fuel cell generation project in the Republic of Korea,
and we have the right of first refusal to serve as SK E&C's supplier of
generation equipment for any Bloom Energy fuel cell project in the Republic of
Korea. Under the terms of each purchase order, title, risk of loss and
acceptance of the Energy Servers pass from us to SK E&C upon delivery at the
named port of lading for shipment in the United States for the Energy Servers
shipped in 2018 and thereafter upon delivery at the named port of unlading in
the Republic of Korea, prior to unloading subject to final purchase order terms.
The Preferred Distributor Agreement has an initial term expiring on December 31,
2021, and thereafter will automatically be renewed for three-year renewal terms
unless either party terminates this agreement by prior written notice under
certain circumstances.
Under the terms of the Preferred Distributor Agreement, we (or our subsidiary)
contract directly with the customer to provide operations and maintenance
services for the Energy Servers. We have established a subsidiary in the
Republic of Korea, Bloom Energy Korea, LLC, to which we subcontract such
operations and maintenance services. The terms of the operations and maintenance
are negotiated on a case-by-case basis with each customer, but are generally
expected to provide the customer with the option to receive services for at
least 10 years, and for up to the life of the Energy Servers.
SK E&C Joint Venture Agreement. In September 2019, we entered into a joint
venture agreement with SK E&C to establish a light-assembly facility in the
Republic of Korea for sales of certain portions of our Energy Server for the
stationary utility and commercial and industrial market in the Republic of
Korea. The joint venture is majority controlled and managed by us. We expect the
facility to be operational by mid-2020 subject to the completion of certain
conditions precedent to the establishment of the joint venture company. Other
than a nominal initial capital contribution by Bloom, the joint venture will be
funded by SK E&C. SK E&C, who currently acts as a distributor for our Energy
Servers for the stationary utility and commercial and industrial market in the
Republic of Korea, will be the primary customer for the products assembled by
the joint venture.
Community Distributed Generation Programs
In July 2015, the state of New York introduced its Community Distributed
Generation program, which extends New York's net metering program in order to
allow utility customers to receive net metering credits for electricity
generated by distributed generation assets located on the utility's grid but not
physically connected to the customer's facility. This program allows for the use
of multiple generation technologies, including fuel cells.
In December 2019, we entered into fuel cell sales, installation, operations and
maintenance agreements with two developers for the deployment of fuel cells
pursuant to this Community Distributed Generation program. These agreements have
many of the same terms and conditions as a direct sale. Payment of the purchase
price is generally broken down into multiple installments, which may include
payments prior to shipment, upon shipment or delivery of the Energy Server, and
upon acceptance of the Energy Server. Acceptance typically occurs when the
Energy Server is installed and running at full power as defined in each
contract. A one-year service warranty is provided with the initial sale. After
the expiration of the initial standard one-year warranty, the owner has the
option to renew our operations and maintenance services for subsequent quarterly
or annual periods for up to 30 years. We provide warranties and guaranties
regarding both efficiency and output to the owners of the Energy Servers
pursuant to the operations and maintenance services agreement with the Operating
Company.
As of June 30, 2020, we had not yet completed the sale of any Energy Servers in
connection with the New York Community Distributed Generation program.
Key Operating Metrics
In addition to the measures presented in the condensed consolidated financial
statements, we use the following key operating metrics to evaluate business
activity, to measure performance, to develop financial forecasts and to make
strategic decisions:
•Product accepted - the number of customer acceptances of our Energy Servers in
any period. We recognize revenue when an acceptance is achieved. We use this
metric to measure the volume of deployment activity. We measure each Energy
Server manufactured, shipped and accepted in terms of 100 kilowatt equivalents.
•Billings for product accepted in the period - the total contracted dollar
amount of the product component of all Energy Servers that are accepted in a
period. We use this metric to gauge the dollar value of the product acceptances
and to evaluate the change in dollar amount of acceptances between periods.
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•Billings for installation on product accepted in the period - the total
contracted dollar amount billable with respect to the installation component of
all Energy Servers that are accepted. We use this metric to gauge the dollar
value of the installations of our product acceptances and to evaluate the change
in dollar value associated with the installation of our product acceptances
between periods.
•Billings for annual maintenance service agreements - the dollar amount billable
for one-year service contracts that have been initiated or renewed. We use this
metric to measure the cumulative billings for all service contracts in any given
period. As our installation base grows, we expect our billings for annual
maintenance service agreements to grow, as well.
•Product costs of product accepted in the period (per kilowatt) - the average
unit product cost for the Energy Servers that are accepted in a period. We use
this metric to provide insight into the trajectory of product costs and, in
particular, the effectiveness of cost reduction activities.
•Period costs of manufacturing expenses not included in product costs - the
manufacturing and related operating costs that are incurred to procure parts and
manufacture Energy Servers that are not included as part of product costs. We
use this metric to measure any costs incurred to run our manufacturing
operations that are not capitalized (i.e., absorbed, such as stock-based
compensation) into inventory and therefore, expensed to our condensed
consolidated statement of operations in the period that they are incurred.
•Installation costs on product accepted (per kilowatt) - the average unit
installation cost for Energy Servers that are accepted in a given period. This
metric is used to provide insight into the trajectory of install costs and, in
particular, to evaluate whether our installation costs are in line with our
installation billings.
Comparison of the Three and Six Months Ended June 30, 2020 and 2019
Acceptances
We use acceptances as a key operating metric to measure the volume of our
completed Energy Server installation activity from period to period. We
typically define an acceptance as when an Energy Server is installed and running
at full power as defined in the customer contract or the financing agreements.
For orders where a third party performs the installation, acceptances are
generally achieved when the Energy Servers are shipped.
The product acceptances in the periods were as follows:
                                    Three Months Ended                                                                                            Six Months Ended
                                         June 30,                                                 Change                                              June 30,                         Change
                                  2020              2019              Amount               %               2020              2019              Amount               %

Product accepted during
the period
(in 100 kilowatt
systems)                            306               271                  35             12.9  %            562               506                  56            11.1  %

Product accepted increased by approximately 35 systems and 56 systems, or 12.9% and 11.1%, for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019, respectively. Acceptance volume increased as demand increased for our Energy Servers.


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As discussed in the Purchase and Lease Options section above, our customers have
several purchase options for our Energy Servers. The portion of acceptances
attributable to each purchase option in the three and six months ended June 30,
2020 and 2019 was as follows:
                                                                   Three Months Ended                                  Six Months Ended
                                                                        June 30,                                           June 30,
                                                                 2020               2019               2020               2019

Direct Purchase (including Third Party PPAs and
International Channels)                                            100  %              93  %              99  %               94  %
Traditional Lease                                                    -  %               1  %               -  %                -  %
Managed Services                                                     -  %               6  %               1  %                6  %

                                                                   100  %             100  %             100  %              100  %


As discussed in the Purchase and Lease Options section above, our customers have
several purchase options for our Energy Servers. The portion of total revenue
attributable to each purchase option in the period was as follows:
                                                                    Three Months Ended                                     Six Months Ended
                                                                         June 30,                                              June 30,
                                                                 2020                2019                2020                 2019

Direct Purchase (including Third Party PPAs and
International Channels)                                              88  %               84  %               87  %                83  %
Traditional Lease                                                     1  %                1  %                1  %                 1  %
Managed Services                                                      5  %                5  %                6  %                 5  %

Bloom Electrons                                                       6  %               10  %                6  %                11  %
                                                                    100  %              100  %              100  %               100  %


Billings Related to Our Products
Total billings attributable to each revenue classification for the three and six
months ended June 30, 2020 and 2019 was as follows (in thousands, except
percentages):
                                                  Three Months Ended                                                                                                 Six Months Ended
                                                       June 30,                                                 Change                                                   June 30,                           Change
                                                2020               2019              Amount              %                2020               2019                Amount                 %

Billings for product accepted in the
period                                      $ 117,483          $ 165,081          $ (47,598)           (28.8) %       $ 229,254          $ 271,810          $      (42,556)           (15.7) %
Billings for installation on product
accepted in the period                         27,841             13,169             14,672            111.4  %          42,452             27,632                  14,820             53.6  %
Billings for annual maintenance
services agreements                            18,915             15,158              3,757             24.8  %          39,134             32,778                   6,356             19.4  %



Billings for product accepted decreased by approximately $47.6 million, or
28.8%, for the three months ended June 30, 2020, as compared to the three months
ended June 30, 2019. The decrease is primarily due to a higher average selling
price mix in the three months ended June 30, 2019, driven mainly by the PPA II
upgrade that occurred in the three months ended June 30, 2019. Billings for
installation on product accepted increased $14.7 million for the three months
ended June 30, 2020, as compared to the three months ended June 30, 2019.
Although product acceptances in the period increased 12.9%, billings for
installation on product accepted increased 111.4% due to the mix in installation
billings driven by site complexity, site size, personalized applications, and
customer option to complete the installation of our Energy Servers themselves.
Billings for annual maintenance service agreements increased $3.8 million, or
24.8%, for the three months ended June 30, 2020, as compared to the three months
ended June 30, 2019. This increase was driven primarily by the increase in our
installed base.
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Billings for product accepted decreased by approximately $42.6 million, or
15.7%, for the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019. The decrease is primarily due to a higher average selling
price mix in the six months ended June 30, 2019, driven mainly by the PPA II
upgrade that occurred in the six months ended June 30, 2019. Billings for
installation on product accepted increased $14.8 million for the six months
ended June 30, 2020, as compared to the six months ended June 30, 2019. Although
product acceptances in the period increased 11.1%, billings for installation on
product accepted increased 53.6% due to the mix in installation billings driven
by site complexity, site size, personalized applications, and customer option to
complete the installation of our Energy Servers themselves. Billings for annual
maintenance service agreements increased $6.4 million, or 19.4%, for the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019.
This increase was driven primarily by the increase in our installed base.
Costs Related to Our Products
Total product related costs for the three and six months ended June 30, 2020 and
2019 was as follows:
                                          Three Months Ended                                                                                                  Six Months Ended
                                               June 30,                                                   Change                                                  June 30,                           Change
                                       2020               2019               Amount                %                2020               2019                Amount                 %

Product costs of product
accepted in the period               $2,409 /kW          $3,045 /kW        

$(636) /kW (20.9) % $2,456 /kW $3,120 /kW

$(664) /kW        (21.3) %
Period costs of
manufacturing related
expenses not included in
product costs (in thousands)       $   4,913          $    3,321          $    1,592              47.9  %       $  11,267          $  10,258          $       1,009              9.8  %
Installation costs on
product accepted in the
period                               $1,200 /kW            $627 /kW            $573 /kW           91.4  %          $1,011/kW            $650/kW                 $361/kW         55.5  %


Product costs of product accepted decreased by approximately $636 per kilowatt,
or 20.9%, for the three months ended June 30, 2020, as compared to the three
months ended June 30, 2019. The product cost reduction was driven generally by
our ongoing cost reduction efforts to reduce material costs in conjunction with
our suppliers and our reduction in labor and overhead costs through improved
processes and automation at our manufacturing facilities.
Product costs of product accepted decreased by approximately $664 per kilowatt,
or 21.3%, for the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019. The product cost reduction was driven generally by our
ongoing cost reduction efforts to reduce material costs in conjunction with our
suppliers and our reduction in labor and overhead costs through improved
processes and automation at our manufacturing facilities.
Period costs of manufacturing related expenses increased by approximately $1.6
million, or 47.9%, for the three months ended June 30, 2020, as compared to the
three months ended June 30, 2019. This increase was driven primarily by
additional one-time expenses incurred due to COVID-19.
Period costs of manufacturing related expenses increased by approximately $1.0
million, or 9.8%, for the six months ended June 30, 2020, as compared to the six
months ended June 30, 2019. This increase was driven primarily by additional
one-time expenses incurred due to COVID-19.
Installation costs on product accepted increased by approximately $573 per
kilowatt, or 91.4%, for the three months ended June 30, 2020, as compared to the
three months ended June 30, 2019. Each customer site is different and
installation costs can vary due to a number of factors, including site
complexity, size, location of gas, personalized applications, and customer
option to complete the installation of our Energy Servers themselves. As such,
installation on a per kilowatt basis can vary significantly from
period-to-period.
Installation costs on product accepted increased by approximately $361 per
kilowatt, or 55.5%, for the six months ended June 30, 2020, as compared to the
six months ended June 30, 2019. Each customer site is different and installation
costs can vary due to a number of factors, including site complexity, size,
location of gas, personalized applications, and customer option to complete the
installation of our Energy Servers themselves. As such, installation on a per
kilowatt basis can vary significantly from period-to-period.

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Results of Operations
A discussion regarding the comparison of our financial condition and results of
operations for the three and six months ended June 30, 2020 and 2019 is
presented below (in thousands, except percentage data).
Comparison of the Three and Six Months Ended June 30, 2020 and 2019
Revenue
                                        Three Months Ended                                                                                                   Six Months Ended
                                             June 30,                                                  Change                                                    June 30,                            Change
                                     2020               2019              Amount                %                2020               2019                 Amount                  %
                                                     As Restated                                                                 As Restated

Product                          $ 116,197          $  144,081          $ (27,884)            (19.4) %       $ 215,756          $  235,007          $      (19,251)             (8.2) %
Installation                        29,839              13,076             16,763             128.2  %          46,457              25,295                  21,162              83.7  %
Service                             26,208              23,026              3,182              13.8  %          51,355              46,493                   4,862              10.5  %
Electricity                         15,612              20,143             (4,531)            (22.5) %          30,987              40,532                  (9,545)            (23.5) %
Total revenue                    $ 187,856          $  200,326          $ (12,470)         (6.2)%            $ 344,555          $  347,327          $       (2,772)             (0.8) %


Total Revenue
Total revenue decreased approximately $12.5 million, or 6.2%, for the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019.
This decrease was driven primarily driven by the decrease in product revenue for
the three months ended June 30, 2020, as compared to the three months ended June
30, 2019, offset partially by the increase in installation revenue. The product
revenue decrease is primarily due to a higher average selling price mix in the
three months ended June 30, 2019, driven mainly by the PPA II upgrade that
occurred in the three months ended June 30, 2019.
Total revenue decreased approximately $2.8 million, or 0.8%, for the six months
ended June 30, 2020, as compared to the six months ended June 30, 2019. This
decrease was primarily driven by the decrease in product revenue and electricity
revenue for the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019, offset partially by the increase in installation revenue.
The product revenue decrease is primarily due to a higher average selling price
mix in the six months ended June 30, 2019, driven mainly by the PPA II upgrade
that occurred in the six months ended June 30, 2019.
Product Revenue
Product revenue decreased approximately $27.9 million, or 19.4%, for the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019.
The product revenue decrease was primarily due to a higher average selling price
mix in the three months ended June 30, 2019, driven mainly by the PPA II upgrade
that occurred in the three months ended June 30, 2019.
Product revenue decreased approximately $19.3 million, or 8.2%, for the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019.
The product revenue decrease was, again, primarily due to a higher average
selling price mix in the six months ended June 30, 2019, driven mainly by the
PPA II upgrade that occurred in the six months ended June 30, 2019.
Installation Revenue
Installation revenue increased by approximately $16.8 million, or 128.2%, for
the three months ended June 30, 2020, as compared to the three months ended June
30, 2019. This increase was driven by the increase in product acceptances of
approximately 35 systems, or 12.9%, for the three months ended June 30, 2020 and
due to the change in mix of installations driven site complexity, site size, and
customer option to complete the installation of our Energy Servers themselves.
Installation revenue increased approximately $21.2 million, or 83.7%, for the
six months ended June 30, 2020, as compared to the six months ended June 30,
2019. This increase was driven by the increase in product acceptances of
approximately 56 systems, or 11.1%, for the six months ended June 30, 2020 and
due to the change in mix of installations driven by site complexity, site size,
and customer option to complete the installation of our Energy Servers
themselves.
Service Revenue
Service revenue increased approximately $3.2 million, or 13.8%, for the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019.
This was primarily due to the increase in the number of annual maintenance
contract renewals driven by our growing fleet of installed Energy Servers.
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Service revenue increased by approximately $4.9 million, or 10.5% for the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019.
This was primarily due to the increase in the number of annual maintenance
contract renewals driven by our growing fleet of installed Energy Servers.
Electricity Revenue
Electricity revenue decreased by approximately $4.5 million, or 22.5%, for the
three months ended June 30, 2020, as compared to the three months ended June 30,
2019, due to a reduction in electricity revenues resulting from the
decommissioning and upgrade of PPA II in the three months ended June 30, 2019.
Electricity revenue was driven by our former Bloom Electrons program, which
included PPA II, as well as from our Managed Services agreements. When PPAs
associated with our Bloom Electrons program are decommissioned, we no longer
recognize electricity revenue for them.
Electricity revenue decreased by approximately $9.5 million, or 23.5%, for the
six months ended June 30, 2020, as compared to the six months ended June 30,
2019, due to a reduction in electricity revenues resulting from the
decommissioning and an upgrade of PPA II in the six months ended June 30, 2019.
Electricity revenue was driven by our former Bloom Electrons program, which
included PPA II, as well as from our Managed Services agreements. When PPAs
associated with our Bloom Electrons program are decommissioned, we no longer
recognize electricity revenue for them.
Cost of Revenue
                                        Three Months Ended                                                                                                     Six Months Ended
                                             June 30,                                                  Change                                                      June 30,                             Change
                                     2020               2019              Amount                %                2020               2019                 Amount                   %
                                                     As Restated                                                                 As Restated
                                                        (dollars in thousands)                                                                                                      (dollars in thousands)
Cost of revenue:
Product                          $  83,127          $  113,228          $ (30,101)            (26.6) %       $ 155,616          $  202,000          $      (46,384)               (23.0) %
Installation                     38,287             17,685                 20,602             116.5  %          59,066              33,445                  25,621                 76.6  %
Service                             28,652              18,763              9,889              52.7  %          59,622              46,684                  12,938                 27.7  %
Electricity                      11,541             22,300                (10,759)            (48.2) %          24,071              35,284                 (11,213)               (31.8) %

Total cost of revenue            $ 161,607          $  171,976          $ (10,369)         (6.0)%            $ 298,375          $  317,413          $      (19,038)         (6.0)%


Total Cost of Revenue
Total cost of revenue decreased by approximately $10.4 million, or 6.0%, for the
three months ended June 30, 2020, as compared to the three months ended June 30,
2019. Included as a component of total cost of revenue, stock-based compensation
decreased approximately $5.8 million for the three months ended June 30, 2020,
as compared to the three months ended June 30, 2019. Cost of revenue for the
three months ended June 30, 2019 included $33.7 million of one-time expenses
associated with the PPA II upgrade. Total cost of revenue, excluding stock-based
compensation and the one-time expenses, increased approximately $29.1 million,
or 22.8%, for the three months ended June 30, 2020, as compared to the three
months ended June 30, 2019 due to the 12.9% increase in product acceptances and
higher cost of installation revenue due to the change in mix of installations.
Total cost of revenue decreased by approximately $19.0 million, or 6.0%, for the
six months ended June 30, 2020, as compared to the six months ended June 30,
2019. Included as a component of total cost of revenue, stock-based compensation
decreased approximately $18.6 million, or 64.5%, for the six months ended June
30, 2020, as compared to the six months ended June 30, 2019. Cost of revenue for
the six months ended June 30, 2019 included $33.7 million of one-time expenses
associated with the PPA II upgrade. Total cost of revenue, excluding stock-based
compensation and the one-time expenses, increased approximately $33.3 million,
or 13.1%, for the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019 due to the 11.1% increase in product acceptances and higher
cost of installation revenue due to the change in mix of installations.
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Cost of Product Revenue
Cost of product revenue decreased by approximately $30.1 million, or 26.6%, for
the three months ended June 30, 2020, as compared to the three months ended June
30, 2019. Stock-based compensation, which is included as a component of cost of
product revenue, decreased approximately $3.9 million for the three months ended
June 30, 2020, as compared to the three months ended June 30, 2019. Cost of
product revenue for the three months ended June 30, 2019 included $25.6 million
of one-time expenses associated with the PPA II upgrade. Cost of product
revenue, excluding stock-based compensation and the one-time expenses, decreased
approximately $0.6 million, or 0.7%, for the three months ended June 30, 2020,
as compared to the three months ended June 30, 2019 despite a 12.9% increase in
product acceptances due to ongoing cost reduction efforts to reduce material,
labor and overhead costs.
Cost of product revenue decreased by approximately $46.4 million, or 23.0%, for
the six months ended June 30, 2020, as compared to the six months ended June 30,
2019. Stock-based compensation, which is included as a component of cost of
product revenue, decreased approximately $15.8 million for the six months ended
June 30, 2020, as compared to the six months ended June 30, 2019. Cost of
product revenue for the six months ended June 30, 2019 included $25.6 million of
one-time expenses associated with the PPA II upgrade. Cost of product revenue,
excluding stock-based compensation and the one-time expenses, decreased
approximately $4.9 million, or 3.2%, for the six months ended June 30, 2020, as
compared to the six months ended June 30, 2019 despite an 11.1% increase in
product acceptances due to ongoing cost reduction efforts to reduce material,
labor and overhead costs.
Cost of Installation Revenue
Cost of installation revenue increased by approximately $20.6 million, or
116.5%, for the three months ended June 30, 2020, as compared to the three
months ended June 30, 2019, primarily due to the increase in product acceptances
of approximately 35 systems, or 12.9%, for the three months ended June 30, 2020
and due to the change in mix of installations driven by site complexity, size,
local ordinance requirements, location of utility interconnect, and customer
option to complete the installation of our Energy Servers themselves.
Cost of installation revenue increased by approximately $25.6 million, or 76.6%,
for the six months ended June 30, 2020, as compared to the six months ended June
30, 2019, primarily due to the increase in product acceptances of approximately
56 systems, or 11.1%, for the six months ended June 30, 2020 and due to the
change in mix of installations driven by site complexity, size, local ordinance
requirements, location of utility interconnect and, the customer's option to
complete the installation of our Energy Servers themselves.
Cost of Service Revenue
Cost of service revenue increased by approximately $9.9 million, or 52.7%, for
the three months ended June 30, 2020, as compared to the three months ended June
30, 2019. This increase in service cost was primarily due to more power module
replacements required in the fleet as our fleet of installed Energy Servers
grows with acceptances and additional extended service contracts are executed
and renewed.
Cost of service revenue increased by approximately $12.9 million, or 27.7%, for
the six months ended June 30, 2020, as compared to the six months ended June 30,
2019. This increase in service cost was primarily due to more power module
replacements required in the fleet as our fleet of installed Energy Servers
grows with acceptances and additional extended service contracts are executed
and renewed.
Cost of Electricity Revenue
Cost of electricity revenue decreased by approximately $10.8 million, or 48.2%,
for the three months ended June 30, 2020, as compared to the three months ended
June 30, 2019, mainly due to the decommissioning and upgrade of PPA II in the
three months ended June 30, 2019, offset by the increase in Managed Services
Agreements acceptances and their associated costs of electricity revenue
recognized over the period of the related agreement.
Cost of electricity revenue decreased by approximately $11.2 million, or 31.8%,
for the six months ended June 30, 2020, as compared to the six months ended June
30, 2019, mainly due to the decommissioning and upgrade of PPA II in the six
months ended June 30, 2019, offset by the increase in Managed Services
Agreements acceptances and their associated costs of electricity revenue
recognized over the period of the related agreement.
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Gross Profit (Loss)
                                                     Three Months Ended                                                             Six Months Ended
                                                          June 30,                                                                      June 30,
                                                 2020                2019                                Change     2020                   2019                         Change
                                                                 As Restated                                                As Restated
                                                                                          (dollars in thousands)
Gross profit:
Product                                       $ 33,070          $    30,853          $  2,217          $ 60,140            $    33,007            $ 27,133
Installation                                    (8,449)              (4,609)           (3,840)          (12,609)                (8,150)             (4,459)
Service                                         (2,444)               4,263            (6,707)           (8,266)                  (191)             (8,075)
Electricity                                      4,071               (2,157)            6,228             6,916                  5,248               1,668
Total gross profit                            $ 26,249          $    28,350          $ (2,101)         $ 46,180            $    29,914            $ 16,266

Gross margin:
Product                                             28  %                21  %                               28  %                  14  %
Installation                                       (28) %               (35) %                              (27) %                 (32) %
Service                                             (9) %                19  %                              (16) %                   -  %
Electricity                                         26  %               (11) %                               22  %                  13  %
Total gross margin                                  14  %                14  %                               13  %                   9  %


Total Gross Profit
Gross profit decreased $2.1 million in the three months ended June 30, 2020, as
compared to the three months ended June 30, 2019. Stock-based compensation,
which is included as a component of total cost of revenue, decreased
approximately $5.8 million for the three months ended June 30, 2020, as compared
to the three months ended June 30, 2019. Total gross profit, excluding
stock-based compensation, decreased approximately $7.9 million, or 20.3%, for
the three months ended June 30, 2020, as compared to the three months ended June
30, 2019 due to the higher margin site mix of installations driven primarily by
the PPA II upgrade in the three months ended June 30, 2019.
Gross profit improved $16.3 million in the six months ended June 30, 2020, as
compared to the six months ended June 30, 2019. Stock-based compensation, which
is included as a component of total cost of revenue, decreased approximately
$18.6 million for the six months ended June 30, 2020, as compared to the six
months ended June 30, 2019. Total gross profit, excluding stock-based
compensation, decreased approximately $2.3 million, or 4.0%, for the six months
ended June 30, 2020, as compared to the six months ended June 30, 2019, despite
an 11.1% increase in product acceptances due to the higher margin site mix of
installations driven primarily by the PPA II upgrade in the six months ended
June 30, 2019.
Product Gross Profit
Product gross profit increased $2.2 million in the three months ended June 30,
2020, as compared to the three months ended June 30, 2019. Excluding stock-based
compensation, product gross profit decreased $1.7 million, or 4.5%, in the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019.
The product gross profit decrease in the three months ended June 30, 2020, as
compared to the three months ended June 30, 2019 was primarily due to a higher
margin site mix in the three months ended June 30, 2019, driven primarily by the
PPA II upgrade that occurred in the three months ended June 30, 2019.
Product gross profit increased $27.1 million in the six months ended June 30,
2020, as compared to the six months ended June 30, 2019. Excluding stock-based
compensation, product gross profit increased $11.3 million, or 20.4%, in the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019.
This increase was generally due to the increase in product acceptances and lower
product cost driven by ongoing cost reduction activities.
                                       53
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Installation Gross Loss
Installation gross loss increased $3.8 million in the three months ended June
30, 2020, as compared to the three months ended June 30, 2019. Excluding
stock-based compensation, install gross loss increased $5.0 million, or 183.7%,
in the three months ended June 30, 2020, as compared to the three months ended
June 30, 2019 driven by the change in mix of installations driven by site
complexity, size, local ordinance requirements, location of utility interconnect
and, customer option to complete the installation of our Energy Servers
themselves.
Installation gross loss increased $4.5 million in the six months ended June 30,
2020, as compared to the six months ended June 30, 2019. Excluding stock-based
compensation, install gross loss increased $6.7 million, or 153.9%, in the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019,
driven by the change in mix of installations driven by site complexity, size,
local ordinance requirements, location of utility interconnect and, the
customer's option to complete the installation of our Energy Servers themselves.
Service Gross Profit (Loss)
Service gross profit (loss) worsened $6.7 million in the three months ended June
30, 2020, as compared to the three months ended June 30, 2019. This decline was
primarily due to an increase in service cost driven primarily by the timing of
our service schedule for power module replacements required in our fleet of
installed Energy Servers.
Service gross loss increased $8.1 million in the six months ended June 30, 2020,
as compared to the six months ended June 30, 2019. This increase was primarily
due to an increase in service cost driven primarily by the timing of our service
schedule for power module replacements required in our fleet of installed Energy
Servers.
Electricity Gross Profit (Loss)
Electricity gross profit (loss) improved $6.2 million, or 288.8%, in the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019,
mainly due to the decommissioning and upgrade of PPA II in the three months
ended June 30, 2019.
Electricity gross profit increased $1.7 million, or 31.8%, in the six months
ended June 30, 2020, as compared to the six months ended June 30, 2019, mainly
due to the decommissioning and upgrade of PPA II in the six months ended June
30, 2019.
Operating Expenses
                                              Three Months Ended                                                                                                  Six Months Ended
                                                   June 30,                                                  Change                                                   June 30,                          Change
                                          2020                2019              Amount                %                2020               2019               Amount                 %
                                                          As Restated                                                                  As Restated
                                                     (dollars in thousands)                                                                                       (dollars in thousands)
Research and development               $ 19,377          $    29,772          $ (10,395)            (34.9) %       $  42,656          $   58,631          $   (15,975)            (27.2) %
Sales and marketing                      11,427               18,194             (6,767)            (37.2) %          25,376              38,567              (13,191)            (34.2) %
General and administrative               24,945               43,662            (18,717)            (42.9) %          54,043              82,736              (28,693)            (34.7) %
Total operating expenses               $ 55,749          $    91,628          $ (35,879)            (39.2) %       $ 122,075          $  179,934          $   (57,859)            (32.2) %


Total Operating Expenses
Total operating expenses decreased $35.9 million, or 39.2%, in the three months
ended June 30, 2020, as compared to the three months ended June 30, 2019.
Included as a component of total operating expenses, stock-based compensation
expenses decreased approximately $26.9 million for the three months ended June
30, 2020, as compared to the three months ended June 30, 2019. The decrease in
stock-based compensation expense was primarily attributable to a lower
stock-based compensation charge attributed to a one-time employee grant of
restricted stock units ("RSUs") awarded prior to IPO with a performance
condition of an IPO of the Company's securities. These RSUs have a two-year
vesting period starting on the day of IPO and were issued as an employee
retention vehicle to bring our stock-based compensation in line with our peer
group. These RSUs completed their vesting in July of 2020, and stock-based
compensation charge associated with these RSUs decreased quarter-over-quarter
until the final vesting date. In addition to the one-time grant, stock-based
compensation expense includes some previously granted RSUs with vesting
beginning upon the completion of our IPO. Total operating expenses, excluding
stock-based compensation, decreased approximately $8.9 million, or 17.6%, in the
three months ended June 30, 2020, as compared to the three months ended June 30,
2019. This decrease was primarily due to a $5.9 million one-time expense in the
three months ended June 30, 2019 associated with the PPA II upgrade.
                                       54
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Total operating expenses decreased $57.9 million, or 32.2%, in the six months
ended June 30, 2020, as compared to the six months ended June 30, 2019. Included
as a component of total operating expenses, stock-based compensation expenses
decreased approximately $58.9 million for the six months ended June 30, 2020, as
compared to the six months ended June 30, 2019. The decrease in stock-based
compensation expense was primarily attributable to a lower stock-based
compensation charge attributed to a one-time employee grant of RSUs awarded
prior to IPO with a performance condition of an IPO of the Company's securities.
These RSUs have a two-year vesting period starting on the day of IPO and were
issued as an employee retention vehicle to bring our stock-based compensation in
line with our peer group. These RSUs completed their vesting in July of 2020,
and the stock-based compensation charge associated with these RSUs decreased
quarter-over-quarter until the final vesting date. In addition to the one-time
grant, the stock-based compensation expenses include some previously granted
RSUs with vesting beginning upon the completion of our IPO. Total operating
expenses, excluding stock-based compensation expense, increased approximately
$1.1 million, or 1.2%, in the six months ended June 30, 2020, as compared to the
six months ended June 30, 2019. This increase was primarily due to compensation
related expenses associated with hiring new employees, investments for next
generation technology, and fees for restatement related expenses in 2020 offset
by a $5.9 million one-time expense in six months ended June 30, 2019 associated
with the PPA II upgrade.
Research and Development
Research and development expenses decreased approximately $10.4 million, or
34.9%, in the three months ended June 30, 2020, as compared to the three months
ended June 30, 2019. Included as a component of research and development
expenses, stock-based compensation expenses decreased by approximately $7.5
million for the three months ended June 30, 2020, as compared to the three
months ended June 30, 2019. Total research and development expenses, excluding
stock-based compensation expenses, decreased by approximately $2.9 million, or
16.5%, for the three months ended June 30, 2020, as compared to the three months
ended June 30, 2019. This decrease was primarily due to timing of investments
made in our next generation technology development, sustaining engineering
projects for the current Energy Server platform, and investments made for
customer personalized applications, such as microgrids, and new fuel solutions
utilizing biogas.
Research and development expenses decreased by approximately $16.0 million, or
27.2%, in the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019. Included as a component of research and development
expenses, stock-based compensation expenses decreased by approximately $15.6
million for the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019. Total research and development expenses, excluding
stock-based compensation, decreased by approximately $0.3 million, or 1.0%, for
the six months ended June 30, 2020, as compared to the six months ended June 30,
2019.
Sales and Marketing
Sales and marketing expenses decreased by approximately $6.8 million, or 37.2%,
in the three months ended June 30, 2020, as compared to the three months ended
June 30, 2019. Included as a component of sales and marketing expenses,
stock-based compensation expenses decreased by approximately $6.7 million for
the three months ended June 30, 2020, as compared to the three months ended June
30, 2019. Total sales and marketing expenses, excluding stock-based
compensation, decreased by approximately $0.1 million, or 0.7%, for the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019.
Sales and marketing expenses decreased by approximately $13.2 million, or 34.2%,
in the six months ended June 30, 2020, as compared to the six months ended June
30, 2019. Included as a component of sales and marketing expenses, stock-based
compensation expenses decreased by approximately $14.3 million for the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019.
Total sales and marketing expenses, excluding stock-based compensation,
increased by approximately $1.1 million, or 6.2%, for the six months ended June
30, 2020, as compared to the six months ended June 30, 2019. This increase was
primarily due to compensation expenses related to hiring new employees and
expenses related to efforts to increase demand and raise market awareness of our
Energy Server solutions, expanding outbound communications, as well as efforts
to attract new customer financing partners.
General and Administrative
General and administrative expenses decreased by approximately $18.7 million, or
42.9%, in the three months ended June 30, 2020, as compared to the three months
ended June 30, 2019. Included as a component of general and administrative
expenses, stock-based compensation expenses decreased by approximately $12.7
million for the three months ended June 30, 2020, as compared to the three
months ended June 30, 2019. Total general and administrative expenses, excluding
stock-based compensation, decreased by approximately $6.0 million, or 25.0%, for
the three months ended June 30, 2020, as compared to the three months ended June
30, 2019. This decrease was due to a $5.9 million one-time expense in the three
months ended June 30, 2019 associated with the PPA II upgrade.
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General and administrative expenses decreased by approximately $28.7 million, or
34.7%, in the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019. Included as a component of general and administrative
expenses, stock-based compensation expenses decreased by approximately $29.0
million for the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019. Total general and administrative expenses, excluding
stock-based compensation, increased by approximately $0.3 million, or 0.7%, for
the six months ended June 30, 2020, as compared to the six months ended June 30,
2019. The increase in general and administrative expenses was mainly due to
increased personnel costs and fees for restatement related expenses in 2020,
offset by a $5.9 million one-time expense in the six months ended June 30, 2019
associated with the PPA II upgrade.
Stock-Based Compensation
                                           Three Months Ended                                                                                                  Six Months Ended
                                                June 30,                                                 Change                                                    June 30,                            Change
                                       2020                2019               Amount               %               2020               2019                 Amount                  %
                                                       As Restated                                                                 As Restated
                                                                                                                                         (dollars in thousands)
Cost of revenue                     $  4,736          $    10,538          $  (5,802)            (55.1) %       $ 10,243          $   28,850          $      (18,607)            (64.5) %
Research and development               4,714               12,218             (7,504)            (61.4) %         10,810              26,448                 (15,638)            (59.1) %
Sales and marketing                    2,234                8,935             (6,701)            (75.0) %          6,124              20,447                 (14,323)            (70.0) %
General and administrative             6,947               19,673            (12,726)            (64.7) %         14,473              43,441                 (28,968)            (66.7) %
Total stock-based
compensation                        $ 18,631          $    51,364          $ (32,733)            (63.7) %       $ 41,650          $  119,186          $      (77,536)            (65.1) %


Total stock-based compensation decreased $32.7 million, or 63.7%, in the three
months ended June 30, 2020, as compared to the three months ended June 30, 2019.
Of the $18.6 million in stock-based compensation for the three months ended June
30, 2020, approximately $4.8 million was related to one-time employee grants of
RSUs that were issued at the time of our IPO and that have a two-year vesting
period. These RSUs provided us an employee retention vehicle to bring our
stock-based compensation in line with our peer group. In addition, the
stock-based compensation included some previously granted RSUs that vested upon
the completion of our IPO.
Total stock-based compensation decreased $77.5 million, or 65.1%, in the six
months ended June 30, 2020, as compared to the six months ended June 30, 2019.
Of the $41.7 million in stock-based compensation for the six months ended June
30, 2020, approximately $11.5 million was related to one-time employee grants of
RSUs that were issued at the time of our IPO and that have a two-year vesting
period. These RSUs provided us an employee retention vehicle to bring our
stock-based compensation in line with our peer group. In addition, the
stock-based compensation included some previously granted RSUs that vested upon
the completion of our IPO.
Other Income and Expense
                                             Three Months Ended                                                             Six Months Ended
                                                  June 30,                                                                      June 30,
                                          2020               2019                                 Change     2020                  2019                         Change
                                                          As Restated                                                As Restated
                                                                                      (in thousands)
Interest income                       $     332          $    1,700          $ (1,368)         $   1,151            $    3,585            $ (2,434)
Interest expense                        (14,374)            (22,722)            8,348            (35,128)              (44,522)              9,394
Interest expense, related
parties                                    (794)             (1,606)              812             (2,160)               (3,218)              1,058
Other income (expense), net              (3,913)               (222)           (3,691)            (3,921)                   43              (3,964)
Loss on extinguishment of debt                -                   -                 -            (14,098)                    -             (14,098)
Gain (loss) on revaluation of
embedded derivatives                        412                (540)              952                696                (1,080)              1,776
Total                                 $ (18,337)         $  (23,390)         $  5,053          $ (53,460)           $  (45,192)           $ (8,268)


                                       56

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Total Other Expense
Total other expense decreased $5.1 million in the three months ended June 30,
2020, as compared to the three months ended June 30, 2019. This decrease was
primarily due to reduction in interest expenses.
Total other expense increased $8.3 million in the six months ended June 30,
2020, as compared to the six months ended June 30, 2019. This increase was
primarily due to the loss on extinguishment of debt of $14.1 million.
Interest Income
Interest income decreased $1.4 million in the three months ended June 30, 2020,
as compared to the three months ended June 30, 2019. This decrease was primarily
due to the decrease in cash balances.
Interest income decreased $2.4 million in the six months ended June 30, 2020, as
compared to the six months ended June 30, 2019. This decrease was primarily due
to the decrease in cash balances.
Interest Expense
Interest expense decreased $8.3 million in the three months ended June 30, 2020,
as compared to the three months ended June 30, 2019. This decrease was primarily
due a one-time credit of $4.3 million due to premium amortization on the
convertible notes, and a decrease in interest expense with the debt buy-out due
to the PPA II and PPA IIIb upgrades.
Interest expense decreased $9.4 million in the six months ended June 30, 2020,
as compared to the six months ended June 30, 2019. This decrease was primarily
due a one-time credit of $4.3 million due to premium amortization on the
convertible notes, and a decrease in interest expense with the debt buy-out due
to the PPA II and PPA IIIb upgrades.
Interest Expense, Related Parties
Interest expense, related parties decreased $0.8 million the three months ended
June 30, 2020, as compared to the three months ended June 30, 2019 due to the
normal interest amortization.
Interest expense, related parties decreased $1.1 million the six months ended
June 30, 2020, as compared to the six months ended June 30, 2019 due to the
normal interest amortization.
Other Income (Expense), net
Other income (expense), net worsened $3.7 million in the three months ended June
30, 2020, as compared to the three months ended June 30, 2019, due to an
impairment in our investment in the Bloom Energy Japan joint venture.
Other income (expense), net worsened $4.0 million in the six months ended June
30, 2020, as compared to the six months ended June 30, 2019, due to an
impairment in our investment in the Bloom Energy Japan joint venture.
Loss on Extinguishment of Debt
There was no debt extinguishment in the three months ended June 30, 2020. Loss
on extinguishment of debt of $14.1 million was recorded in the six months ended
June 30, 2020. There was no debt extinguishment in the three and six months
ended June 30, 2019.
Gain (Loss) on Revaluation of Embedded Derivatives
Gain (loss) on revaluation of embedded derivatives improved $1.0 million in the
three months ended June 30, 2020, as compared to the three months ended June 30,
2019. This improvement was primarily due to 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.
Gain (loss) on revaluation of embedded derivatives improved $1.8 million in the
six months ended June 30, 2020, as compared to the six months ended June 30,
2019. This improvement was primarily due to 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.
                                       57
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Provision for Income Taxes
                                  Three Months Ended                                                                                     Six Months Ended
                                       June 30,                                            Change                                            June 30,                           Change
                               2020                  2019          Amount             %              2020           2019             Amount                 %
                                                                                   (dollars in thousands)
Income tax provision       $    141                $ 258          $ (117)           (45.3) %       $ 265          $ 466          $       (201)            (43.1) %


Income tax provision decreased in the three months ended June 30, 2020, as
compared to the three months ended June 30, 2019, and was primarily due to
fluctuations in the effective tax rates on income earned by international
entities.
Income tax provision decreased in the six months ended June 30, 2020, as
compared to the six months ended June 30, 2019, and was primarily due to
fluctuations in the effective tax rates on income earned by international
entities.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling
Interests
                                        Three Months Ended                                                                                          Six Months Ended
                                             June 30,                                             Change                                                June 30,                           Change
                                     2020                2019             Amount            %              2020              2019               Amount                 %

                                                                                            (dollars in thousands)
Less: net loss
attributable to
noncontrolling interests
and redeemable
noncontrolling interests              5,466               5,015          $ 451             9.0  %       $ 11,159          $ 8,847          $       2,312              26.1  %


Total loss attributable to noncontrolling interests increased $0.5 million, or
9.0%, in the three months ended June 30, 2020, as compared to the three months
ended June 30, 2019. The net loss increased due to increased losses in our PPA
Entities which are allocated to our noncontrolling interests.
Total loss attributable to noncontrolling interests increased $2.3 million, or
26.1%, in the six months ended June 30, 2020, as compared to the six months
ended June 30, 2019. The net loss increased due to increased losses in our PPA
Entities which are allocated to our noncontrolling interests.

                                       58
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Liquidity and Capital Resources
As of June 30, 2020, we had an accumulated deficit of approximately $3.1
billion. We have financed our operations, including the costs of acquisition and
installation of our Energy Servers, mainly through a variety of financing
arrangements and PPA Entities, credit facilities from banks, sales of our common
stock, debt financings and cash generated from our operations. As of June 30,
2020, we had $416.0 million of total outstanding recourse debt, $229.7 million
of non-recourse debt and $27.3 million of other long-term liabilities. See Note
7,   Outstanding Loans and Security Agreements  , in Part I, Item 1, Financial
Statements for a complete description of our outstanding debt. As of June 30,
2020 and December 31, 2019, we had cash and cash equivalents of $144.1 million
and $202.8 million, respectively.
In March 2020, we successfully extended the maturity of our outstanding 10%
Convertible Notes, our 10% Constellation Note and additionally entered into a
note purchase agreement to issue $70.0 million of 10.25% Senior Secured Notes
due 2027 in a private placement that was subsequently completed on May 1, 2020.
The combination of our existing cash and cash equivalents, the extension of the
10% Convertible Notes to December 2021, the conversion of the 10% Constellation
Note in May 2020, and the proceeds from the 10.25% Senior Secured Notes are
expected to be sufficient to meet our operational and capital cash flow
requirements and other cash flow needs and we do not expect that it will be
necessary to access capital markets for cash to operate our business for the
next 12 months. If the impact of COVID-19 to our business and financial position
is more extensive than expected, we may access capital markets opportunistically
to continue to improve our capital structure and to address outstanding debt
principal repayments that are due in December 2021 if market conditions are
favorable. As of June 30, 2020, the current portion of our total debt is $26.1
million.
For additional information refer to Note 7, Outstanding Loans and Security
Agreements, in Item 1, Financial Statements.
Additionally, the impact of COVID-19 on our ability to execute our business
strategy and on our financial position and results of operation is uncertain.Our
future cash flow requirements may vary materially from those currently planned
and 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, the
expansion of sales and marketing activities, market acceptance of our products,
the timing of receipt by us of distributions from our PPA Entities and overall
economic conditions including the impact of COVID-19 on our future operations,
as described in the COVID-19 Pandemic section above. We do not expect to receive
significant cash distributions from our PPA Entities. For additional information
refer to Note 13, Power Purchase Agreement Programs, in Part I, Item 1,
Financial Statements.
Cash Flows
A summary of our sources and uses of cash, cash equivalents and restricted cash
is as follows (in thousands):
                                                         Six Months Ended
                                                             June 30,
                                                       2020            2019
                                                                    As Restated
              Net cash provided by (used in):
              Operating activities                 $ (40,235)      $  103,616
              Investing activities                   (19,560)          79,911
              Financing activities                     6,536          (92,946)


Net cash provided by (used in) our variable interest entities (the PPA Entities)
which are incorporated into the condensed consolidated statements of cash flows
for the three months ended June 30, 2020 and 2019 is as follows (in thousands):
                                                                Six Months Ended
                                                                    June 30,
                                                              2020            2019

        PPA Entities ¹

Net cash provided by PPA operating activities $ 15,016 $ 139,364


        Net cash used in PPA financing activities           (13,649)       

(118,805)


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1 The PPA Entities' operating and financing cash flows are a subset of our
consolidated cash flows and represents the stand-alone cash flows prepared in
accordance with U.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
Net cash used in operating activities for the six months ended June 30, 2020 was
$40.2 million and was primarily the result of net cash loss of $44.3 million
partially offset the net decrease in working capital of $4.1 million. Net cash
loss is primarily comprised of a net loss of $129.6 million, adjusted for
non-cash benefit items including: (i) depreciation and amortization of $25.9
million; (ii) impairment of equity method investment of $4.2 million; (iii) a
loss on revaluation of derivative contracts of $0.1 million; (iv) stock-based
compensation of $41.7 million; and (v) net loss on extinguishment of debt of
$14.1 million; net of (vi) recovery of debt issuance cost of $0.5 million. Net
cash provided by changes in working capital consisted primarily of decreases in:
(i) customer financing receivable and other of $2.5 million; (ii) prepaid
expenses and other current assets of $7.3 million; plus increases in: (iii)
accounts payable of $8.8 million; (iv) accrued expenses and other current
liabilities of $13.7 million; and (v) deferred revenue and customer deposits of
$2.9 million. These sources of cash from working capital were mostly offset by
increases in: (i) accounts receivable of $11.8 million; (ii) inventories of $3.5
million; (iii) deferred cost of revenue of $10.0 million; and (iii) other
long-term assets of $3.6 million; plus a decrease in: (iv) other long-term
liabilities of $2.1 million.
Net cash provided by operating activities for the six months ended June 30, 2019
was $103.6 million and was the result of net cash earnings of $7.7 million plus
net decrease in working capital of $95.9 million. Net cash earnings is primarily
comprised of a net loss of $195.7 million, adjusted for non-cash benefit items
including: (i) depreciation and amortization of approximately $37.0 million;
(ii) write-off of property, plant and equipment, net of $2.7 million; (iii)
Write-off of PPA II decommissioned assets of 25.6 million; (iv) debt make-whole
payment reclassification of $5.9 million; (v) revaluation of derivatives
contracts of $1.6 million; (vi) stock-based compensation of $119.2 million; and
(vii) amortization of debt issuance cost of $11.3 million. Net cash provided by
changes in working capital consisted primarily of decreases in: (i) accounts
receivable of $49.7 million; (ii) inventory of $22.2 million; (iii) customer
financing receivable and other of $2.7 million; and (iv) prepaid expenses and
other current assets of $10.2 million; plus increases in: (v) accrued expenses
and other current liabilities of $5.6 million; (vi) deferred revenue and
customer deposits of $51.9 million; and (vi) other long term liabilities of $4.7
million. These sources of cash from working capital were partially offset by
increases in: (i) deferred cost of revenue of $38.8 million; and (ii) other
long-term assets of $0.3 million; plus decreases in: (iii) accounts payable of
$5.5 million; and (iv) accrued warranty of $6.7 million.
Investing Activities
Net cash used in investing activities in the six months ended June 30, 2020 was
$19.6 million entirely related to the purchase of long-lived assets.
Net cash provided by investing activities in the six months ended June 30, 2019
was $79.9 million, which was primarily the result of net proceeds from
maturities of marketable securities of $104.5 million, partially offset by $24.6
million used for the purchase of long-lived assets.
Financing Activities
Net cash provided by financing activities in the six months ended June 30, 2020
was $6.5 million which included borrowings from issuance of debt of $70.0
million, borrowings from issuance of debt to related parties of $30.0 million
and proceeds from issuance of common stock of $5.2 million. This was partially
offset by repayment of debt of $84.4 million, debt issuance costs of $3.4
million, repayment of financing obligations of $5.1 million, and distributions
paid to our PPA Equity Investors of $5.8 million.
Net cash used in financing activities in the six months ended June 30, 2019 was
$92.9 million and resulted primarily from distributions paid to our PPA Equity
Investors of $7.8 million, and repayments of long-term debt of $85.2 million,
the debt make-whole payment reclassification of $5.9 million, payments to
noncontrolling and redeemable noncontrolling interests of $18.7 million, and
distributions to noncontrolling and redeemable noncontrolling interests of $7.8
million, partially offset by proceeds from the issuance of common stock of $8.3
million and the net proceeds from financing obligations of $16.3 million.
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Outstanding Loans and Security Agreements
The following is a summary of our debt as of June 30, 2020 (in thousands):

                                                     Unpaid                         Net Carrying Value                                             Unused
                                                   Principal                                                 Long-                                Borrowing
                                                    Balance                              Current              Term             Total              Capacity

LIBOR + 4% term loan due November 2020            $     714          $    

697 $ - $ 697 $ -



10% convertible promissory notes due
December 2021                                       249,299                 -            263,405            263,405                -
10% notes due July 2024                              86,000            14,000             69,497             83,497                -
10.25% notes due March 2027                          70,000                               68,437             68,437
Total recourse debt                                 406,013            14,697            401,339            416,036                -

7.5% term loan due September 2028                    35,675             2,567             30,078             32,645                -

6.07% senior secured notes due March 2030            79,466             3,511             75,054             78,565                -
LIBOR + 2.5% term loan due December 2021            119,472             5,289            113,184            118,473                -
Letters of Credit due December 2021                       -                 -                  -                  -              968
Total non-recourse debt                             234,613            11,367            218,316            229,683              968
Total debt                                        $ 640,626          $ 26,064          $ 619,655          $ 645,719          $   968



Recourse debt refers to debt that Bloom Energy Corporation has an obligation to
pay. Non-recourse debt refers to debt that is recourse to only specified assets
or our subsidiaries. The differences between the unpaid principal balances and
the net carrying values apply to debt discounts and deferred financing costs. We
were in compliance with all financial covenants as of June 30, 2020 and December
31, 2019.
Recourse Debt Facilities
LIBOR + 4% Term Loan due November 2020 - The weighted average interest rate as
of June 30, 2020 and December 31, 2019 was 4.5% and 6.3%, respectively. As of
June 30, 2020 and December 31, 2019, the unpaid principal balance of debt
outstanding was $0.7 million and $1.6 million, respectively, and we are in
compliance with all covenants.
10% Constellation Convertible Promissory Note due 2021 - On March 31, 2020, we
entered into an Amended and Restated Subordinated Secured Convertible Note
Modification Agreement (the "Constellation Note Modification Agreement") which
amended the terms of the 5% Constellation Note to extend the maturity date to
December 31, 2021 and increased the interest rate from 5% to 10% ("10%
Constellation Note"). We further amended the 10% Constellation Note by reducing
the strike price on the conversion feature from $38.64 per share to $8.00 per
share.
When we evaluated the Constellation Note Modification Agreement in accordance
with ASC 470-60, Debt - Troubled Debt Restructurings by Debtors, and 470-50,
Debt - Modifications and Extinguishments, we concluded that the amendment did
not constitute a troubled debt restructuring and, furthermore, the amendment
qualified as a substantial modification as a result of the increase in the fair
value of the conversion feature due to the reduced strike price. As a result, on
March 31, 2020, the 10% Constellation Note, which consisted of $33.1 million in
principal and $3.8 million in accrued and unpaid interest, was extinguished and
the 10% Constellation Note was recorded at their fair market value which equaled
$40.7 million. The difference between the fair market value of the 10%
Constellation Note and the carrying value of the 5% Constellation Note of $3.8
million was recorded as a loss on extinguishment of debt in the condensed
consolidated statement of operations.
On June 18, 2020, Constellation NewEnergy, Inc. exchanged their entire 10%
Constellation Note at the conversion price of $8.00 per share into 4.7 million
shares of Class A common stock. At the time of this exchange the unamortized
premium of $3.4 million was recorded as an adjustment to additional paid-in
capital.
10% Convertible Promissory Notes due December 2021 - On March 31, 2020, we
entered into an Amendment Support Agreement (the "Amendment Support Agreement")
with the noteholders of our outstanding 6% Convertible Notes pursuant to which
such Noteholders agreed to extend the maturity date of the outstanding 6%
Convertible Notes to December 1, 2021 and increase the interest rate from 6% to
10%, ("10% Convertible Notes"). Additionally, the debt is convertible at the
option of the Noteholders into common stock at any time through the maturity
date and we further amended the 10% Convertible Notes by reducing the strike
price on the conversion feature from $11.25 to $8.00 per share. In conjunction
with entering into the
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Amendment Support Agreement, on March 31, 2020, we also entered into a
Convertible Note Purchase Agreement (the "10% Convertible Note Purchase
Agreement") and issued an additional $30.0 million aggregate principal amount of
10% Convertible Notes to Foris Ventures, LLC, a new Noteholder and New
Enterprise Associates 10, Limited Partnership, an existing Noteholder. The 10%
Convertible Notes and the $30.0 million new 10% Convertible Notes were all
reflected in the Amended and Restated Indenture between the Company and U.S.
Bank National Association dated April 20, 2020. The Amendment Support Agreement
required that we repay at least $70.0 million of the 10% Convertible Notes on or
before September 1, 2020. In return, collateral was released to support the
collateral required under the 10.25% Senior Secured Notes, and 50% of the
proceeds from the consummation of certain transactions, including equity
offerings or additional indebtedness, will be applied to redeem the 10%
Convertible Notes at a redemption price equal to 100% of the principal amount of
the 10% Convertible Notes, plus accrued and unpaid interest, plus a certain
percentage, determined based on the time of redemption of the aggregate sum of
all discounted remaining scheduled interest payments. The discount rate to
determine the present value would decrease, creating a redemption penalty, if
redemption were to occur after October 21, 2020. On May 1, 2020, we repaid $70.0
million of the 10% Convertible Notes and accrued and unpaid interest and
recorded an adjustment to the unamortized debt premium of $4.3 million.
We evaluated the Amendment Support Agreement in accordance with ASC 470-60, Debt
- Troubled Debt Restructurings by Debtors, and 470-50, Debt - Modifications and
Extinguishments, and concluded that the amendment did not constitute a troubled
debt restructuring and, furthermore, the amendment qualified as a substantial
modification as a result of the increase in the fair value of the conversion
feature due to the reduced strike price. As a result, on March 31, 2020, we
recorded a $10.3 million loss on extinguishment of debt in the condensed
consolidated statement of operations, which was calculated as the difference
between the reacquisition price of the 6% Convertible Notes and the carrying
value of the 6% Convertible Notes. The total carrying value of the 6%
Convertible Notes equaled $279.0 million which consisted of $289.3 million in
principal and $1.4 million in accrued and unpaid interest reduced by $10.7
million in unamortized discount and $1.0 million in unamortized debt issuance
costs. The total reacquisition price of the 6% Convertible Notes equaled $289.3
million which consisted of the $340.7 million fair value of the 10% Convertible
Notes, $1.4 million in accrued and unpaid interest, and $1.2 million of fees
paid to Noteholders as part of the amendment, reduced by $24.0 million, the fair
value at March 31, 2020 of the embedded derivative relating to the equity
classified conversion feature that is reclassified from additional paid-in
capital at the time of the extinguishment, $20.0 million cash received from the
additional 10% Convertible Notes that were issued to New Enterprise Associates
10, Limited Partnership, and the $10.0 million issuance to Foris Ventures, LLC.
The new net carrying amount of the 10% Convertible Notes of $263.4 million,
which consists of the $249.3 million principal of the 10% Convertible Notes,
$14.1 million net of premium paid for the 10% Convertible Notes and debt
issuance costs was classified as non-current as of June 30, 2020. Furthermore,
the $14.1 million deemed premium net of debt issuance cost is being amortized
over the term of the 10% Convertible Notes using the effective interest method.
10% Notes due July 2024 - The outstanding unpaid principal balance of the 10%
Notes of $14.0 million and $14.0 million were classified as current as of June
30, 2020 and December 31, 2019, respectively, and the net carrying amount of the
10% Notes of $69.5 million and $76.0 million were classified as non-current as
of June 30, 2020 and December 31, 2019, respectively. The accrued unpaid
interest balance on the 10% Notes was $3.6 million and $3.9 million as on June
30, 2020 and December 31, 2019respectively.
10.25% Senior Secured Notes due March 2027 - On May 1, 2020, we issued
$70.0 million of 10.25% Senior Secured Notes due 2027 (the "10.25% Senior
Secured Notes") in a private placement (the "Senior Secured Notes Private
Placement"). The 10.25% Senior Secured Notes are governed by an indenture (the
"Senior Secured Notes Indenture") entered into among us, the guarantors party
thereto and U.S. Bank National Association, in its capacity as trustee and
collateral agent. The 10.25% Senior Secured Notes are secured by certain of our
operations and maintenance agreements that previously were part of the security
for the 6% Convertible Notes. We used the proceeds of this issuance to repay
$70.0 million of our 10% Convertible Notes on May 1, 2020. The 10.25% Senior
Secured Notes are supported by a $150.0 million indenture between us and US Bank
National Association which contains an accordion feature for an additional
$80.0 million of notes that can be issued within the next eighteen months.
Interest on the 10.25% Senior Secured Notes is payable on March 31, June 30,
September 30 and December 31 of each year, commencing June 30, 2020. The 10.25%
Senior Secured Notes Indenture contains customary events of default and
covenants relating to, among other things, the incurrence of new debt, affiliate
transactions, liens and restricted payments. On or after March 27, 2022, we may
redeem all of the 10.25% Senior Secured Notes at a price equal to 108% of the
principal amount of the 10.25% Senior Secured Notes plus accrued and unpaid
interest, with such optional redemption prices decreasing to 104% on and after
March 27, 2023, 102% on and after March 27, 2024 and 100% on and after March 27,
2026. Before March 27, 2022, we may redeem the 10.25% Senior Secured Notes upon
repayment of a make-whole premium. If we experience a change
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of control, we must offer to purchase for cash all or any part of each holder's
10.25% Senior Secured Notes at a purchase price equal to 101% of the principal
amount of the 10.25% Senior Secured Notes, plus accrued and unpaid interest. The
outstanding unpaid principal of the 10.25% Senior Secured Notes of $70.0 million
was classified as non-current as of June 30, 2020.
Non-recourse Debt Facilities
7.5% Term Loan due September 2028 - In December 2012 and later amended in August
2013, PPA IIIa entered into a $46.8 million credit agreement to help fund the
purchase and installation of our Energy Servers. The loan bears a fixed interest
rate of 7.5% payable quarterly. The loan requires quarterly principal payments
which began in March 2014. The credit agreement requires us to maintain a debt
service reserve for all funded systems, the balance of which was $3.8 million
and $3.8 million as of June 30, 2020 and December 31, 2019, respectively, and
which was included as part of long-term restricted cash in the condensed
consolidated balance sheets. The loan is secured by all assets of PPA IIIa.
6.07% Senior Secured Notes due March 2025 - The notes bear a fixed interest rate
of 6.07% per annum payable quarterly which began in December 2015 and ends in
March 2030. The notes are secured by all the assets of the PPA IV. The Note
Purchase Agreement requires us to maintain a debt service reserve, the balance
of which was $8.3 million as of June 30, 2020 and $8.0 million as of December
31, 2019, and which was included as part of long-term restricted cash in the
condensed consolidated balance sheets. The notes are secured by all the assets
of the PPA IV.
LIBOR + 2.5% Term Loan due December 2021 - The outstanding debt balance of the
Term Loan of $5.3 million and $5.1 million were classified as current and $113.2
million and $115.3 million were classified as non-current as of June 30, 2020
and December 31, 2019, respectively.
In accordance with the credit agreement, PPA V was issued a floating rate debt
based on LIBOR plus a margin, paid quarterly. The applicable margins used for
calculating interest expense are 2.25% for years 1-3 following the Term
Conversion Date and 2.5% thereafter. For the Lenders' commitments to the loan
and the commitments to the LC loan, the PPA V also pays commitment fees at 0.50%
per annum over the outstanding commitments, paid quarterly. The loan is secured
by all the assets of the PPA V and requires quarterly principal payments which
began in March 2017. In connection with the floating-rate credit agreement, in
July 2015 PPA V entered into pay-fixed, receive-float interest rate swap
agreements to convert its floating-rate loan into a fixed-rate loan.
Letters of Credit due December 2021 - In June 2015, PPA V entered into a $131.2
million term loan due December 2021. The agreement also included commitments to
a LC facility with the aggregate principal amount of $6.4 million, later
adjusted down to $6.2 million. The amount reserved under the letter of credit as
of June 30, 2020 and December 31, 2019 was $5.2 million and $5.0 million,
respectively. The unused capacity as of June 30, 2020 and December 31, 2019 was
$1.0 million and $1.2 million, respectively.

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Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations and the debt of our
consolidated PPA entities that is non-recourse to Bloom as of June 30, 2020:
                                                                           Payments Due By Period
                                                                Less than                                               More than
                                              Total              1 Year           1-3 Years          3-5 Years           5 Years
                                                                               (in thousands)
Contractual Obligations and Other
Commitments:
Recourse debt1                            $   406,013          $ 14,714          $ 299,753          $  63,992          $  27,554
Non-recourse debt2                            234,614            13,878            130,293             21,912             68,531
Operating leases                               57,062             9,167             14,271             12,836             20,788
Service arrangements                            2,594             1,297              1,297                  -                  -
Financing obligations                         294,076            38,288             79,324             77,523             98,941
Natural gas fixed price forward
contracts                                       5,185             4,000              1,185                  -                  -
Grant for Delaware facility                    10,469                 -             10,469                  -                  -
Interest rate swap                             17,881             2,098              5,288              4,657              5,838
Supplier purchase commitments                   1,721             1,099                622                  -                  -
Renewable energy credit obligations               708               592                116                  -                  -
Asset retirement obligations                      500               500                  -                  -                  -
Total                                     $ 1,030,823          $ 85,633          $ 542,618          $ 180,920          $ 221,652


1 Our 10% Convertible Notes and our credit agreements related to the building of
our facility in Newark, Delaware each contain cross-default or
cross-acceleration provisions. See "Recourse Debt Facilities" above for more
details.
2  Each of the debt facilities entered into by PPA IIIa, PPA IV and PPA V
contain cross-default provisions. See "Non-recourse Debt Facilities" above for
more details.

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
Note 13, Power Purchase Agreement Programs, in Item 1, Financial Statements.
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 June 30, 2020 and 2019, we had no
off-balance sheet arrangements.

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