BLOOM ENERGY CORPORATION OPERATIONS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management's beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products, services, business strategies, and the sufficiency of our cash and our liquidity. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," and similar terms. These statements are based on the beliefs and assumptions of our management based on information currently available to management at the time they are made. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 filed onFebruary 26, 2021 . Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Overview Description ofBloom Energy We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform that provides clean and resilient power to businesses, essential services, and critical infrastructure. Our technology, invented inthe United States , is the most advanced thermal electric generation technology on the market today. Our fuel-flexible Bloom Energy Servers can use biogas and hydrogen, in addition to natural gas, to create electricity at significantly higher efficiencies than traditional, combustion-based resources. In addition, our fuel cell technology can be used to create hydrogen, which is increasingly recognized as a critically important tool necessary for the full decarbonization of the energy economy. Our enterprise customers are among the largest multi-national corporations who are leaders in adopting new technologies. We also have strong relationships with some of the largest utility companies inthe United States and theRepublic of Korea . We market and sell our Energy Servers primarily through our direct sales organization inthe 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 continue to monitor and adjust 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" inCalifornia andDelaware , 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. Following CDC and local guidelines, during the first quarter of 2021 and at present, many of our employees continue to work from home unless they are directly supporting essential manufacturing production operations, installation 35 -------------------------------------------------------------------------------- work, 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 our facilities are required to wear face coverings and our policy is to direct them not to enter if they have COVID-19-like symptoms. We follow CDC and local guidelines when notified of possible exposures. For more information regarding the risks posed to our company by the COVID-19 pandemic, refer to Part II, Item 1A, Risk Factors - Risks Related 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 COVID-19 created disruptions throughout various aspects of our business as noted herein, but had a limited impact on our results of operation throughout 2020 and the three months endedMarch 31, 2021 . This is in part due to the fact that throughout 2020, we were conservative with our working capital spend, maintaining as much flexibility as possible around the timing of taking and paying for inventory and manufacturing our product while managing potential changes or delays in installations. We also improved our liquidity in 2020 through the issuance of the$230.0 million aggregate principal amount of our 2.5% Green Convertible Senior Notes due 2025 (the "Green Notes") inAugust 2020 , the conversion of our 10% Convertible Promissory Notes dueDecember 2021 (the "10% Convertible Notes") and our 10% Constellation Promissory Note toDecember 2021 (the "10% Constellation Note"), and the redemption of our 10% Senior Secured Notes dueJuly 2024 (the "10% Notes"). We did increase our working capital spend in the first quarter of 2021. We entered into new leases to ensure we had sufficient manufacturing facilities to meet anticipated demand in 2022, including new product line expansion. In addition, we also increased our working capital spend and resources to expand into new geographies both domestically and internationally. Although, we believe we have the sufficient capital for these activities over the next 12 months, we may enter the equity market for additional expansion capital. Please refer to Note 7 - Outstanding Loans and Security Agreements in Part I, Item 1, Financial Statements; and Part II, Item 1A, Risk Factors - Risks Related to Our Liquidity - Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities' outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, and We may not be able to generate sufficient cash to meet our debt service obligations, for more information regarding the terms of and risks associated with our debt. Sales We have not seen any impact on our selling activity related to COVID-19 during the three months endedMarch 31, 2021 . Customer Financing COVID-19 has resulted in a significant drop in the ability of many financiers (particularly financing institutions) to monetize tax credits. This is due to a drop in their taxable income stemming from losses due to the COVID-19 pandemic. We were able to obtain financing for our 2020 installations, but as ofMarch 31, 2021 , we were still in the process of securing financing for our 2021 installations. We are actively working with new sources of capital that could finance projects for our 2021 installations. We have experienced in the current environment an increase in the time needed to solidify new relationships. The travel restrictions and limited ability for financiers to conduct due diligence at our facilities has increased the timeline to reach closure with new financiers. 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 is impacting 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. However, with the limited availability of tax credits, the difficulty for new potential financing parties to conduct due diligence in light of the pandemic and the drop in credit rating of some customers, it is taking longer to secure financing than in the past. If we are unable to secure financing for our 2021 installations, our revenue, cash flow and liquidity will be materially impacted. Installations and Maintenance of Energy Servers Our installation and maintenance operations have been impacted by the COVID-19 pandemic in 2020 and these impacts continued during the three months endedMarch 31, 2021 . Our installation projects have experienced delays and may continue 36 -------------------------------------------------------------------------------- to experience delays relating to, among other things, shortages in available parts and labor for design, installation and other work; the inability or delay in our ability to access customer facilities due to shutdowns or other restrictions; the decreased productivity of our general contractors, their sub-contractors, medium-voltage electrical gear suppliers, and the wide range of engineering and construction related specialist suppliers on whom we rely for successful and timely installations; the stoppage of work by gas and electric utilities on which we are critically dependent for hook ups; and the unavailability of necessary civil and utility inspections as well as the review of our permit submissions and issuance of permits by multiple authorities that have jurisdiction over our activities. Our installations completed during the three months endedMarch 31, 2021 were minimally impacted by these factors, but given our mitigation strategies, we were able to complete our planned installations. As to maintenance, if we are delayed in or unable to perform scheduled or unscheduled maintenance, our previously-installed Energy Servers will likely experience adverse performance impacts including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may be subject to increased costs in the future. During the three months endedMarch 31, 2021 , we experienced no delays in servicing our Energy Servers due to COVID-19. SupplyChain During 2020, we have experienced COVID-19 related delays from certain vendors and suppliers, which, in turn, could cause delays in the manufacturing and installation of our Energy Servers and adversely impact our cash flows and results of operations including revenue. We have a global supply chain and obtain components fromAsia ,Europe andIndia . In many cases, the components we obtain are jointly developed with our suppliers and unique to us, which makes it difficult to obtain and qualify alternative suppliers should our suppliers be impacted by COVID-19. During the three months endedMarch 31, 2021 , we continued to experience supply chain disruptions due to COVID-19 with respect to logistics and container shortages. We put actions in place to mitigate the disruptions by booking alternate sea routes, creating virtual hubs and consolidating shipments coming from the same region. If spikes in COVID-19 occur in regions in which our supply chain operates, which is currently happening inIndia , 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 in both the states ofCalifornia andDelaware , we have continued to manufacture Energy Servers, but have adopted strict measures to help keep our employees safe. These measures have decreased productivity to a limited 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 CDC and local guidelines. We also instituted testing of individuals who come into our facilities. Even with these precautions, it is possible an asymptomatic individual could enter our facilities and transmit the virus to others. We have had positive tests and in such cases, we have followed CDC and local guidelines. If we become aware of cases of COVID-19 among our employees, we notify those with whom the person is known to have been in contact, send the exposed employees home for at least 10 days and require all such employees to test 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 an employee contracts 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 ourCalifornia facility andDelaware 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. To date, COVID-19 has not impacted our production given the safety protocols we have put in place augmented by our ability to increase our shifts and obtain a contingent work force for some of the manufacturing activities. If COVID-19 materially impacts our supply chain or if we experience a significant COVID-19 outbreak that affects our manufacturing workforce, our production could be adversely impacted which could adversely impact our cash flow and results of operation, including revenue. 37 -------------------------------------------------------------------------------- Purchase and Lease Options Overview Initially, we only offered our Energy Servers on a direct purchase basis, in which the customer purchases the product directly from us. We learned that while interested in our Energy Servers, some customers lacked the interest or financial capability to purchase our Energy Servers directly. Some of these customers were not in a position to optimize the use of federal tax benefits like the federal Investment Tax Credit ("ITC") or accelerated tax depreciation. In order to expand our offerings to those unable or those who prefer to not directly purchase our Energy Servers and/or who prefer to contract for our services on a pay-as-you-go model, we subsequently developed three financing options that enabled customers' use of the Energy Servers without a direct purchase through third-party ownership financing arrangements. Under the Traditional Lease option, a customer may lease one or more Energy Servers from a financial institution that purchases such Energy Servers. In most cases, the financial institution completes its purchase from us immediately after commissioning. We both (i) facilitate this financing arrangement between the financial institution and the customer and (ii) provide ongoing operations and maintenance services for the Energy Servers (such arrangement, a "Traditional Lease"). Alternatively, a customer may enter into one of two major types of service contracts with us for the purchase of electricity generated by the Energy Servers. The first type of services contract has a fixed monthly payment component that is required regardless of the Energy Servers' performance, and in some cases also includes a variable payment based on the Energy Server's performance (a "Managed Services Agreement"). Managed Services Agreements are then financed pursuant to a sale-leaseback with a financial institution (a "Managed Services Financing"). The second type of services contract requires the customer to pay for each kilowatt-hour produced by the Energy Servers (a "Power Purchase Agreement" or "PPA"). PPAs have been financed through tax equity partnerships, acquisition financings, and direct sales to investors (each, a "Portfolio Financing"). 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 optimize the federal tax benefits associated with a fuel cell, like the ITC or accelerated tax depreciation. 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. Each of these financings is limited by the creditworthiness of the customer. Additionally, the Traditional Lease and Managed Services Financing options, as with all leases, are also limited by the customer's willingness to commit to making fixed payments regardless of the 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. Warranties and Guaranties We typically provide warranties and guaranties regarding our Energy Servers' performance (efficiency and output) to both the customer and in the case of Portfolio Financings, the investor. We refer to a "performance 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 "performance 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 decreased benefits resulting from the failure to meet the guaranteed level. Our obligation to make payments under the performance guaranty is always contractually capped. In most cases, we include the first year of performance warranties and guaranties in the sale price of the Energy Server. Typically, performance warranties and guaranties made for the benefit of the Customer are in the Managed Services Agreement or PPA, as the case may be. In a Portfolio Financing, the performance warranties and guaranties made for the benefit of the investors are in an operations and maintenance agreement ("O&M Agreement"). In a Traditional Lease or direct purchase option, the performance warranties and guaranties are in an extended maintenance service agreement. 38 -------------------------------------------------------------------------------- Direct Purchase There are customers who purchase our Energy Servers directly pursuant to a fuel cell system supply and installation agreement. With a direct purchase, the first year of warranties and guaranties are typically included in the sale price of the Energy Server. In connection with the purchase of Energy Servers, the customers enter into an O&M Agreement that provide for certain performance warranties and guaranties. The O&M Agreement may either be (i) for a one-year period, subject to annual renewal at the customer's option, under which our customers have historically almost always renewed the O&M Agreement for an additional year each year, or (ii) for a fixed term, typically 15 years. These performance guarantees are negotiated on a case-by-case basis, but we typically provide an output guaranty of 95% measured annually and an efficiency guaranty of 52% measured cumulatively from the date the applicable Energy Server(s) are commissioned. In each case, underperformance obligates us to make a payment to the owner of the Energy Server(s). As ofMarch 31, 2021 , our obligation to make payments for underperformance on the direct purchase projects was capped at an aggregate total of approximately$93.7 million (including payments both for low output and for low efficiency). As ofMarch 31, 2021 , our aggregate remaining potential liability under this cap was approximately$73.1 million . Overview of Financing and Lease Options The substantial majority of bookings made in recent periods have been Managed Services Agreements and PPAs. Each of our financing and lease options is described in further detail below. Managed Services Financing [[Image Removed: be-20210331_g2.jpg]] Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer for a certain term. In exchange for the use of the Energy Server and its generated electricity, the customer makes a monthly payment. The monthly payment always includes a fixed monthly capacity-based payment, and in some cases also includes a performance-based payment based on the performance of 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 periodic rent liability under a sale-leaseback transaction with an investor. The performance payment is transferred to us as compensation for operations and maintenance services and recognized as electricity revenue within the condensed consolidated statements of operations. Under a Managed Services Financing, once we enter into a Managed Services Agreement with the customer, a financier is identified, we sell the Energy Server to such financier, as lessor, and the financier, as lessor, leases it back to us, as lessee, pursuant to a sale-leaseback transaction. The proceeds from the sale are recognized 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 purchase price for an Energy Server contemplated by the Managed Services Agreement on or shortly after acceptance. 39 -------------------------------------------------------------------------------- The fixed capacity payments made by the customer under the Managed Services Agreement are applied towards our obligation to pay periodic rent under the sale-leaseback transaction. We assign all our rights to such fixed payments made by the customer to the financier, as lessor. The duration of the master lease in a Managed Services Financing is currently between five and ten years. Our Managed Services Agreements typically provide only for performance warranties of both the efficiency and output of the Energy Server, all of which are written in favor of the customer. These types of projects typically do not 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 ofMarch 31, 2021 , we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties and the fleet of our Energy Servers deployed pursuant to the Managed Services Financings was performing at a lifetime average output of approximately 86%. Portfolio Financings [[Image Removed: be-20210331_g3.jpg]] *Under a Portfolio Financing, pursuant to which we sell an operating company to an investor or tax-equity partnership, we have no equity in the purchaser, also referred to as Third-Party PPA. A PPA is an agreement pursuant to which the owner of an Energy Server sells electricity to an end customer on a dollar-per-kilowatt-hour basis pursuant to a power purchase agreement. We have financed PPAs through two types of Portfolio Financings. In one type of transaction, we finance a portfolio of PPAs pursuant to a tax equity partnership in which we hold a managing member interest (such partnership, a "PPA Entity"). We sell the portfolio of Energy Servers to a single member limited liability project company (an "Operating Company").The Operating Company sells the electricity generated by the Energy Servers contemplated by the PPAs to the ultimate end customers. As these transactions include an equity investment by 40 -------------------------------------------------------------------------------- us in the PPA Entity for which we are the primary beneficiary and therefore consolidate the entities, we recognize revenue as the electricity is produced. Our future plans to raise capital no longer contemplate these types of transactions. We also finance PPAs through a second type of Portfolio Financing pursuant to which we sell an entireOperating Company to an investor or tax equity partnership in which we do not have an equity interest (a "Third-Party PPA"). We recognize revenue on the sale of each Energy Server purchased by theOperating Company on acceptance. For further discussion, see Note 11 - Portfolio Financings in Part I, Item 1, Financial Statements. When we finance a portfolio of Energy Servers and PPAs through a Portfolio Financing, we enter into a sale, engineering and procurement and construction agreement ("EPC Agreement") and an O&M Agreement, in each case with theOperating Company that both is counter-party to the portfolio of PPAs and that will eventually own the Energy Servers. As counter-party to the portfolio of PPAs, theOperating Company , as owner of the Energy Servers, receives all customer payments generated under the PPAs, any ITC, all accelerated tax depreciation benefits, and any other available state or local benefits arising out of the ownership or operation of the Energy Servers, to the extent not already allocated to the end customer under the PPA. The sales of our Energy Servers to theOperating Company in connection with a Portfolio Financing 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 the applicable EPC Agreement. A one-year service warranty is provided with the initial sale. After the expiration of the initial standard one-year warranty, theOperating Company has the option to extend our operations and maintenance services under the 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, theOperating Company has almost always exercised the option to renew our operations and maintenance services under the O&M Agreement. We typically provide performance warranties and guaranties related to output and efficiency or a combination of the two to theOperating Company under the O&M Agreement. We also backstop all of theOperating Company's obligations under the portfolio of PPAs, including both the repair or replacement obligations pursuant to the performance warranties and any payment liabilities under the guaranties. As ofMarch 31, 2021 , we had incurred no liabilities to investors in Portfolio Financings due to failure to repair or replace Energy Servers pursuant to these performance warranties. Our obligation to make payments for underperformance against the performance guaranties was capped at an aggregate total of approximately$114.3 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately$105.5 million . Obligations to Operating Companies In addition to our obligations to the end customers, our Portfolio Financings involve many obligations to theOperating Company that purchases our Energy Servers. These obligations are set forth in the applicable EPC Agreement and O&M Agreement, and may include some or all of the following obligations: •designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to theOperating Company ; •obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Energy Servers, and maintaining such permits and approvals throughout the term of the EPC Agreements and O&M Agreements; •operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations; •satisfying the performance warranties and guaranties set forth in the applicable O&M Agreements; •satisfying the performance warranties and guaranties in each of the applicable PPAs on behalf of theOperating Company ; and •complying with any other specific requirements contained in the PPAs with individual end-customers. 41 -------------------------------------------------------------------------------- The EPC Agreement obligates us to repurchase the Energy Server in the event of certain IP Infringement claims. The O&M Agreement obligates us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the performance warranties and guaranties in the O&M Agreement and we do not cure such failure in the applicable time period, or that a PPA terminates as a result of any failure by us to perform the obligations in the O&M Agreement. In some of our Portfolio Financings, our obligation to repurchase Energy Servers under the O&M extends to the entire fleet of Energy Servers sold in the event a systemic failure affects more than a specified number of Energy Servers. In some Portfolio Financings, we have also agreed to pay liquidated damages to the applicableOperating 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.Administration of Operating Companies . In each of our Portfolio Financings in which we hold an interest in the tax equity partnership, we perform certain administrative services as managing member on behalf of the applicableOperating Company , including invoicing the end customers for amounts owed under the PPAs, administering the cash receipts of theOperating 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.The Operating Company in each of our PPA Entities (with the exception of one PPA Entity) 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 applicableOperating Company , such assets being primarily comprised of the Energy Servers and a collateral assignment of each of the contracts to which theOperating Company is a party, including the O&M Agreement and the PPAs. As further collateral, the lenders receive a security interest in 100% of the membership interest of theOperating Company . The lenders have no recourse to us or to any of the other equity investors (the "Equity Investors ") in theOperating Company for liabilities arising out of the portfolio. We have determined that we are the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions. Accordingly, we consolidate 100% of the assets, liabilities and operating results of these entities, including the Energy Servers and lease income, in our condensed consolidated financial statements. We recognize theEquity 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 convertible redeemable preferred stock, 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 Operating Companies are separate and distinct legal entities, andBloom Energy Corporation may not receive cash or other distributions from the Operating Companies 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 theEquity Investors , or otherwise. For further information about our Portfolio Financings, see Note 11 - Portfolio Financings in Part I, Item 1, Financial Statements. 42 --------------------------------------------------------------------------------
Traditional Lease
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Under the Traditional Lease option, the customer enters into a lease directly
with a financier (the "Lease"), which pays us for our Energy Servers purchased
pursuant to a direct sales agreement. 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 service
agreement for operations and maintenance work 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 Lease. The term of
a lease in a Traditional Lease option ranges from five to ten years.
The direct sales agreement provides for sale and the installation of our Energy
Servers and includes a standard one-year warranty, to the financier as
purchaser. The services agreement with the customer provides certain performance
warranties and guaranties, with the services term 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.
The direct sales agreement in a Traditional Lease arrangement typically provides
for performance warranties and guaranties of both the efficiency and output of
our Energy Servers, all of which are written in favor of the customer. As of
March 31, 2021 , we had incurred no liabilities due to failure to repair or
replace our Energy Servers pursuant to these performance warranties. Our
obligation to make payments for underperformance against the performance
guaranties for projects financed pursuant to a Traditional Lease was capped
contractually under the sales agreement 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 $2.9 million .
Remarketing at Termination of Lease
In the event the customer does not renew or purchase our Energy Servers to the
end of its 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.
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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.
International Channel Partners
India . In India , sales activities are currently conducted by Bloom Energy
(India) Pvt. Ltd. , our wholly-owned indirect subsidiary; however, we continue to
evaluate 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.
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, with the
facility, which became operational in July 2020 . Other than a nominal initial
capital contribution by Bloom Energy , 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.
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Community Distributed Generation Programs
In July 2015 , the state of New York introduced its Community Distributed
Generation ("CDG") 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. Since then the states
of Connecticut and Maine have instituted a similar program and we expect that
other states may adopt similar programs in the future. In June 2020 , the New
York Public Service Commission issued an Order that limited the CDG compensation
structure for "high capacity factor resources," including fuel cells, in a way
that will make the economics for these types of projects more challenging in the
future. However, the projects that were already under contract were
grandfathered into the program under the previous compensation structure.
We have entered into sales, installation, operations and maintenance agreements
with three developers for the deployment of our Energy Servers pursuant to the
New York CDG program for a total of 441 systems. As of March 31, 2021 , we have
recognized revenue associated with 221 of such systems, which included 146
systems during the first quarter of 2021. We continue to believe that these
types of subscriber-based programs could be a source of future revenue and will
continue to look to generate sales through these programs during 2021.
Comparison of the Three Months Ended March 31, 2021 and 2020
Key Operating Metrics
In addition to the measures presented in the condensed consolidated financial
statements, we use certain key operating metrics below to evaluate business
activity, to measure performance, to develop financial forecasts and to make
strategic decisions.
We no longer consider billings related to our products to be a key operating
metric. Billings as a metric was introduced to provide insight into our customer
contract billings as differentiated from revenue when a significant portion of
those customer contracts had product and installation billings recognized as
electricity revenue over the term of the contract instead of at the time of
delivery or acceptance. Today, a very small portion of our customer contracts
have revenue recognized over the term of the contract, and thus it is no longer
a meaningful metric for us.
Acceptances
We use acceptances as a key operating metric to measure the volume of our
completed Energy Server installation activity from period to period. Acceptance
typically occurs upon transfer of control to our customers, which is either at
the time when systems are shipped and delivered to our customers, or when the
system is turned on and producing full power.
The product acceptances in the three months ended March 31, 2021 and 2020 were
as follows:
Three Months Ended
March 31, Change
2021 2020 Amount %
Product accepted during the period
(in 100 kilowatt systems) 359 256 103 40.2 %
Product accepted for the three months ended March 31, 2021 compared to the same
period in 2020 increased by 103 systems, or 40.2%, as demand increased for our
Energy Servers in the utility sector where we accepted 146 systems as part of
the CDG program.
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Our customers have several purchase options for our Energy Servers. The portion
of acceptances attributable to each purchase option in the three months ended
March 31, 2021 and 2020 was as follows:
Three Months Ended
March 31,
2021 2020
Direct Purchase (including Third-Party PPAs and International Channels)
98 % 98 %
Managed Services 2 % 2 %
100 % 100 %
The portion of total revenue attributable to each purchase option in the three
months ended
Three Months Ended
March 31,
2021 2020
Direct Purchase (including Third-Party PPAs and International Channels)
87 % 85 %
Traditional Lease 1 % 1 %
Managed Services 6 % 7 %
Portfolio Financings 6 % 7 %
100 % 100 %
Costs Related to Our Products
Total product related costs for the three months ended March 31, 2021 and 2020
was as follows:
Three Months Ended
March 31, Change
2021 2020 Amount %
Product costs of product accepted in the period $2,324 /kW $2,514 /kW $(190) /kW (7.6) %
Period costs of manufacturing related expenses not included in product costs (in thousands)
$ 3,586
$164 /kW$784 /kW$(620) /kW (79.1) % Product costs of product accepted for the three months endedMarch 31, 2021 compared to the same period in 2020 decreased by approximately$190 per kilowatt 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 for the three months endedMarch 31, 2021 compared to the same period in 2020 decreased by approximately$2.8 million primarily driven by higher absorption of fixed manufacturing costs into product costs due to a larger volume of builds through our factory tied to our acceptance growth, which resulted in higher factory utilization and higher utilization of inventory materials. Installation costs on product accepted for the three months endedMarch 31, 2021 compared to the same period in 2020 decreased by approximately$620 per kilowatt. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, personalized applications, the customer's option to complete the installation of our Energy Servers themselves, and the timing between the delivery and final installation of our product acceptances under certain circumstances. As such, installation on a per kilowatt basis can vary significantly from period-to-period. For the three months endedMarch 31, 2021 , the decrease in install cost was driven by site mix as many of the acceptances did not have installation, either because the installation was done by our partner in theRepublic of Korea or the 46 -------------------------------------------------------------------------------- final installation associated with a specific customer will be completed later in the year although the Energy Servers were delivered and accepted during the quarter. 47 -------------------------------------------------------------------------------- Results of Operations A discussion regarding the comparison of our financial condition and results of operations for the three months endedMarch 31, 2021 and 2020 is presented below (in thousands, except percentage data). Revenue Three Months Ended March 31, Change 2021 2020 Amount % (dollars in thousands) Product$ 137,930 $ 99,559 $ 38,371 38.5 % Installation 2,659 16,618 (13,959) (84.0) % Service 36,417 25,147 11,270 44.8 % Electricity 17,001 15,375 1,626 10.6 % Total revenue$ 194,007 $ 156,699 $ 37,308 23.8 % Total Revenue Total revenue increased by$37.3 million , or 23.8%, for the three months endedMarch 31, 2021 as compared to the prior year period. This increase was primarily driven by a$38.4 million increase in product revenue and$11.3 million increase in service revenue partially offset by a$14.0 million decrease in installation revenue. Product Revenue Product revenue increased by$38.4 million , or 38.5%, for the three months endedMarch 31, 2021 as compared to the prior year period. The product revenue increase was driven primarily by a 40.2% increase in product acceptances enabled by the expansion of our CDG program. Product revenue was minimally impacted by price reductions on a per unit basis. Installation Revenue Installation revenue decreased by$14.0 million , or 84.0%, for the three months endedMarch 31, 2021 as compared to the prior year period. This decrease in installation revenue was driven by site mix as many of the acceptances did not have installation, either because the installation was done by our partner in theRepublic of Korea or the final installation associated with a specific customer will be completed later in the year although the Energy Servers were delivered and accepted during the quarter. Service Revenue Service revenue increased by$11.3 million , or 44.8% for the three months endedMarch 31, 2021 as compared to the prior year period. This was primarily due to the 25.5% increase in our installed base and the maintenance contract renewals associated with it including growth internationally, and our efforts to proactively manage the growing fleet. Electricity Revenue Electricity revenue increased by$1.6 million , or 10.6%, for the three months endedMarch 31, 2021 as compared to the prior year period due to the increase in the managed services asset base. 48 --------------------------------------------------------------------------------
Cost of Revenue
Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Product $ 87,294 $ 72,489 $ 14,805 20.4 %
Installation 4,625 20,779 (16,154) (77.7) %
Service 36,118 30,970 5,148 16.6 %
Electricity 11,319 12,530 (1,211) (9.7) %
Total cost of revenue $ 139,356 $ 136,768 $ 2,588 1.9 %
Total Cost of Revenue
Total cost of revenue increased by $2.6 million , or 1.9%, for the three months
ended March 31, 2021 as compared to the prior year period primarily driven by a
$14.8 million increase in cost of product revenue and $5.1 million increase in
cost of service revenue partially offset by a $16.2 million decrease in cost of
installation revenue.
Cost of Product Revenue
Cost of product revenue increased by $14.8 million , or 20.4%, for the three
months ended March 31, 2021 as compared to the prior year period. The cost of
product revenue increase was driven primarily by a 40.2% increase in product
acceptances, partially offset by ongoing cost reduction efforts, which reduced
material, labor and overhead costs on a per unit basis by 12.3%.
Cost of Installation Revenue
Cost of installation revenue decreased by $16.2 million , or 77.7%, for the three
months ended March 31, 2021 as compared to the prior year period. This decrease
in cost of installation revenue, similar to the $14.0 million decrease in
installation revenue, was driven by site mix as many of the acceptances did not
have installation in the three months ended March 31, 2021 .
Cost of Service Revenue
Cost of service revenue increased by $5.1 million , or 16.6%, for the three
months ended March 31, 2021 as compared to the prior year period. This increase
was primarily due to the 25.5% increase in our installed base and the
maintenance contract renewals associated with it, partially offset by the
significant improvements in power module life, cost reductions and our actions
to proactively manage the fleet optimizations.
Cost of Electricity Revenue
Cost of electricity revenue decreased by $1.2 million , or 9.7%, for the three
months ended March 31, 2021 as compared to the prior year period, primarily due
to the $0.8 million change in the fair value of the natural gas fixed price
forward contract and lower property tax expenses.
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Gross Profit and Gross Margin
Three Months Ended
March 31,
2021 2020 Change
(dollars in thousands)
Gross profit:
Product $ 50,636 $ 27,070 $ 23,566
Installation (1,966) (4,161) 2,195
Service 299 (5,823) 6,122
Electricity 5,682 2,845 2,837
Total gross profit $ 54,651 $ 19,931 $ 34,720
Gross margin:
Product 37 % 27 %
Installation (74) % (25) %
Service 1 % (23) %
Electricity 33 % 19 %
Total gross margin 28 % 13 %
Total Gross Profit
Gross profit improved by $34.7 million in the three months ended March 31, 2021
as compared to the prior year period primarily driven by the improvement in our
product category as it reaches gross margin of 37%, and our service category as
it reaches profitability.
Product Gross Profit
Product gross profit increased by $23.6 million in the three months ended March
31, 2021 as compared to the prior year period. The improvement is driven by a
40.2% increase in product acceptances, and a 10% improvement in product gross
margin as our per-unit product cost reduction of 12.3% outpaced our minimal
product price reductions.
Installation Gross Loss
Installation gross loss decreased by $2.2 million in the three months ended
March 31, 2021 as compared to the prior year period driven by the site mix, as
many of the acceptances did not have installation in the current time period,
and other site related factors such as site complexity, size, local ordinance
requirements, and location of the utility interconnect.
Service Gross Profit (Loss)
Service gross profit (loss) improved by $6.1 million in the three months ended
March 31, 2021 as compared to the prior year period to achieve a positive gross
margin of 1%. This was primarily due to the significant improvements in power
module life, cost reductions, installed base and international growth, and our
actions to proactively manage the fleet optimizations.
Electricity Gross Profit
Electricity gross profit improved by $2.8 million in the three months ended
March 31, 2021 as compared to the prior year period mainly due to the increase
in the managed service asset base and the $0.8 million change in the fair value
of the natural gas fixed price forward contract.
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Operating Expenses
Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Research and development $ 23,295 $ 23,279 $ 16 0.1 %
Sales and marketing 19,952 13,949 6,003 43.0 %
General and administrative 25,801 29,098 (3,297) (11.3) %
Total operating expenses $ 69,048 $ 66,326 $ 2,722 4.1 %
Total Operating Expenses
Total operating expenses increased by $2.7 million in the three months ended
March 31, 2021 as compared to the prior year period. This increase was primarily
attributable to our investment in front-end origination's capability both in the
United States and internationally, investment in brand and product management,
and our continued investment in our R&D capabilities to support our technology
roadmap.
Research and Development
Research and development expenses stayed relatively flat in the three months
ended March 31, 2021 as compared to the prior year period; however, we are
shifting our investments from sustaining engineering projects for the current
Energy Server platform, to continued development of the next generation platform
and to support our technology roadmap enabling the hydrogen, electrolyzer,
carbon capture, marine and biogas solutions.
Sales and Marketing
Sales and marketing expenses increased by $6.0 million in the three months ended
March 31, 2021 as compared to the prior year period driven by the efforts to
expand our United States and international sales force, as well as investment in
brand and product management.
General and Administrative
General and administrative expenses decreased by $3.3 million in the three
months ended March 31, 2021 as compared to the prior year period due to a $5.1
million reduction in legal expenses and $2.3 million reduction in stock-based
compensation expenses, partially offset by a $3.1 million increase in outside
services and consulting expenses, and $0.6 million increase in payroll spend.
Stock-Based Compensation
Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Cost of revenue $ 2,999 $ 5,507 $ (2,508) (45.5) %
Research and development 4,908 6,096 (1,188) (19.5) %
Sales and marketing 4,085 3,890 195 5.0 %
General and administrative 5,218 7,526 (2,308) (30.7) %
Total stock-based compensation $ 17,210 $ 23,019 $ (5,809) (25.2) %
Total stock-based compensation for the three months endedMarch 31, 2021 compared to the prior year period decreased by$5.8 million primarily driven by the vesting of the one-time employee grants at the time of IPO, which completed inJuly 2020 . 51 --------------------------------------------------------------------------------
Other Income and Expense
Three Months Ended
March 31,
2021 2020 Change
(in thousands)
Interest income $ 74 $ 819 $ (745)
Interest expense (14,731) (20,754) 6,023
Interest expense - related parties - (1,366) 1,366
Other expense, net (85) (8) (77)
Loss on extinguishment of debt - (14,098) 14,098
Gain (loss) on revaluation of embedded derivatives (518) 284 (802)
Total $ (15,260) $ (35,123) $ 19,863
Interest Income
Interest income is derived from investment earnings on our cash balances
primarily from money market funds.
Interest income for the three months ended March 31, 2021 as compared to the
prior year period decreased by $0.7 million primarily due to the decrease in the
rates of interest earned on our cash balances.
Interest Expense
Interest expense is from our debt held by third parties.
Interest expense for the three months ended March 31, 2021 as compared to the
prior year period decreased by $6.0 million . This decrease was primarily due to
lower interest expense as a result of refinancing our notes at a lower interest
rate, and the elimination of the amortization of the debt discount associated
with the 6% notes which have now been converted.
Interest Expense - Related Parties
Interest expense - related parties is from our debt held by related parties.
Interest expense - related parties for the three months ended March 31, 2021 as
compared to the prior year period decreased by $1.4 million due to the
conversion of all of our notes held by related parties during 2020.
Other Expense, net
Other expense, net is primarily derived from investments in joint ventures, plus
the impact of foreign currency translation.
Other expense, net for the three months ended March 31, 2021 as compared to the
prior year period decreased by $0.1 million due to changes in foreign currency
translation expense and export incentive income.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the three months ended March 31, 2021 as
compared to the prior year period improved by $14.1 million resulting from our
debt restructuring and debt extinguishment in the prior year's period. There
were no comparable debt restructuring activities in the current year's period.
Gain (Loss) on Revaluation of Embedded Derivatives
Gain (loss) on revaluation of embedded derivatives is derived from the change in
fair value of our sales contracts of embedded EPP derivatives valued using
historical grid prices and available forecasts of future electricity prices to
estimate future electricity prices.
Gain (loss) on revaluation of embedded derivatives for the three months ended
March 31, 2021 as compared to the prior year period worsened by $0.8 million due
to the change in fair value of our embedded EPP derivatives in our sales
contracts.
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Provision for Income Taxes
Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Income tax provision $ 124 $ 124 $ - - %
Income tax provision consists primarily of income taxes in foreign jurisdictions
in which we conduct business. We maintain a full valuation allowance for
domestic deferred tax assets, including net operating loss and certain tax
credit carryforwards.
Income tax provision change for the three months ended March 31, 2021 as
compared to the prior year period is immaterial.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling
Interests
Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
$ (4,892) $ (5,693) $ 801 (14.1) % Net loss attributable to noncontrolling interests is the result of allocating profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities. Net loss attributable to noncontrolling interests and redeemable noncontrolling interests for the three months endedMarch 31, 2021 as compared to the prior year period improved by$0.8 million due to increased losses in our PPA Entities, which are allocated to our noncontrolling interests. 53 -------------------------------------------------------------------------------- Liquidity and Capital Resources As ofMarch 31, 2021 , we had cash and cash equivalents of$180.7 million . Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with high credit quality counterparties, continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk. As ofMarch 31, 2021 , we had$290.1 million of total outstanding recourse debt,$218.4 million of non-recourse debt and$19.9 million of other long-term liabilities. For a complete description of our outstanding debt, please see Note 7 - Outstanding Loans and Security Agreements in Part I, Item 1, Financial Statements. The combination of our existing cash and cash equivalents are expected to be sufficient to meet our anticipated cash flow needs for the next 12 months and thereafter for the foreseeable future. If these sources of cash are insufficient to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, in particular, our manufacturing capacity, product development and market expansion requirements, to timely respond to competitive market pressures or strategic opportunities, or otherwise. In addition, we are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We may, from time to time, engage in a variety of financing transactions for such purposes. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our Energy Servers, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through an equity or debt financing. As ofMarch 31, 2021 , we were still working to secure financing for the planned installations of our energy servers in 2021. Failure to obtain this financing will affect our results of operations, including revenues and cash flows. As ofMarch 31, 2021 , the current portion of our total debt is$118.5 million , all of which is outstanding non-recourse debt. We expect a certain portion of the non-recourse debt would be refinanced by the applicable PPA Entity prior to maturity. A summary of our condensed consolidated sources and uses of cash, cash equivalents and restricted cash is as follows (in thousands): Three Months Ended March 31, 2021 2020 Net cash provided by (used in): Operating activities$ (89,035) $ (27,948) Investing activities (12,932) (12,360) Financing activities 51,150 16,839 54
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Net cash provided by (used in) our PPA Entities, which are incorporated into the
condensed consolidated statements of cash flows was as follows (in thousands):
Three Months Ended
March 31,
2021 2020
PPA Entities ¹
Net cash provided by PPA operating activities
Net cash used in PPA financing activities (9,506) (8,957)
1 The PPA Entities' operating and financing cash flows are a subset of our condensed consolidated cash flows and represent the stand-alone cash flows prepared in accordance withU.S. GAAP. Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase of Energy Servers from us and principal reductions in loan balances. Financing activities consist primarily of changes in debt carried by our PPAs, and payments from and distributions to noncontrolling partnership interests. We believe this presentation of net cash provided by (used in) PPA activities is useful to provide the reader with the impact to condensed consolidated cash flows of the PPA Entities in which we have only a minority interest. Operating Activities Our operating activities have consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. The increase in cash used in operating activities during the three months endedMarch 31, 2021 as compared to the prior year period was primarily the result of our net working capital increase of$93.3 million in the three months endedMarch 31, 2021 to support a shipment to a customer in theRepublic of Korea with collections expected in the three months endingJune 30, 2021 , and to build systems to satisfy demand in future quarters. In addition, we experienced decreases in deferred revenue and customer deposits, and accrued expenses and other current liabilities during the three months endedMarch 31, 2021 . Investing Activities Our investing activities have consisted of capital expenditures that include increasing our production capacity. We expect to continue such activities as our business grows. Cash used in investing activities of$12.9 million during the three months endedMarch 31, 2021 was primarily the result of expenditures on tenant improvements for a newly leased engineering building inFremont, California . We will continue to make payments in the three months endingJune 30, 2021 to complete this project. We also signed another building lease inJanuary 2021 for a new manufacturing facility inFremont, California . We expect to make capital expenditures over the next few quarters to ready this facility for production, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital expenditures from cash on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures. Financing Activities Historically, our financing activities have consisted of borrowings and repayments of debt including to related parties, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests and redeemable noncontrolling interests, and the proceeds from the issuance of our common stock. Net cash provided by financing activities during the three months endedMarch 31, 2021 was$51.2 million , an increase of$34.3 million compared to the prior year period primarily due to proceeds from stock option exercises and our employee stock purchase plan. Critical Accounting Policies and Estimates The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied inthe United States ("U.S. GAAP") The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations below are based on our audited results of operations, which we have prepared in accordance withU.S. GAAP. In preparing these condensed consolidated financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ 55 -------------------------------------------------------------------------------- significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating the condensed consolidated financial condition and results of operations. The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, include: • Revenue Recognition; • Leases: Incremental Borrowing Rate; • Stock-Based Compensation; • Income Taxes; • Principles of Consolidation; and • Allocation of Profits and Losses of Consolidated Entities to Noncontrolling Interests and Redeemable Noncontrolling Interests Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year endedDecember 31, 2020 provides a more complete discussion of our critical accounting policies and estimates. During the three months endedMarch 31, 2021 , there were no significant changes to our critical accounting policies and estimates, except as noted below: We adopted ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06"), which simplifies the accounting for convertible instruments. We applied the modified retrospective method as ofJanuary 1, 2021 in our condensed consolidated financial statements. Upon adoption of ASU 2020-06, we no longer record the conversion feature of convertible notes in equity. Instead, our convertible notes are accounted for as a single liability measured at their amortized cost and there is no longer a debt discount representing the difference between the carrying value, excluding issuance costs, and the principal of the convertible debt instrument. As a result, there is no longer interest expense relating to the amortization of the debt discount over the term of the convertible debt instrument. Similarly, the portion of issuance costs previously allocated to equity are now reclassified to debt and will be amortized as interest expense. As a result of this change in accounting policy, management no longer considers valuation of the Green Notes to be a critical accounting policy and estimate.
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