UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: Junequarter ended September 30, 20182021
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ____________to ____________
Commission File Number 001-38598

be-20210930_g1.jpg
BLOOM ENERGY CORPORATION
(Exact name of Registrantregistrant as specified in its charter)

Delaware77-0565408
(SateState or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)No.)
1299 Orleans Drive, Sunnyvale,4353 North First Street, San Jose, California9408995134
(Address of principal executive offices)(Zip Code)
(408) 543-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class(1)
Trading SymbolName of each exchange on which registered
Class A Common Stock, $0.0001 par valueBENew York Stock Exchange
(1) Our Class B Common Stock is not registered but is convertible into shares of Class A Common Stock at the election of the holder.


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ¨þ    No þ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filer ¨þ     Accelerated filer   ¨      Non-accelerated filer   þ¨      Smaller reporting company  ¨☐      Emerging growth company  þ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨☐    No  þ
1


The number of shares of the registrant’s common stock outstanding as of August 31, 2018 isOctober 27, 2021 was as follows:
Class A Common Stock, $0.00001$0.0001 par value 20,783,292147,730,770 shares
Class B Common Stock, $0.00001$0.0001 par value 88,443,58627,734,592 shares


TABLE OF CONTENTS



2


Bloom Energy Corporation
Quarterly Report on Form 10-Q for the Three and Nine Months Ended September 30, 2021
Table of Contents
Page
Part
Page
PART I - Financial InformationFINANCIAL INFORMATION
Item 1 - Financial Statements
(unaudited)
34
Condensed Consolidated Balance Sheets
34
Condensed Consolidated Statements of Operations
46
Condensed Consolidated Statements of Comprehensive Loss
57
Condensed Consolidated Statements of Redeemable Noncontrolling Interest, Stockholders' (Deficit) Equity and Noncontrolling Interest
8
Condensed Consolidated Statements of Cash Flows
611
Notes to Condensed Consolidated Financial Statements
713
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
4643
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
8066
Item 4 - Controls and Procedures
8166
PartPART II - Other Information
OTHER INFORMATION
Item 1 - Legal Proceedings
8167
Item 1A - Risk Factors
8367
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
10492
Item 3 - Defaults Upon Senior Securities
10492
Item 4 - Mine Safety Disclosures
10492
Item 5 - Other Information
10492
Item 6 - Exhibits
10593
Signatures
94

Unless the context otherwise requires, the terms "we," "us," "our," and "Bloom Energy," each refer to Bloom Energy Corporation and all of its subsidiaries.


3
106


Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS

Bloom Energy Corporation
Condensed Consolidated Balance Sheets
(in thousands, except for share data and per share data)par values)
(unaudited)
September 30,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents1
$121,861 $246,947 
Restricted cash1
65,315 52,470 
Accounts receivable1
62,066 96,186 
Contract assets27,745 3,327 
Inventories182,555 142,059 
Deferred cost of revenue33,759 41,469 
Customer financing receivable1
5,693 5,428 
Prepaid expenses and other current assets1
31,946 30,718 
Total current assets530,940 618,604 
Property, plant and equipment, net1
615,514 600,628 
Operating lease right-of-use assets70,055 35,621 
Customer financing receivable, non-current1
40,981 45,268 
Restricted cash, non-current1
132,725 117,293 
Deferred cost of revenue, non-current2,918 2,462 
Other long-term assets1
38,593 34,511 
Total assets$1,431,726 $1,454,387 
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ (Deficit) Equity and Noncontrolling Interest
Current liabilities:
Accounts payable$101,908 $58,334 
Accrued warranty7,907 10,263 
Accrued expenses and other current liabilities1
85,877 112,004 
Deferred revenue and customer deposits1
81,894 114,286 
Operating lease liabilities6,206 7,899 
Financing obligations14,260 12,745 
Recourse debt6,034 — 
Non-recourse debt1
7,782 120,846 
Total current liabilities311,868 436,377 
Deferred revenue and customer deposits, non-current1
67,887 87,463 
Operating lease liabilities, non-current78,146 41,849 
Financing obligations, non-current456,315 459,981 
Recourse debt, non-current285,216 168,008 
Non-recourse debt, non-current1
205,164 102,045 
Other long-term liabilities26,755 17,268 
Total liabilities1,431,351 1,312,991 
Commitments and contingencies (Note 13)00
Redeemable noncontrolling interest331 377 
Stockholders’ (deficit) equity:
 Preferred stock: 10,000,000 shares authorized and no shares issued and outstanding at September 30, 2021 and December 31, 2020.— — 
Common stock: $0.0001 par value; Class A shares - 600,000,000 shares authorized and 147,320,041 shares and 140,094,633 shares issued and outstanding and Class B shares - 600,000,000 shares authorized and 27,758,020 shares and 27,908,093 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.18 17 
Additional paid-in capital3,183,101 3,182,753 
Accumulated other comprehensive loss(278)(9)
Accumulated deficit(3,229,752)(3,103,937)
Total stockholders’ (deficit) equity(46,911)78,824 
Noncontrolling interest46,955 62,195 
Total liabilities, redeemable noncontrolling interest, stockholders' (deficit) equity and noncontrolling interest$1,431,726 $1,454,387 
  June 30,
2018		 December 31,
2017
     
Assets
Current assets    
Cash and cash equivalents ($9,691 and $9,549, respectively) $91,596
 $103,828
Restricted cash ($4,735 and $7,969, respectively) 25,860
 44,387
Short-term investments 15,703
 26,816
Accounts receivable ($7,293 and $7,680, respectively) 36,804
 30,317
Inventories, net 136,433
 90,260
Deferred cost of revenue 55,476
 92,488
Customer financing receivable ($5,398 and $5,209, respectively) 5,398
 5,209
Prepaid expense and other current assets ($1,802 and $6,365, respectively) 23,003
 26,676
Total current assets 390,273
 419,981
Property, plant and equipment, net ($414,684 and $430,464, respectively) 477,765
 497,789
Customer financing receivable, non-current ($69,963 and $72,677, respectively) 69,963
 72,677
Restricted cash ($27,604 and $26,748, respectively) 32,416
 32,397
Deferred cost of revenue, non-current 148,934
 160,683
Other long-term assets ($4,423 and $3,767, respectively) 38,386
 37,460
Total assets $1,157,737
 $1,220,987
Liabilities, Convertible Redeemable Preferred Stock and Stockholders’ Deficit    
Current liabilities    
Accounts payable ($482 and $520, respectively) $53,798
 $48,582
Accrued warranty 14,928
 16,811
Accrued other current liabilities ($1,569 and $2,378, respectively) 54,832
 67,649
Deferred revenue and customer deposits ($786 and $786, respectively) 94,582
 118,106
Current portion of debt ($19,655 and $17,057, respectively) 28,376
 18,747
Current portion of debt from related parties ($1,630 and $1,389, respectively) 1,630
 1,389
Total current liabilities 248,146
 271,284
Preferred stock warrant liabilities 2,369
 9,825
Derivative liabilities ($2,528 and $5,060, respectively) 188,199
 156,552
Deferred revenue and customer deposits ($9,092 and $9,482, respectively) 301,550
 309,843
Long-term portion of debt ($333,102 and $342,050, respectively) 822,982
 815,555
Long-term portion of debt from related parties ($39,671 and $35,551, respectively) 107,141
 105,650
Other long-term liabilities ($1,514 and $1,226, respectively) 52,153
 52,915
Total liabilities 1,722,540
 1,721,624
Commitments and contingencies (Note 13) 
 
Redeemable noncontrolling interest 54,940
 58,154
Convertible redeemable preferred stock: 80,461,609 shares authorized at June 30, 2018 and December 31, 2017; 71,740,162 shares issued and outstanding at June 30, 2018 and December 31, 2017. Aggregate liquidation preference of $1,441,757,000 at June 30, 2018 and December 31, 2017. 1,465,841
 1,465,841
Stockholders’ deficit    
Common stock: $0.0001 par value; 113,333,333 shares authorized at June 30, 2018 and December 31, 2017; 10,570,841 and 10,353,269 shares issued and outstanding at June 30, 2018 and December 31, 2017. 1
 1
Additional paid-in capital 166,805
 150,804
Accumulated other comprehensive income (loss) 217
 (162)
Accumulated deficit (2,394,040) (2,330,647)
Total stockholders’ deficit (2,227,017) (2,180,004)
Noncontrolling interest 141,433
 155,372
Total deficit (2,030,644) (1,966,478)
Total liabilities, convertible redeemable preferred stock and deficit $1,157,737
 $1,220,987
Asset and liability amounts in parentheses1We have variable interest entities, which represent thea portion of the consolidated balances recorded within these financial statement line items in the condensed consolidated balance attributable to the variable interest entities.sheets (see Note 11 - Portfolio Financings).


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

4

Bloom Energy Corporation
Condensed Consolidated Statements of Operations
(in thousands, except for per share data)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
 Three Months Ended
June 30,		 Six Months Ended
June 30,		 2021202020212020
 2018 2017 2018 2017
  
Revenue        
Revenue:Revenue:
Product $108,654
 $39,935
 $229,961
 $67,600
Product$128,550 $131,076 $413,347 $346,832 
Installation 26,245
 14,354
 40,363
 26,647
Installation22,172 26,603 53,710 73,060 
Service 19,975
 18,875
 39,882
 37,466
Service39,251 26,141 111,375 77,496 
Electricity 14,007
 13,619
 28,036
 27,267
Electricity17,255 16,485 51,273 47,472 
Total revenue 168,881
 86,783
 338,242
 158,980
Total revenue207,228 200,305 629,705 544,860 
Cost of revenue        
Cost of revenue:Cost of revenue:
Product 70,802
 47,545
 151,157
 86,400
Product93,704 72,037 289,889 227,653 
Installation 37,099
 14,855
 47,537
 28,301
Installation25,616 27,872 66,756 86,938 
Service 19,260
 21,308
 43,513
 39,526
Service39,586 33,214 111,269 92,836 
Electricity 8,949
 8,881
 19,598
 19,757
Electricity11,439 11,195 32,913 35,266 
Total cost of revenue 136,110
 92,589
 261,805
 173,984
Total cost of revenue170,345 144,318 500,827 442,693 
Gross profit (loss) 32,771
 (5,806) 76,437
 (15,004)
Operating expenses        
Gross profitGross profit36,883 55,987 128,878 102,167 
Operating expenses:Operating expenses:
Research and development 14,413
 12,368
 29,144
 23,591
Research and development27,634 19,231 76,602 61,887 
Sales and marketing 8,254
 8,663
 16,516
 16,508
Sales and marketing20,124 11,700 62,803 37,076 
General and administrative 15,359
 14,325
 30,347
 27,204
General and administrative33,014 25,428 90,470 79,471 
Total operating expenses 38,026
 35,356
 76,007
 67,303
Total operating expenses80,772 56,359 229,875 178,434 
Profit (loss) from operations (5,255) (41,162) 430
 (82,307)
Loss from operationsLoss from operations(43,889)(372)(100,997)(76,267)
Interest incomeInterest income72 254 222 1,405 
Interest expense (26,167) (25,554) (49,204) (49,917)Interest expense(14,514)(19,902)(43,798)(55,030)
Interest expense - related partiesInterest expense - related parties— (353)— (2,513)
Other income (expense), net 559
 14
 (70) 133
Other income (expense), net2,011 (221)1,948 (4,142)
Loss on revaluation of warrant liabilities and embedded derivatives (19,197) (668) (23,231) (453)
Net loss before income taxes (50,060) (67,370) (72,075) (132,544)
Gain (loss) on extinguishment of debtGain (loss) on extinguishment of debt— 1,220 — (12,878)
(Loss) gain on revaluation of embedded derivatives(Loss) gain on revaluation of embedded derivatives(184)1,505 (1,644)2,201 
Loss before income taxesLoss before income taxes(56,504)(17,869)(144,269)(147,224)
Income tax provision 128
 228
 461
 442
Income tax provision158 7 595 272 
Net loss (50,188) (67,598) (72,536) (132,986)Net loss(56,662)(17,876)(144,864)(147,496)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (4,512) (4,123) (9,143) (9,979)
Net loss attributable to common shareholders $(45,677) $(63,475) $(63,393) $(123,007)
Net loss per share attributable to common stockholders, basic and diluted $(4.34) $(6.22) $(6.05) $(12.09)
Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted 10,536
 10,209
 10,470
 10,176
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interestLess: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest(4,292)(5,922)(13,742)(17,081)
Net loss attributable to Class A and Class B common stockholdersNet loss attributable to Class A and Class B common stockholders$(52,370)$(11,954)$(131,122)$(130,415)
Net loss per share available to Class A and Class B common stockholders, basic and dilutedNet loss per share available to Class A and Class B common stockholders, basic and diluted$(0.30)$(0.09)$(0.76)$(1.01)
Weighted average shares used to compute net loss per share available to Class A and Class B common stockholders, basic and dilutedWeighted average shares used to compute net loss per share available to Class A and Class B common stockholders, basic and diluted174,269 138,964 172,601 129,571 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Bloom Energy Corporation
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
 
Net loss$(56,662)$(17,876)$(144,864)$(147,496)
Other comprehensive loss, net of taxes:
 Unrealized loss on available-for-sale securities— — — (23)
Change in derivative instruments designated and qualifying as cash flow hedges(763)573 (4,031)(8,144)
Foreign currency translation adjustment(299)— (523)— 
Other comprehensive (loss) income, net of taxes(1,062)573 (4,554)(8,167)
Comprehensive loss(57,724)(17,303)(149,418)(155,663)
Less: Comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interest(3,673)(5,349)(9,964)(25,219)
Comprehensive loss attributable to Class A and Class B stockholders$(54,051)$(11,954)$(139,454)$(130,444)
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2018 2017 2018 2017
   
Net loss attributable to common stockholders $(45,677) $(63,475) $(63,393) $(123,007)
Other comprehensive gain (loss), net of taxes        
Unrealized gain on available-for-sale securities 100
 —
 91
 —
Change in effective portion of interest rate swap 986
 (923) 3,853
 (304)
Other comprehensive gain (loss) 1,086
 (923) 3,944
 (304)
Comprehensive loss (44,591) (64,398) (59,449) (123,311)
Comprehensive income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests (984) 882
 (3,563) 381
Comprehensive loss attributable to common stockholders $(45,575) $(63,516) $(63,012) $(122,930)


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


6

Bloom Energy Corporation
Condensed Consolidated Statements of Cash FlowsRedeemable Noncontrolling Interest, Stockholders' (Deficit) Equity and Noncontrolling Interest
(in thousands)
thousands, except share data) (unaudited)




Three Months Ended September 30, 2021
Redeemable Noncontrolling InterestClass A and Class B Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' DeficitNoncontrolling Interest
SharesAmount
Balances at June 30, 2021$334 173,402,160 $17 $3,155,917 $(124)$(3,177,381)$(21,571)$51,185 
Issuance of restricted stock awards— 581,363 — — — — — — 
ESPP purchase— 967,797 — 5,319 — — 5,319 — 
Exercise of stock options— 126,741 1 1,122 — — 1,123 — 
Stock-based compensation— — — 20,743 — — 20,743 — 
Change in effective portion of interest rate swap agreement— — — — — — — 763 
Distributions to noncontrolling interests(20)— — — — — — (540)
Foreign currency translation adjustment— — — — (154)— (154)(145)
Net income (loss)17 — — — — (52,371)(52,371)(4,308)
Balances at September 30, 2021$331 175,078,061 $18 $3,183,101 $(278)$(3,229,752)$(46,911)$46,955 

Three Months Ended September 30, 2020
Redeemable Noncontrolling InterestClass A and Class B Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' DeficitNoncontrolling Interest
SharesAmount
Balances at June 30, 2020$118 130,238,289 $13 $2,747,890 $(9)$(3,064,846)$(316,951)$66,302 
Conversion of notes— 19,136,313 1 160,341 — — 160,342 — 
Issuance of convertible note— — — 124,050 — — 124,050 — 
Issuance of restricted stock awards— 3,203,935 1 — — — 1 — 
ESPP purchase— 944,979 — 4,323 — — 4,323 — 
Exercise of stock options— 273,056 — 3,235 — — 3,235 — 
Stock-based compensation— — — 14,537 — — 14,537 — 
Change in effective portion of interest rate swap agreement— — — — — — — 573 
Distributions to noncontrolling interests(18)— — — — — — (269)
Proceeds from noncontrolling interest— — — — — — — 4,314 
Net income (loss)89 — — — — (11,954)(11,954)(6,011)
Balances at September 30, 2020$189 153,796,572 $15 $3,054,376 $(9)$(3,076,800)$(22,418)$64,909 
7

  Six Months Ended
June 30,
  2018 2017
   
Cash flows from operating activities:    
Net loss attributable to common stockholders $(63,393) $(123,007)
Adjustments to reconcile net loss to net cash used in operating activities:    
Loss attributable to noncontrolling and redeemable noncontrolling interests (9,143) (9,979)
Depreciation 21,554
 23,612
Write off of property, plant and equipment, net 661
 5
Revaluation of derivative contracts 28,611
 (1,278)
Stock-based compensation 15,773
 14,663
Loss on long-term REC purchase contract 100
 48
Revaluation of preferred stock warrants (7,456) 237
Common stock warrant valuation (166) —
Amortization of interest expense from preferred stock warrants 520
 533
Amortization of debt issuance cost 1,938
 1,325
Amortization of debt discount from embedded derivatives 11,962
 20,634
Changes in operating assets and liabilities:    
Accounts receivable (6,486) (5,272)
Inventories, net (46,172) (17,612)
Deferred cost of revenue 48,760
 (34,936)
Customer financing receivable and others 2,439
 2,953
Prepaid expenses and other current assets 4,544
 (940)
Other long-term assets 15
 2,450
Accounts payable 5,217
 (13,331)
Accrued warranty (1,883) (6,591)
Accrued other current liabilities (12,815) 6,094
Deferred revenue and customer deposits (31,817) 35,896
Other long-term liabilities 18,652
 24,921
Net cash used in operating activities (18,585) (79,575)
Cash flows from investing activities:    
Purchase of property, plant and equipment (1,595) (2,265)
Purchase of marketable securities (15,732) —
Maturities of marketable securities 27,000
 —
Net cash provided by (used in) investing activities 9,673
 (2,265)
Cash flows from financing activities:    
Borrowings from issuance of debt —
 100,000
Repayment of debt (9,201) (11,945)
Repayment of debt to related parties (627) (409)
Debt issuance costs —
 (6,108)
Proceeds from noncontrolling and redeemable noncontrolling interests —
 13,652
Distributions to noncontrolling and redeemable noncontrolling interests (11,582) (17,728)
Proceeds from issuance of common stock 742
 227
Payments of initial public offering issuance costs (1,160) (533)
Net cash provided by (used in) financing activities (21,828) 77,156
Net decrease in cash, cash equivalents, and restricted cash (30,740) (4,684)
Cash, cash equivalents, and restricted cash:    
Beginning of period 180,612
 217,915
End of period $149,872
 $213,231
Supplemental disclosure of cash flow information:    
Cash paid during the period for interest $16,540
 $11,318
Cash paid during the period for taxes $625
 $121
Non-cash investing and financing activities:    
Liabilities recorded for property, plant and equipment $512
 $145
Liabilities recorded for intangible assets $169
 —
Issuance of common stock —
 $1,816
Issuance of restricted stock $532
 —
Accrued distributions to Equity Investors $566
 $567
Accrued interest and issuance for notes $16,920
 $13,913
Accrued interest and issuance for notes to related parties $1,195
 $2,071



Nine Months Ended September 30, 2021
Redeemable Noncontrolling InterestClass A and Class B Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity (Deficit)Noncontrolling Interest
SharesAmount
Balances at December 31, 2020$377 168,002,726 $17 $3,182,753 $(9)$(3,103,937)$78,824 $62,195 
Cumulative effect upon adoption of Accounting Standards Update 2020-06 (Note 2)— — — (126,799)— 5,308 (121,491)— 
Issuance of restricted stock awards— 2,533,027 — — — — — — 
ESPP purchase— 1,945,305 — 10,045 — — 10,045 — 
Exercise of stock options— 2,597,003 1 62,064 — — 62,065 — 
Stock-based compensation expense— — — 55,038 — — 55,038 — 
Change in effective portion of interest rate swap agreement— — — — — — — 4,031 
Distributions to noncontrolling interests(37)— — — — — — (5,285)
Foreign currency translation adjustment— — — — (269)— (269)(254)
Net loss(9)— — — — (131,123)(131,123)(13,732)
Balances at September 30, 2021$331 175,078,061 $18 $3,183,101 $(278)$(3,229,752)$(46,911)$46,955 

8

Nine Months Ended September 30, 2020
Redeemable Noncontrolling InterestClass A and Class B Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Gain (Loss)Accumulated DeficitTotal Stockholders' DeficitNoncontrolling Interest
SharesAmount
Balances at December 31, 2019$443 121,036,289 $12 $2,686,759 $19 $(2,946,384)$(259,594)$91,291 
Conversion of notes— 23,854,441 2 201,470 — — 201,472 — 
Issuance of convertible note— — — 124,050 — — 124,050 — 
Adjustment of embedded derivative for debt modification— — — (24,071)— — (24,071)— 
Issuance of restricted stock awards— 6,524,088 1 — — 1 — 
ESPP purchase— 1,937,825 — 8,500 — — 8,500 — 
Exercise of stock options— 443,929 — 4,243 — — 4,243 — 
Stock-based compensation— — — 53,425 — — 53,425 — 
Unrealized loss on available for sale securities— — — — (23)— (23)— 
Change in effective portion of interest rate swap agreement— — — — (5)— (5)(8,139)
Distributions to noncontrolling interests(35)— — — — — — (5,696)
Contributions from noncontrolling interest— — — — — — — 4,314 
Net loss(219)— — — — (130,415)(130,415)(16,861)
Balances at September 30, 2020$189 153,796,572 $15 $3,054,376 $(9)$(3,076,800)$(22,418)$64,909 

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

9

Bloom Energy Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Nine Months Ended
September 30,
 20212020
Cash flows from operating activities:
Net loss$(144,864)$(147,496)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization40,079 38,888 
Non-cash lease expense7,161 4,419 
Write-off of property, plant and equipment, net— 36 
Impairment of equity method investment— 4,236 
Revaluation of derivative contracts486 (2,267)
Stock-based compensation expense57,309 57,385 
Gain on remeasurement of investment(1,966)— 
Loss on extinguishment of debt— 11,785 
Amortization of debt issuance costs and premium, net2,824 (195)
Changes in operating assets and liabilities:
Accounts receivable34,291 (4,058)
Contract assets(24,418)(8,596)
Inventories(39,953)(22,772)
Deferred cost of revenue7,307 1,562 
Customer financing receivable4,022 3,790 
Prepaid expenses and other current assets236 (2,647)
Other long-term assets(374)(3,217)
Accounts payable37,973 8,704 
Accrued warranty(2,357)(525)
Accrued expenses and other current liabilities(26,178)4,932 
Operating lease right-of-use assets and operating lease liabilities(7,593)(4,467)
Deferred revenue and customer deposits(53,181)(15,658)
Other long-term liabilities1,289 (3,828)
Net cash used in operating activities(107,907)(79,989)
Cash flows from investing activities:
Purchase of property, plant and equipment(44,625)(33,066)
Net cash acquired from step acquisition3,114 — 
Net cash used in investing activities(41,511)(33,066)
Cash flows from financing activities:
Proceeds from issuance of debt— 300,000 
Proceeds from issuance of debt to related parties— 30,000 
Repayment of debt(11,017)(92,546)
Repayment of debt - related parties— (2,105)
Debt issuance costs— (13,247)
Proceeds from financing obligations7,534 14,807 
Repayment of financing obligations(10,174)(7,828)
Contribution from noncontrolling interest— 4,314 
Distributions to noncontrolling interests and redeemable noncontrolling interests(5,322)(6,103)
Proceeds from issuance of common stock72,109 12,745 
Net cash provided by financing activities53,130 240,037 
Effect of exchange rate changes on cash, cash equivalent and restricted cash(521)— 
Net (decrease) increase in cash, cash equivalents and restricted cash(96,809)126,982 
Cash, cash equivalents, and restricted cash:
Beginning of period416,710 377,388 
End of period$319,901 $504,370 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$42,598 $56,607 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases10,332 39,775 
Operating cash flows from financing leases643 3,684 
Cash paid during the period for income taxes372 353 
Non-cash investing and financing activities:
Increase in recourse debt, non-current upon adoption of ASU 2020-06, net (Note 2)$121,491 $— 
Liabilities recorded for property, plant and equipment6,188 350 
Operating lease liabilities arising from obtaining right-of-use assets upon adoption of new lease guidance— 39,775 
Recognition of operating lease right-of-use asset during the year-to-date period43,660 3,333 
Recognition of financing lease right-of-use asset during the year-to-date period1,961 351 
Conversion of 10% convertible promissory notes into Class A common stock— 150,670 
Conversion of 10% convertible promissory notes to related party into Class A common stock— 50,800 
Accrued interest for notes— 30 
Adjustment of embedded derivative related to debt extinguishment— 24,071 
The accompanying notes are an integral part of these condensed consolidated financial statements.
10

Bloom Energy Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
(unaudited)
1. Nature of Business, Liquidity and LiquidityBasis of Presentation
Nature of Business
Bloom Energy Corporation (together with its subsidiaries, the Company or Bloom Energy) designs, manufacturesWe design, manufacture, sell and, sellsin certain cases, install solid-oxide fuel cell systems or ("Energy Servers,Servers") for on-site power generation. The Company’sOur Energy Servers utilize an innovative fuel cell technology. The Energy Serverstechnology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions.emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, theour energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence. The Company was originally incorporated
We continue to monitor and adjust as appropriate our operations in Delaware underresponse to the nameCOVID-19 pandemic. There have been a number of Ion America Corporation on January 18, 2001supply chain disruptions throughout the global supply chain as countries are in various stages of opening up and was renamed on September 16, 2006demand for certain components increases. Although we were able to Bloom Energy Corporation. To date, substantially all of the Company’s revenue has been derived from customers based in the United States.find alternatives for many component shortages, we experienced some delays and cost increases with respect to container shortages, ocean shipping and air freight.
Liquidity
The CompanyWe have generally incurred operating losses and negative cash flows from operations since itsour inception. The Company’sWith the series of new debt offerings, debt extensions and conversions to equity that we completed during 2020, we had $291.3 million of total outstanding recourse debt as of September 30, 2021, $285.2 million of which is classified as long-term debt. Our recourse debt scheduled repayments will commence in June 2022.
On October 23, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with SK ecoplant Co., Ltd. (formerly known as SK Engineering and Construction Co., Ltd.) ("SK ecoplant") in connection with a strategic partnership. Pursuant to the SPA, we have agreed to sell to SK ecoplant 10,000,000 shares of zero coupon, non-voting redeemable convertible Series A preferred stock in Bloom Energy, par value $0.0001 per share, at a purchase price of $25.50 per share or an aggregate purchase price of approximately $255.0 million. For more information about the SPA, please see Note 18 - Subsequent Events, and for more information about our joint venture with SK ecoplant, please see Note 12 - Related Party Transactions.
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 product, our ability to achieve its long-term business objectivessecure 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 the opinion of management, the combination of our existing cash and cash equivalents and operating cash flows is dependent upon, amongexpected to be sufficient to meet our operational and capital cash flow requirements and other things, raising additional capital,cash flow needs for the acceptance of its products and attaining future profitability. Management believes that the Company will be successful in raising additional financingnext 12 months from its stockholders, or from other sources, in expanding operations and in gaining market share. In fact, in July 2018 and subsequent to the date of the financial statements included inissuance of this Quarterly Report on Form 10-Q, the Company successfully completed an initial public stock offering (IPO) with the sale of 20,700,000 shares of Class A common stock at a price of $15 per share, resulting in net cash proceeds of $284.3 million net of underwriting discounts, commissions and estimated offering costs. However, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all.10-Q.
2. Basis of Presentation and Summary of Significant Accounting Policies
Unaudited Interim Consolidated Financial Statements
The consolidated balance sheets as of June 30, 2018,We have prepared the consolidated statements of operations and the consolidated statements of comprehensive loss for the three and six months ended June 30, 2018, and 2017, the consolidated statements of cash flows for the six months ended June 30, 2018 and 2017 and the consolidated statements of convertible redeemable preferred stock and stockholders' deficit as of June 30, 2018, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2017 and the consolidated statements of convertible redeemable preferred stock and stockholders' deficit as of December 31, 2017 was derived from the auditedcondensed consolidated financial statements asincluded herein pursuant to the rules and regulations of that date. The interim consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained within the Company's Form S-1 filed with theU.S. Securities and Exchange Commission which was declared effective on July 24, 2018.
The Company's consolidated financial statements have been prepared in accordance with U.S.("SEC"), and as permitted by those rules, including all disclosures required by generally accepted accounting principles (US GAAP) for interim financial information and,as applied in the opinionUnited States (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation.
As disclosed in the 2020 Annual Report on Form 10-K, effective on December 31, 2020, we lost our emerging growth company status which accelerated the adoption of management, reflect all adjustments, which include only normal recurring adjustments, necessary forAccounting Standards Codification ("ASC") 842, Leases ("ASC 842"). As a fair statement of the results of operations for the periods presented.result, we adjusted our previously reported condensed consolidated financial statements effective January 1, 2020.
Principles of Consolidation
These condensed consolidated financial statements reflect theour accounts and operations of the Company and those of itsour subsidiaries in which the Company haswe have a controlling financial interest. The Company usesWe use a qualitative approach in assessing the consolidation requirement for itseach of our variable interest entities ("VIEs"), which the Company referswe refer to as a tax equity partnership (each such VIE, also referred to as
11

our power purchase agreement entities (PPA Entities)("PPA Entities")). This approach focuses on determining whether the Company haswe have the power to direct thethose activities of the PPA Entities that most significantly affect the PPA Entities’their economic performance and whether the Company haswe have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPA Entities. For all periods presented, the Company haswe have determined that it iswe are the primary beneficiary in all of itsour operational PPA Entities. The Company evaluates itsEntities, as discussed in Note 11 - Portfolio Financings. We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that it continueswe continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated upon consolidation.
The sale of an operating company with a portfolio of PPAs in consolidation. For additionalwhich we do not have an equity interest is called a “Third-Party PPA.” We have determined that, although these entities are VIEs, we do not have the power to direct those activities of the Third-Party PPAs that most significantly affect their economic performance. We also do not have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the Third-Party PPAs. Because we are not the primary beneficiary of these activities, we do not consolidate Third-Party PPAs.
Business Combinations
Acquisitions of a business are accounted by using the acquisition method of accounting. Assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at the acquisition date at their fair values. Assigning fair values requires us to make significant estimates and assumptions regarding the fair value of identifiable intangible assets, property, plant and equipment, deferred tax asset valuation allowances and liabilities, such as uncertain tax positions and contingencies. We may refine these estimates if necessary over a period not to exceed one year by taking into consideration new information see Note 12 - Power Purchase Agreement Programs.

that, if known at the acquisition date, would have affected the fair values ascribed to the assets acquired and liabilities assumed.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with USU.S. GAAP requires managementus to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. SignificantThe most significant estimates include the determination of the stand-alone selling price, including material rights estimates, inventory valuation, specifically excess and obsolescence provisions for obsolete or unsellable inventory and, in relation to property, plant and equipment (specifically Energy Servers), assumptions usedrelating to compute the best estimate of selling-prices (BESP), the fair value ofeconomic useful lives and impairment assessments.
Other accounting estimates include variable consideration relating to product performance guaranties, lease and non-lease components and related financing obligations such as incremental borrowing rates, estimated output, efficiency and residual value of the Energy Servers, estimates for inventory write-downs, estimates for future cash flowsproduct performance warranties and the economic useful lives of property, plantguaranties and equipment, the valuation of other long-term assets, the valuation of certain accrued liabilities such asextended maintenance, derivative valuations, estimates for accrued warranty and extended maintenance and estimates for recapture of the U.S. Treasury grantsInvestment Tax Credit ("ITC") and similar grants,federal tax benefits, estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, warrant liabilities, stock-based compensation costsexpense and the allocationfair value of profitcontingent consideration related to business combinations. In addition, because the duration and losses toseverity of the noncontrolling interests.COVID-19 pandemic remains uncertain, certain of such estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility. Actual results could differ materially from these estimates under different assumptions and conditions.
Reverse Stock SplitConcentration of Risk
Geographic Risk - The Company decreasedmajority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. Additionally, we sell our Energy Servers in Japan, India and the Republic of Korea (collectively, the "Asia Pacific region"). In the three and nine months ended September 30, 2021, total numberrevenue in the Asia Pacific region was 36% and 38%, respectively, of outstanding shares with a 2-for-3 reverse stock split effective July 7, 2018our total revenue. In the three and subsequentnine months ended September 30, 2020, total revenue in the Asia Pacific region was 24% and 30%, respectively, of our total revenue.
Credit Risk - At September 30, 2021 and December 31, 2020, SK ecoplant, accounted for approximately 22% and 56% of accounts receivable, respectively. At September 30, 2021, RAD Bloom Project Holdco LLC, accounted for approximately 16% of accounts receivable and none at December 31, 2020. At September 30, 2021, Bronx Community Clean Energy Project accounted for approximately 18% of accounts receivable and none at December 31, 2020. To date, we have not experienced any credit losses.
Customer Risk - During the three months ended September 30, 2021, one customer represented 35% of our total revenue. During the nine months ended September 30, 2021, two customers represented 37% and 12% of our total revenue, respectively.
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2. Summary of Significant Accounting Policies
Please refer to the date of these financial statements. All current and past period amounts stated herein andaccounting policies described in the Quarterlyour Annual Report on Form 10-Q attached hereto have given effect to10-K for the reverse stock split.fiscal year ended December 31, 2020.
Revenue Recognition
The CompanyWe primarily earnsearn product and installation revenue from the sale and installation of itsour Energy Servers, both to direct and to lease customers,service revenue by providing services under its operations and maintenance services contracts, and electricity revenue by selling electricity to customers under power purchase agreements. The Company offers itsPPAs and Managed Services Agreements (as defined below). We offer our customers several ways to finance their purchaseuse of a Bloom Energy Server. Customers, including some of our international channel providers and Third Party PPAs, may choose to purchase the Company’sour Energy Servers outright. Customers may also leaseenter into contracts with us for the Company’spurchase of electricity generated by our Energy Servers (a "Managed Services Agreement"), which is then financed through one of the Company’sour financing partners via the Company’s managed services program("Managed Services Financings"), or as a traditional lease.lease (as explained in “Managed Service Financing" in Item 2 below). Finally, customers may purchase electricity through our PPA Entities ("Portfolio Financings").
Revenue Recognition under ASC 606 Revenue from Contracts with Customers
In applying Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"), revenue is recognized by following a five-step process:
Identify the Company’s Power Purchase Agreement Programs.contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the terms and conditions of a distributor, reseller, purchase, use and maintenance agreement, maintenance services agreements or energy supply agreement.
Direct Sales - To date,Identify the Company has never soldperformance obligations in the contract. Performance obligations are identified in our contracts and include transferring control of an Energy Server, without ainstallation of Energy Servers, providing maintenance service agreement,services and maintenance services renewal options which, in certain situations, provide customers with material rights.
Determine the transaction price. The purchase price stated in an agreed-upon purchase order or vice-versa, nor does it have planscontract is generally representative of the transaction price. When determining the transaction price, we consider the effects of any variable consideration, which include performance guarantees that may be payable to do soour customers.
Allocate the transaction price to the performance obligations in the near future. Ascontract. The transaction price in a result,contract is allocated based upon the Company recognizesrelative standalone selling price of each distinct performance obligation identified in the contract.
Recognize revenue fromwhen (or as) we satisfy a performance obligation. We satisfy performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring control of the promised products or services to a customer.
We frequently combine contracts with customers for the sales of products and services included within these contracts in accordance with ASC 605-25, Revenue Recognition for Multiple-Element Arrangements.
Revenue fromgoverning the sale and installation of an Energy ServersServer with the related maintenance services contracts and account for them as a single contract at contract inception to direct customers is recognizedthe extent the contracts are with the same customer. These contracts are not combined when allthe customer for the sale and installation of the following criteria are met:
Persuasive EvidenceEnergy Server is different to the maintenance services contract customer. We also assess whether any contract terms including default provisions, put or call options result in components of an Arrangement Exists. The Company relies upon non-cancelable sales agreements and purchase orders to determineour contracts being accounted for as financing or leasing transactions outside of the existencescope of an arrangement.
Delivery and Acceptance has Occurred. The Company uses shipping documents and confirmation from the Company’s installations team that the deployed systems are running at full power, as defined in each contract, to verify delivery and acceptance.
The Fee is Fixed or Determinable. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction.
Collectability is Reasonably Assured. The Company assesses collectability based on the customer’s credit analysis and payment history.
ASC 606.
Most of the Company’s arrangements are multiple-element arrangementsour contracts contain performance obligations with a combination of our Energy Servers,Server product, installation and maintenance services. Products, including installation, and services generally qualify as separate units of accounting. For multiple-element arrangements,these performance obligations, we allocate the Company allocates revenuetotal transaction price to each unit of accounting based on an estimated selling price at the arrangement inception. The estimated selling price for each element is based upon the following hierarchy: vendor-specific objective evidence (VSOE) of selling price, if available; third-party evidence (TPE) of selling price, if VSOE of selling price is not available; or best estimate of selling price (BESP), if neither VSOE of selling price nor TPE of selling price are available. The total arrangement consideration is allocated to each separate unit of accounting using the relative estimated selling prices of each unitperformance obligation based on the aforementionedrelative standalone selling price. Our maintenance services contracts are typically subject to renewal by customers on an annual basis. We assess these maintenance services renewal options at contract inception to determine whether they provide customers with material rights that give rise to separate performance obligations.
The total transaction price hierarchy.is determined based on the total consideration specified in the contract, including variable consideration in the form of a performance guaranty payment that represents potential amounts payable to customers. The Company limitsexpected value method is generally used when estimating variable consideration, which typically reduces the amounttotal transaction price due to the nature of revenue recognized for delivered elementsthe performance obligations to anwhich the variable consideration relates. These estimates reflect our historical experience and current contractual requirements which cap the maximum amount that ismay be paid. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method.
13

We exclude from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not contingent upon future deliveryincluded as a component of additional productsnet sales or services or upon meeting any specifiedcost of sales. These tax amounts are recorded in cost of electricity revenue, cost of service revenue, and general and administrative operating expenses.
We allocate the transaction price to each distinct performance conditions.
The Company has not been able to obtain reliable evidence of theobligation based on relative standalone selling price of the standalone Energy Server.prices. Given that the Company has never soldwe typically sell an Energy Server withoutwith a maintenance serviceservices agreement and vice-versa, the Company has no evidencehave not provided maintenance services to a customer who does not have use of an Energy Server, standalone selling prices for either and virtually no customers have electedare estimated using a cost-plus approach. Costs relating to cancel their maintenance agreements while continuing to operate the Energy Servers. The Company’s objective is to determine the price at which it would transact business if the items were being sold separately. As a result, the Company estimates its selling price driven primarily by its expected

margin on both the Energy Server and maintenance service agreement based on their respective costs or, in the case of maintenance service agreements, the estimated costs to be incurred during the service period.
Costs for Energy Servers include all direct and indirect manufacturing costs, applicable overhead costs and costs for normal production inefficiencies (i.e., variances). The CompanyWe then appliesapply a margin to the Energy Servers, which may vary with the size of the customer, geographic region and the scale of the Energy Server deployment. As our business offerings and eligibility for the ITC evolve over time, we may be required to determinemodify the selling priceexpected margin in subsequent periods and our revenue could be materially affected. Costs relating to be used in its BESP model.installation include all direct and indirect installation costs. The margin we apply reflects our profit objectives relating to installation. Costs for maintenance serviceservices arrangements are estimated over the life of the maintenance contracts and include estimated future service costs and future productmaterial costs. ProductMaterial costs over the period of the service arrangement are impacted significantly by the longevity of the fuel cells themselves. After considering the total service costs, the Company applieswe apply a slightly lower margin to itsour service costs than to itsour Energy Servers because thisas it best reflects the Company’sour long-term service margin expectations.expectations and comparable historical industry service margins. As a result, our estimate of our selling price is driven primarily by our expected margin on both the Energy Server and the maintenance services agreements based on their respective costs or, in the case of maintenance services agreements, the estimated costs to be incurred.
AsWe generally recognize product and installation revenue at the Company’s business offerings and eligibility forpoint in time that the ITC evolvecustomer obtains control of the Energy Server. For certain instances, such as bill-and-hold transactions, control of installations transfers to the customer over time, the Company may be required to modify its estimated selling prices in subsequent periods and the Company’srelated revenue could be adversely affected.is recognized over time as the performance obligation is satisfied using the cost-to-total cost (percentage-of-completion) method. We use an input measure of progress to determine the amount of revenue to recognize during each reporting period when such revenue is recognized over time, based on the costs incurred to satisfy the performance obligation. We recognize maintenance services revenue, including revenue associated with any related customer material rights, over time as we perform service maintenance activities.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling costs are recorded within cost of revenue.
The Company does not offer extended paymentfollowing is a description of the principal activities from which we generate revenue. Our four revenue streams are classified as follows:
Product Revenue - All of our product revenue is generated from the sale of our Energy Servers to direct purchase customers, including financing partners on Third-Party PPAs and sale-and-leaseback transactions, international channel providers and traditional lease customers. We generally recognize product revenue from contracts with customers at the point that control is transferred to the customers. This occurs when we achieve customer acceptance, which typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system is shipped and delivered to our customers, when the system is shipped and delivered and is physically ready for startup and commissioning, or rightswhen the system is shipped and delivered and is turned on and producing power. Certain customer arrangements include bill-and-hold terms under which transfer of return for its products. Upon shipmentcontrol criteria have been met, including the passing of title and significant risk and reward of ownership to the customers. Therefore, the customers can direct the use of the bill-and-hold product while we retain physical possession of the product the Company defers the product’s revenue until the acceptance criteria have been met. Such amounts are recorded within deferred revenueit is delivered to a customer site at a point in time in the consolidated balance sheets. The related cost of such product is also deferred as a component of deferred cost in the consolidated balance sheets until customer acceptance. Prior to shipment of the product, any prepayment made by the customer is recorded as customer deposits. Customer deposits were $21.3 million and $10.2 million as of June 30, 2018 and December 31, 2017, respectively, and were included in deferred revenue and customer deposits in the consolidated balance sheets.future.
Traditional Leases - Under thisour traditional lease financing option, the Company sells itswe sell our Energy Servers through a direct sale to a financing partner who, in turn, leases the Energy Servers to the customer under a lease agreement betweenagreement. With our sales to our international channel providers, our international channel providers typically sell the customerEnergy Servers to, or sometimes provide a PPA to, an end customer. In both traditional lease and the financing partner. In addition, the Company contractsinternational channel providers transactions, we contract directly with the end customer to provide extended maintenance services fromafter the end of the standard one-year warranty period. As a result, since the customer that purchases the server is a different and unrelated party to the customer that purchases extended warranty services, the product and maintenance services contract are not combined.
Installation Revenue - Nearly all of our installation revenue relates to the installation of Energy Servers sold to customers as part of a direct purchase and to financing parties as part of a traditional lease or Portfolio Financing. Generally, we recognize installation revenue when the system is physically ready for startup and commissioning, or when the system is turned on and producing power. For instances when control for installation services is transferred over time, we use an input measure of
14

progress to determine the amount of revenue to recognize during each reporting period untilbased on the remaining duration ofcosts incurred to satisfy the lease term.performance obligation.
Payments received from customers are recorded within deferred revenue and customer deposits in the condensed consolidated balance sheets until the acceptance criteria as defined within the customer contract are met.control is transferred. The related cost of such product and installation is also deferred as a component of deferred cost of revenue in the condensed consolidated balance sheets until acceptance.control is transferred.
The Company also sells extendedService Revenue - Service revenue is generated from maintenance services to its customers that effectively extend the standard warranty coverage. Payments from customers for the extended maintenance contracts are received at the beginningagreements. As part of each service year. Accordingly, the customer payment received is recorded as deferred revenue, and revenue is recognized ratably over the extended maintenance contract.
As discussed within the Direct Sales section above, the Company’s arrangements with its traditional lease customers are multiple-element arrangements as they include a combination of Energy Servers, installation and extended maintenance services. Accordingly, the Company recognizes revenue from contractsour initial contract with customers for the salessale and installation of products and services included within these contracts in accordance with ASC 605-25, Revenue Recognition - Multiple-Element Arrangements.
Extended Maintenance Services - The Companyour Energy Servers, we typically provides to its direct sales customersprovide a standard one-year warranty againstwhich covers defects in materials and workmanship and manufacturing or performance defects. The Companyconditions under normal use and service for the first year following commencement of operations. As part of this standard first-year warranty, we also sellsmonitor the operations of the underlying systems and provide output and efficiency guaranties. We have determined that this standard first-year warranty is a distinct performance obligation - being a promise to thesestand-ready to maintain the Energy Servers when and if required during the first year following installation. We also sell to our customers extended annual maintenance services that effectively extend the standard one-yearfirst-year warranty coverage at the customer’s option. These customers generally have an option to renew or cancel the extended maintenance services on an annual basis. Revenuebasis and nearly every customer has renewed historically. Similar to the standard first-year warranty, the optional extended annual maintenance services are considered a distinct performance obligation – being a promise to stand-ready to maintain the Energy Servers when and if required during the renewal service year.
Given our customers' renewal history, we anticipate that most of them will continue to renew their maintenance services agreements each year for the period of their expected use of the Energy Server. The contractual renewal price may be less than the standalone selling price of the maintenance services and consequently the contract renewal option may provide the customer with a material right. We estimate the standalone selling price for customer renewal options that give rise to material rights using the practical alternative by reference to optional maintenance services renewal periods expected to be provided and the corresponding expected consideration for these services. This reflects the fact that our additional performance obligations in any contractual renewal period are consistent with the services provided under the standard first-year warranty. Where we have determined that a customer has a material right as a result of their contract renewal option, we recognize that portion of the transaction price allocated to the material right over the period in which such rights are exercised.
Payments from customers for the extended maintenance contracts are generally received at the beginning of each service year. Accordingly, the customer payment received is recorded as a customer deposit and revenue is recognized from extended maintenance services ratably over the termrelated service period as the services are performed.
Electricity Revenue - We sell electricity produced by our Energy Servers owned directly by us or by our consolidated PPA Entities. Our PPA Entities purchase Energy Servers from us and sell electricity produced by these systems to customers through long-term PPAs. Customers are required to purchase all of the service (or annual renewal period) usingelectricity produced by those Energy Servers at agreed-upon rates over the estimatescourse of value, as discussed above.the PPAs' contractual term.
Sale-Leaseback (Managed Services) - The Company is aIn addition, in certain Managed Services Financings pursuant to which we are party to master lease agreements that provide for the sale of Energy Servers to third-parties and the simultaneous leaseback of the systems, which the Company then subleases to its customers. In sale-leaseback sublease arrangements (also referred to as managed services), the Companya Managed Services Agreement with a customer in a sale-leaseback-sublease arrangement, we may recognize electricity revenue. We first determinesdetermine whether the Energy Servers under the sale-leaseback arrangement areof a Managed Services Financing were “integral equipment.” An Energy Server is determined to be integral equipment when the cost to remove the system from its existing location, including the shipping costs of the Energy Server at the new site including any diminution in fair value, exceeds 10% of the fair value of the Energy Server at the time of its original installation." As the Energy Servers arewere determined not to be integral equipment, we determine if the Company determinesleaseback was classified as a financing lease or an operating lease.
Under ASC 840, Leases ("ASC 840"), our Managed Services Agreements with the financiers were classified as capital leases and were accordingly recorded as financing transactions, while the sub-lease arrangements with the end customer were classified as operating leases. We have determined that the financiers are our customers in our Managed Services Agreements. In these Managed Services Financings, we enter into an 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 customer's monthly payment 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 are applied toward our obligation to pay down the financing obligation with the financier. The performance-based payment is transferred to us as compensation for operations and maintenance services and is recognized as electricity revenue. We allocate the total payments received based on the relative standalone selling prices to electricity revenue and to service revenue. Electricity revenue relating to PPAs was typically accounted for in accordance with ASC 840, and service revenue in accordance with ASC 606.
We adopted ASC 842, with effect from January 1, 2020. Managed Services Financings entered from January 1, 2020 until June 30, 2021, including some of our agreements with financiers are accounted for as financing transactions because the
15

repurchase options in these agreements prevent the transfer of control of the systems to the financier. Additionally, some of our leaseback agreements with financiers are not operating leases and are therefore accounted for as failed sale-and-leaseback transactions. We also determined that the sub-lease arrangements under the Managed Services Agreements with the customer are not within the scope of ASC 842 because the customer does not have the right to control the use of the underlying assets (i.e., the Energy Servers). Accordingly, such agreements are accounted for under ASC 606. Under ASC 606, we recognize customer payments for electricity as electricity revenue.
In the three months ended September 30, 2021, we completed the first successful sale-and-lease back transaction in which we transferred control of the Energy Server to the financier and leased it back as an operating lease. The proceeds from the sale are allocated between the sale of Energy Server for Product and Installation based on the relative standalone selling prices. The proceeds allocated to the sale of the Energy Servers are evaluated to determine if the transaction meets the criteria for sale-leaseback accounting. To meet the sale-leaseback criteria, control of the Energy Servers must transfer to the financier, which requires among other criteria the leaseback to meet the criteria for an operating lease. Accordingly, for such transactions where control transfers and the leaseback is classified as a capital lease or an operating lease.
The Company’s managed services arrangements are classified as operating leases. As operating leases,lease, we recognize revenue on the Company recognizes a portionsale of the net revenue, net of any commitments made toEnergy Servers, and separately recognize the customer to cover liabilities associated with insurance, property taxes and/or incentives recorded as managed service liabilities, andlease back obligations.
We recognize a lease liability for the associated cost of sale and then defers the portion of net revenue and cost of sale that represents the gross profit that is equal toEnergy Server leaseback obligation based on the present value of the future minimum lease payments to the financier that are attributed to the Energy Server leaseback using our incremental borrowing rate. We also record a right-of-use asset, which is amortized over the masterterm of the leaseback, term. and is included as a cost of electricity revenue on the condensed consolidated statements of operations.
For both capitalsuch sale-and-leaseback transactions during the 3 months ended September 30, 2021, we recognized $3.9 million revenue, and recognized $2.2 million right-of-use assets and liabilities as operating leasebacks,leases. For proceeds received from the Company recordscustomer under Managed Services Agreements, we recorded the electricity revenue on a straight-line basis over the lease term, which were not material.

Transactions entered into with customers prior to January 1, 2020 carried over their classification as operating leases and continue to be accounted for consistent with prior years as described in the paragraph above.
netWe recognize revenue from the satisfaction of performance obligations under our PPAs and Managed Services Financings as the electricity is provided over the term of the agreement in the amount invoiced, which reflects the amount of consideration to which we have the right to invoice and which corresponds to the value transferred under such arrangements.
Contract Modifications
Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. If the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date.
Deferred Revenue
We recognize a contract liability (referred to as deferred gross profitrevenue in itsour condensed consolidated financial statements) when we have an obligation to transfer products or services to a customer in advance of us satisfying a performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The related cost of such product is deferred as a component of deferred cost of revenue in the condensed consolidated balance sheet as deferred income and amortizessheets. Prior to shipment of the deferred income overproduct or the leaseback term as a reduction tocommencement of performance of maintenance services, any prepayment made by the leaseback rental expense included in operating leases.
In connection with the Company’s common stock award agreement with a managed services customer the share issuances areis recorded as a reductioncustomer deposit. Deferred revenue related to material rights for options to renew are recognized in revenue over the maintenance services period.
A description of the principal activities from which we recognize cost of revenues associated with each of our revenue streams are classified as follows:
Cost of Product Revenue - Cost of product revenue whenconsists of costs of our Energy Servers that we sell to direct purchase, including financing partners on Third-Party PPAs, international channel providers and traditional lease customers. It includes costs paid to our materials suppliers, direct labor, manufacturing and other overhead costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs of our equipment. For Energy Servers sold to customers pending
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installation, milestones are achievedwe provide warranty reserves as a part of product costs for the period from transfer of controls of Energy Servers to commencement of operations.
Cost of Installation Revenue - Cost of installation revenue primarily consists of the costs to install our Energy Servers that we sell to direct purchase, including financing partners on Third-Party PPAs and are recorded as additional paid-in capital whentraditional lease customers. It includes cost of materials and service providers, personnel costs, shipping costs and allocated costs.
Cost of Service Revenue - Cost of service revenue consists of costs incurred under maintenance service contracts for all customers. It includes personnel costs for our customer support organization, certain allocated costs, and extended maintenance-related product repair and replacement costs.
Cost of Electricity Revenue - Cost of electricity revenue primarily consists of the shares are issued.depreciation of the cost of the Energy Servers owned by us or the consolidated PPA Entities and the cost of gas purchased in connection with our first PPA Entity. The cost of electricity revenue is generally recognized over the term of the Managed Services Agreement or customer’s PPA contract. The cost of depreciation of the Energy Servers is reduced by the amortization of any U.S. Treasury Department grant payment in lieu of the energy investment tax credit associated with these systems.
Revenue Recognized from Power Purchase Agreement Programs (SeePortfolio Financings Through PPA Entities (See Note 12)11 - Portfolio Financings)
In 2010, the Companywe began offering itsselling our Energy Servers through its Bloom Electrons financing program.to tax equity partnerships in which we held an equity interest as a managing member, or a PPA Entity. This program iswas financed via special purpose Investment Company andby the sale of an Operating Company referredcounter-party to asa portfolio of PPAs to a PPA Entity, and are owned partly by the Company and partly by third-party investors.Entity. The investors in a PPA Entity contribute cash to the PPA Entity in exchange for theiran equity interest, which then allows the PPA Entity to purchase the Operating Company and the Energy Server fromServers contemplated by the portfolio of PPAs owned by such Operating Company.
The cash contributions held are classified as short-term or long-term restricted cash according to the terms of each power purchase agreement (PPA).PPA Entity's governing documents. As the Company identifies endwe identified customers, the PPA Entity entersOperating Company entered into a PPA with the end customer pursuant to which the customer agreesagreed to purchase the power generated by theone or more Energy ServerServers at a specified rate per kilowatt hour for a specified term, which can range from 10 to 21 years. The Operating Company, wholly owned by the PPA Entity, typically entersentered into a maintenance services agreement with the Companyus following the first year of service to extend the warranty servicestandard one-year performance warranties and performance guarantees.guaranties. This intercompany arrangement is eliminated inon consolidation. Those power purchase agreementsPPAs that qualify as leases are classified as either sales-type leases or operating leases and those that do not qualify as leases are classified as tariff agreements.agreements or revenue arrangements with customers. For botharrangements classified as operating leases, and tariff agreements, or revenue arrangements with customers, income is recognized as contractual amounts are due when the electricity is generated.generated and presented within electricity revenue on the condensed consolidated statements of operations.
Sales-TypeSales-type Leases - Certain arrangementsPortfolio Financings with PPA Entities entered into by certain Operating Companies, including Bloom Energy 2009 PPA Project Company, LLC (PPA I), 2012 ESA Project Company, LLC (PPA Company IIIa) and 2013B ESA Project Company, LLC (PPA Company IIIb), qualifyprior to our adoption of ASC 842 qualified as sales-type leases in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 840, Leases (ASC 840).ASC 840. The Company isclassification for such arrangements were carried over and accounted for as sales-type leases under ASC 842. We are responsible for the installation, operation and maintenance of the Energy Servers at the customers' sites, including running the Energy Servers during the term of the PPA which ranges from 10 to 15 years. Based on the terms of the customer contracts, the CompanyPPAs, we may also be obligated to supply fuel for the Energy Servers. The amount billed for the delivery of the electricity to PPA I’s customers primarily consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue for certain arrangements.
The Company is obligated to supply fuel to the Energy Servers that deliver electricity under the PPA I agreements. Based on the customer offtake agreements, the customers pay an all-inclusive rate per kWh of electricity produced by the Energy Servers. The consideration received under the PPA I agreements primarily consists of returns on the amounts financed including interest revenue, service revenue and fuel revenue.
As the Power Purchase Agreement ProgramsPortfolio Financings through PPA Entities entered into prior to our adoption of ASC 842 contain a lease, the consideration received is allocated between the lease elements (lease of property and related executory costs) and non-lease elements (other products and services, excluding any derivatives) based on relative fair value in accordance with ASC 605-25-13A (b).value. Lease elements include the leased system and the related executory costs (i.e. installation of the system, electricity generated by the system, maintenance costs). Non-lease elements include service, fuel and interest related to the leased systems.
Service revenue and fuel revenue are recognized over the term of the PPA as electricity is generated. TheFor those transactions that contain a lease, the interest component related to the leased system is recognized as interest revenue over the life of the lease term. The customer has the option to purchase the Energy Servers at the then fair market value at the end of the PPA contract term.
Service revenue related to sales-type leases of $0.9 million and $1.0 million for the three months ended June 30, 2018 and 2017, respectively, and service revenue of $1.8 million and $2.1 million for the six months ended June 30, 2018 and 2017, respectively, is included in electricity revenue in the condensed consolidated statements of operations. Fuel revenue of $0.1 million and $0.3 million forWe have not entered into any new Portfolio Financing arrangements through PPA Entities during the last three months ended June 30, 2018 and 2017, respectively, and fuel revenue of $0.3 million and $0.5 million for the six months ended June 30, 2018 and 2017, respectively, is included in electricity revenue in the consolidated statements of operations. Interest revenue of $0.4 million and $0.5 million for the three months ended June 30, 2018 and 2017, respectively, and interest revenue of $0.8 million and $1.0 million for the six months ended June 30, 2018 and 2017, respectively, is included in electricity revenue in the consolidated statements of operations.years.
Product revenue associated with the sale of the Energy Servers under the PPAs that qualify as sales-type leases is recognized at the present value of the minimum lease payments, which approximates fair value, assuming all other conditions for revenue recognition noted above have also been met. A sale is typically recognized as revenue when an Energy Server begins generating electricity and has been accepted, which is consistent across all purchase options in that acceptance generally occurs after the Energy Server has been installed and is running at full power as defined in each contract. There was no product revenue recognized under sales-type leases for the three and six months ended June 30, 2018 and 2017.
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Operating Leases - Certain Power Purchase Agreement Program leasesPortfolio Financings with PPA Entities entered into by PPA Company IIIa, PPA Company IIIb, 2014 ESA Holdco, LLC (PPA Company IV) and 2015 ESA Holdco, LLC (PPA Company V)prior to the adoption of ASC 842 that arewere deemed leases in substance, but dodid not meet the criteria of sales-type leases or direct financing leases in accordance with ASC 840, arewere accounted for as operating leases. The classification for such arrangements were carried over and accounted for as operating leases under ASC 842. Revenue under these arrangements is recognized as electricity sales and service revenue and is provided to the customer at rates specified under the contracts. During the three months ended June 30, 2018 and 2017, revenue from electricity sales amounted to $7.7 million and $7.1 million, respectively. During the six months ended June 30, 2018 and 2017, revenue from electricity sales amounted to $15.4 million and $14.2 million, respectively. During the three months ended June 30, 2018 and 2017, service revenue amounted to $3.8 million and $3.9 million, respectively. During the six months ended June 30, 2018 and 2017, service revenue amounted to $7.6 million and $7.8 million, respectively.PPAs.
Tariff Agreement - PPA Company II entered into an agreement with Delmarva, PJM Interconnection, (PJM), a regional transmission organization, and the State of Delaware under which PPA Company II provides the energy generated from its Energy Servers to PJM and receives a tariff as collected by Delmarva.
Revenue at the tariff rate is recognized as electricity sales and service revenue as it is generated over the term of the arrangement. Revenue relating to power generation at the Delmarva site of $5.7 million and $5.8 million for three months ended June 30, 2018 and 2017, respectively, and revenue relating to power generation at the Delmarva sites of $11.5 million and $11.6 million for the six months ended June 30, 2018 and 2017, respectively, is included in electricity sales in the consolidated statements of operations. Revenue relating to power generation at the Delmarva site of $3.4 million and $3.4 million for the three months ended June 30, 2018 and 2017, respectively, and revenue relating to power generation at the Delmarva sites of $6.9 million and $6.9 million for the six months ended June 30, 2018 and 2017, respectively, is included in service revenue in the consolidated statements of operations.
Incentives and Grants
Self-Generation Incentive Program (SGIP) - The Company’s PPA Entities’ customers receive payments under the SGIP, which is a program specific to the State of California that provides financial incentives for the installation of new and qualifying self-generation equipment that the Company owns. The SGIP funds are assigned to the PPA Entities by the customers and are recorded as other current assets and other long-term assets until received. For sales-type leases, the benefit of the SGIP funds are recorded as deferred revenue which is recognized as revenue when the Energy Server is accepted. For operating leases, the benefit of the SGIP funds are recorded as deferred revenue which is amortized on a straight-line basis over the PPA contract period. The SGIP program issues 50% of the fully anticipated amount in the first year the equipment is placed into service. The remaining incentive is then paid based on the size of the equipment (i.e., nameplate kilowatt capacity) over the subsequent five years. The SGIP program has operational criteria primarily related to fuel mixture and minimum output for the first five years after the qualified equipment is placed in service. If the operational criteria are not fulfilled, it could result in a partial refund of funds received. The SGIP program will expire on January 1, 2021.
The Company received $0.6 million and $1.0 million of SGIP funds for the three months ended June 30, 2018 and 2017, and $0.8 million and $1.7 million for the six months ended June 30, 2018 and 2017, respectively. There were no reductions or refunds of SGIP funds during the three and six months ended June 30, 2018 and 2017, and no accrual has been made for a refund of any incentives.
The Company makes SGIP reservations on behalf of certain of the PPA Entities. However, the PPA Entity receives the SGIP funds directly from the program and, therefore, bears the risk of loss if these funds are not paid.
U.S. Treasury Grants - The Company is eligible for U.S. Treasury grants on eligible property as defined under Section 1603 of the American Recovery and Reinvestment Act of 2009. However, to be eligible for the U.S. Treasury grants, a fuel cell system must have commenced construction in 2011 either physically or through the occurrence of sufficient project costs. For fuel cell systems under Power Purchase Agreement Programs, U.S. Treasury grants are considered a component of minimum lease payments. For fuel cell systems deployed under tariff legislation, the Company recorded the fuel cell systems net of the U.S. Treasury grants. U.S. Treasury grant receivables are classified as other current assets in the Company’s consolidated balance sheets. For operating leases, the benefit of the U.S. Treasury grant is recorded as deferred revenue and is amortized on a straight-line basis over the PPA contract period. No such grants have been accrued or received in the six months ended June 30, 2018 and 2017.
Investment Tax Credits (ITC) - Through December 31, 2016, the Company’s Energy Servers were eligible for federal investment tax credits, or ITCs, that accrued to eligible property under Internal Revenue Code Section 48. Under the Company's Power Purchase Agreement Programs, ITCs are primarily passed through to Equity Investors. Approximately 1% to 10% of the incentives are received by the Company, with the balance distributed to the remaining Equity Investors of the PPA Entity. These incentives are accounted for under the flow-through method. Subsequently, on February 9, 2018, the U.S. Congress passed legislation to extend the federal investment tax credits for fuel cell systems retroactive to January 1, 2017. Due

to the reinstatement of ITC in 2018, the benefit of ITC to total revenue for product accepted was a $46.5 million benefit in the six months ended June 30, 2018 which included $44.9 million of product revenue benefit related to the retroactive ITC for 2017 acceptances.
The ITC program has operational criteria for the first five years after the qualified equipment is placed in service. If the qualified energy property is disposed of, or otherwise ceases to be investment credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives. No ITC recapture has occurred during the three and six months ended June 30, 2018 and 2017.
Renewable Energy Credits (RECs) - RECs are tradeable energy credits that represent 1 megawatt hour of electricity generated from an eligible renewable energy resource generated in the U.S. RECs are primarily ‘held for use’ and are presented as part of other current assets and other long-term assets in the consolidated balance sheets until the RECs are sold and accounted for as revenue. The Company accounts for such RECs as output from the facility where they originate. The Company values these RECs at the lower of cost or market at the end of each reporting period.
To the extent the PPA Entities do not produce enough RECs to satisfy the requirements under certain of the Company’s PPA Entities’ PPAs, the Company may also acquire RECs under stand-alone purchase agreements with third parties to satisfy these REC obligations. Under PPAs with certain customers, the Company’s PPA Entities are required to deliver a specified quantity of biogas RECs or Western Electricity Coordinating Council (WECC) RECs. In order to meet these obligations, the Company’s PPA Entities may enter into REC purchase agreements with third parties to purchase a fixed quantity of the relevant RECs at a fixed price and on a fixed schedule. The PPA Entities utilize the Western Renewable Energy Information System (WREGIS), an independent tracking system for the region covered by the WECC, which allows the PPA Entities to manage RECs purchased and deliver the RECs to satisfy the customer obligation. Purchased RECs used to satisfy customer obligations are recorded at cost and are presented as part of other current assets and other long-term assets in the consolidated balance sheets. Costs of RECs purchased are expensed as the Company’s obligation to provide such RECs to customers occurs.
The Company estimates the number of excess RECs it will ultimately acquire under the non-cancelable purchase contracts over the number required to satisfy its obligations to its customers. The Company records a purchase commitment loss if the fair value of RECs is less than the fixed purchase price amount. The purchase commitment loss is recorded on the consolidated balance sheets as a component of other current liabilities and other long-term liabilities.
Components of Revenue and Cost of Revenue
Revenue - The Company primarily recognizes revenue from the sale and installation of Energy Servers, the sales of electricity and by providing services under extended operations and under maintenance services contracts (together, service agreements).
Product Revenue - All of the Company’s product revenue is generated from the sale of the Company's Energy Servers to direct purchase and lease customers. The Company generally begins to recognize product revenue from contracts with customers for the sales of its Energy Servers once the Company achieves acceptance; that is, generally when the system has been installed and is running at full power as defined in each contract.
All of the Company’s product arrangements contain multiple elements representing a combination of revenue from Energy Servers, from installation and from maintenance services. Upon acceptance, the Company allocates fair value to each of these elements and the Company limits the amount of revenue recognized for delivered elements up to an amount that is not contingent upon future delivery of additional products or services or upon meeting any specified performance conditions. The sale of the Company’s Energy Servers also includes a standard one-year warranty, the estimated cost of which is recorded as a component of cost of product revenue.
Installation Revenue - All of the Company’s installation revenue is generated from the sale and installation of the Company's Energy Servers to direct purchase and lease customers. The Company generally begins to recognize installation revenue from contracts with customers for the sales of its Energy Servers once the Company achieves acceptance; that is, generally when the system has been installed and running at full power.
Service Revenue - Service revenue is generated from operations and maintenance services agreements that extend the standard one-year warranty coverage beyond the initial first year for Energy Servers sold under direct purchase, traditional lease and managed services sales. Customers can renew these agreements on an annual basis. Revenue is recognized ratably over the term of the renewed one-year service period. The Company anticipates that almost all of its customers will continue to renew their maintenance services agreement each year.
Electricity Revenue - The Company’s PPA Entities purchase Energy Servers from the Company and sell electricity produced by these systems to customers through long-term power purchase agreements (PPAs). Customers are required to

purchase all of the electricity produced by the Energy Servers at agreed-upon rates over the course of the PPA's contractual term. The Company recognizes revenue from the PPAs as the electricity is provided over the term of the agreement.
Cost of Product Revenue - Cost of product revenue consists of costs of Energy Servers that the Company sells to direct and lease customers, and includes costs paid to the Company’s materials suppliers, personnel costs, certain allocated costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs of the Company’s equipment. Estimated standard one-year warranty costs are also included in cost of product revenue, see Warranty Costs below.
Cost of Installation Revenue - Cost of installation revenue consists of the costs to install the Energy Servers that the Company sells to direct and lease customers, and includes costs paid to the Company’s materials and service providers, personnel costs and allocated costs.
Cost of Service Revenue - Cost of service revenue consists of costs incurred under maintenance service contracts for all customers including direct sales, lease and Power Purchase Agreement Program customers, and includes personnel costs for the Company’s customer support organization, certain allocated costs and extended maintenance-related product repair and replacement costs.
Cost of Electricity Revenue - Cost of electricity revenue primarily consists of the depreciation of the cost of the Energy Servers owned by the PPA Entities and the cost of gas purchased in connection with the Company’s first PPA Entity. The cost of electricity revenue is generally recognized over the term of the customer’s PPA contract. The cost of depreciation of the Energy Servers is reduced by the amortization of any U.S. Treasury Department grant payment in lieu of the energy investment tax credit associated with these systems.
Warranty Costs - The Company generally warrants its products sold to its direct customers for one year following the date of acceptance of the products (“standard one-year warranty”). Additionally, as part of its MSAs, the Company provides output and efficiency guarantees (collectively “performance guarantees”) to its customers which contractually guarantee specified levels of efficiency and output. Such amounts have not been material to date.
As part of both its standard one-year warranty and MSA obligations, the Company monitors the operations of the underlying systems, including their efficiency and output levels. The performance guarantee payments represent maintenance decisions made by the Company and are accounted for as costs of goods sold. To estimate the warranty costs, the Company continuously monitors product returns for warranty failures, and maintains the reserve for the related warranty expense based on various factors including historical warranty claims, field monitoring and results of lab testing. The Company’s obligations under its standard product warranty and MSAs are generally in the form of product replacement, repair or reimbursement for higher customer electricity costs. Further, if the Energy Servers run at a lower efficiency or power output than the Company committed under its performance guarantee, the Company will reimburse the customer for this underperformance. The Company’s obligation includes ensuring the customer’s equipment operates at least at the efficiency and power output levels set forth in the customer agreement. The Company’s aggregate reimbursement obligation for this performance guarantee for each order is capped at a portion of the purchase price.
The standard one-year warranty covers defects in materials and workmanship under normal use and service conditions, and against manufacturing or performance defects. The Company’s warranty accrual represents its best estimate of the amount necessary to settle future and existing claims during the warranty period as of the balance sheet date. The Company accrues for warranty costs based on estimated costs that may be incurred including material costs, labor costs and higher customer electricity costs should the units not work for extended periods. Estimated costs associated with standard one-year warranty, including the performance guarantee payments, are recorded at the time of sale as a component of costs of goods sold.
Shipping and Handling Costs - The Company records costs related to shipping and handling in cost of revenue.
Sales and Utility Taxes - The Company recognizes revenue on a net basis for taxes charged to its customers and collected on behalf of the taxing authorities.
Components of Operating Expenses
Advertising and Promotion Costs - Expenses related to advertising and promotion of products are charged to sales and marketing expense as incurred. The Company did not incur any material advertising or promotion expenses during the three and six months ended June 30, 2018 and 2017.
Research and Development - The Company conducts internally funded research and development activities to improve anticipated product performance and reduce product life-cycle costs. Research and development costs are expensed as incurred and include salaries and expenses related to employees conducting research and development.

Stock-Based Compensation - The Company accounts for stock options and restricted stock units (RSUs) awarded to employees and non-employee directors under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718 - Compensation-Stock Compensation (ASC 718) using the Black-Scholes valuation model to estimate fair value. The Black-Scholes valuation model requires the Company to make estimates and assumptions regarding the underlying stock’s fair value, the expected life of the option and RSU, the risk-free rate of return interest rate, the expected volatility of the Company's common stock price and the expected dividend yield. In developing estimates used to calculate assumptions, the Company establishes the expected term for employee options and RSUs, as well as expected forfeiture rates, based on the historical settlement experience and after giving consideration to vesting schedules. Forfeitures are estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from initial estimates. Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. Previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when the forfeitures occurred. The Company typically records stock-based compensation expense under the straight-line attribution method over the vesting term, which is generally five years, and records stock-based compensation expense for performance based awards using the graded-vesting method. Stock-based compensation expense is recorded in the consolidated statements of operations based on the employees’ respective function.
Stock-based compensation cost for RSUs is measured based on the fair value of the underlying shares on the date of grant. Up to June 30, 2018, RSUs were subject to a time-based vesting condition and a performance-based vesting condition, both of which require satisfaction before the RSUs were vested and settled for shares of common stock. The performance-based condition was tied to a liquidity event such as a sale event or the completion of the Company’s IPO. The time-based condition ranges between six months to two years from the end of the lock-up period after a liquidity event. Subsequent to June 30, 2018, RSUs are only subject to a time-based vesting condition. No expense related to these awards will be recognized unless the performance condition is satisfied.
Compensation expense for equity instruments granted to non-employees is measured on the date of performance at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense for equity instruments granted to non-employees is periodically remeasured as the underlying instruments vest. The fair value of the equity instruments is charged to earnings over the term of the service agreement.
The Company records deferred tax assets for awards that result in deductions on the Company’s income tax returns, unless the Company cannot realize the deduction (i.e., the Company is in a net operating loss (NOL) position), based on the amount of compensation cost recognized and the Company’s statutory tax rate. Beginning in the first quarter of fiscal 2017 with the adoption of ASU 2016-09 on a prospective basis, stock-based compensation excess tax benefits or deficiencies are reflected in the consolidated statements of operations as a component of the provision for income taxes. No tax benefit or expense for stock-based compensation has been recorded for the three and six months ended June 30, 2018 and 2017, since the Company remains in an NOL position.
Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates for the inputs used in the Black-Scholes valuation model to calculate the grant-date fair value of stock options. The Company used the following weighted-average assumptions in applying the Black-Scholes valuation model:
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2018 2017 2018 2017
       
Risk-free interest rate 2.73%—2.77%
 2.01% - 2.07%
 2.49% - 2.77%
 2.01% - 2.07%
Expected term (in years) 6.21—6.69
 6.12—6.62
 6.18—6.69
 6.08—6.62
Expected dividend yield —
 —
 —
 —
Expected volatility 54.6% 59.8% 54.6% -55.1%
 59.8% - 61.0%
The risk free interest rate for periods within the contractual life of the option is based on the U.S. Treasury zero coupon issues in effect at the grant date for periods corresponding with the expected term of option. The Company’s estimate of an expected term is calculated based on the Company’s historical share option exercise data. The Company has not and does not expect to pay dividends in the foreseeable future. The estimated stock price volatility is derived based on historical volatility of the Company’s peer group, which represents the Company’s best estimate of expected volatility.
The amount of stock-based compensation recognized during a period is based on the value of that portion of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. The Company reviews historical forfeiture data and determines

the appropriate forfeiture rate based on that data. The Company reevaluates this analysis periodically and adjusts the forfeiture rate as necessary and ultimately recognizes the actual expense over the vesting period only for the shares that vest.
Refer to Note 11 - Stock-Based Compensation and Employee Benefits for further discussion of the Company’s stock-based compensation arrangements.
Income Taxes - The Company accounts for income taxes using the liability method under Financial Accounting Standards Board Accounting Standards Codification Topic 740 - Income Taxes (ASC 740). Under this method, deferred tax assets and liabilities are determined based on net operating loss carryforwards, research and development credit carryforwards and temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred items are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. Additionally, the Company must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. The Company has provided a full valuation allowance on its deferred tax assets because it believes it is more likely than not that its deferred tax assets will not be realized.
The Company follows the accounting guidance in ASC 740-10, which requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured pursuant to ASC 740-10 and the tax position taken or expected to be taken on the Company’s tax return. To the extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination is made. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite the Company’s belief that the tax return positions are fully supportable. The reserves are adjusted in light of changing facts and circumstances such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
Comprehensive Loss - The Company’s comprehensive loss is comprised of the Company’s net loss and unrealized gains (losses) on the remeasurement of the effective portion of the Company’s interest rate swap agreements to fair value and on the Company’s available for sale securities.
Fair Value Measurement
Financial Accounting Standards Board Accounting Standards Codification Topic 820 - Fair Value Measurements and Disclosures (ASC 820), defines fair value, establishes a framework for measuring fair value under US GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1Quoted prices in active markets for identical assets or liabilities. Financial assets utilizing Level 1 inputs typically include money market securities and U.S. Treasury securities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments utilizing Level 2 inputs include interest rate swaps.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Financial liabilities utilizing Level 3 inputs include natural gas fixed price forward contract derivatives, warrants issued to purchase the Company’s preferred stock and embedded derivatives bifurcated from convertible notes. Derivative liability valuations are performed based on a binomial lattice model and adjusted for illiquidity and/or nontransferability and such adjustments are generally based on available market evidence.
Components of Balance Sheet
Cash, Cash Equivalents, Short-Term Investments and Restricted Cash - The Company considers highly liquid short-term investments with original maturities of 90 days or less at the date of purchase as cash equivalents.

The Company considers highly liquid investments with original maturities of greater than 90 days at the date of purchase as short-term investments. Short-term investments are reported at fair value with unrealized gains or losses, net of tax, recorded in accumulated other comprehensive income (loss). The specific identification method is used to determine the cost of any securities disposed with any realized gains or losses recognized as income or expense in condensed consolidated statements of operations. Short-term investments are anticipated to be used for current operations and are, therefore, classified as available-for-sale in current assets even though their maturities may extend beyond one year. The Company periodically reviews short-term investments for impairment. In the event a decline in value is determined to be other-than-temporary, an impairment loss is recognized. When determining if a decline in value is other-than-temporary, the Company takes into consideration the current market conditions and the duration and severity of and the reason for the decline as well as considering the likelihood that it would need to sell the security prior to a recovery of par value.
As of June 30, 2018, short-term investments were comprised of $15.7 million of U.S. Treasury Bills. As of December 31, 2017, short-term investments were comprised of $26.8 million of U.S. Treasury Bills. The costs of these securities approximated their fair values and there were no material gross realized or unrealized gains, gross realized or unrealized losses or impairment for the periods ended June 30, 2018 and December 31, 2017. As of June 30, 2018, all investments were scheduled to mature within the next twelve months.
Restricted cash is held as collateral to provide financial assurance that the Company will fulfill commitments related to its power purchase agreement financings, its debt service reserves, its maintenance service reserves and its facility lease agreements. Restricted cash that is expected to be used within one year of the balance sheet date is classified as a current asset, whereas restricted cash expected to be used more than a year from the balance sheet date is classified as a non-current asset.
Derivative Financial Instruments - The Company enters into derivative forward contracts to manage its exposure relating to the fluctuating price of fuel under certain of its power purchase agreements entered in connection with the Bloom Electrons program (refer to Note 12 - Power Purchase Agreement Programs). In addition, the Company enters into fixed forward swap arrangements to convert variable interest rates on debt to a fixed rate. The Company also issued derivative financial instruments embedded in its 6% Notes as a means by which to provide additional incentive to investors and to obtain a lower cost cash-source of funds.
Derivative transactions are governed by procedures covering areas such as authorization, counterparty exposure and hedging practices. Positions are monitored based on changes in the spot price in the commodity market and their impact on the market value of derivatives. Credit risk on derivatives arises from the potential for counterparties to default on their contractual obligations to the Company. The Company limits its credit risk by dealing with counterparties that are considered to be of high credit quality. The Company does not enter into derivative transactions for trading or speculative purposes.
The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value on the consolidated balance sheets. Changes in the fair value of the derivatives that qualify and are designated as cash flow hedges are recorded in accumulated other comprehensive loss on the consolidated balance sheets and for those that do not qualify for hedge accounting or are not designated as hedges are recorded through earnings in the consolidated statements of operations.
While the Company hedges certain of its natural gas requirements under its power purchase agreements, it has not designated these forward contracts as hedges for accounting purposes. Therefore, the Company records the change in the fair value of its forward contracts in cost of revenue on the consolidated statements of operations. The fair value of the forward contracts is recorded on the consolidated balance sheets as a component of accrued other current liabilities and derivative liabilities. As the forward contracts are considered economic hedges, the changes in the fair value of the forward contracts are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
The Company’s interest rate swap arrangements qualify as cash flow hedges for accounting purposes as they effectively convert variable rate obligations into fixed rate obligations. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change is recorded in accumulated other comprehensive loss and will be recognized as interest expense on settlement. Ineffectiveness is recorded in other income (expense), net. If a cash flow hedge is discontinued due to changes in the forecasted hedged transactions, hedge accounting is discontinued prospectively and unrealized gain or loss on the related derivative is recorded in accumulated other comprehensive loss and is reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The fair value of the swap arrangement is recorded on the consolidated balance sheets as a component of accrued other current liabilities and derivative liabilities. The changes in fair value of swap agreement are classified as operating activities within the statement of cash flows, which is consistent with the classification of the cash flows of the hedged item.
The Company issued convertible notes with conversion features. These conversion features were evaluated under ASC topic 815-40, were determined to be embedded derivatives and were bifurcated from the debt and are classified as liabilities on

the consolidated balance sheets. The Company records these derivative liabilities at fair value and adjusts the carrying value to their estimated fair value at each reporting date with the increases or decreases in the fair value recorded as a gain (loss) on revaluation of warrant liabilities and embedded derivatives in the consolidated statements of operations.
Customer Financing Receivables - Leases are classified as either operating or sales-type leases in accordance with the relevant accounting guidelines. Customer financing receivables are generated by Energy Servers leased to PPA Entities’ customers in leasing arrangements that qualify as sales-type leases. Financing receivables represents the gross minimum lease payments to be received from customers and the system’s estimated residual value, net of unearned income and allowance for estimated losses. Initial direct costs for sales-type leases are recognized as cost of revenue when the Energy Servers are placed in service.
The Company reviews its customer financing receivables by aging category to identify significant customer balances with known disputes or collection issues. In determining the allowance, the Company makes judgments about the creditworthiness of a majority of its customers based on ongoing credit evaluations. The Company also considers its historical level of credit losses and current economic trends that might impact the level of future credit losses. The Company writes off customer financing receivables when they are deemed uncollectible. The Company has not had to maintain an allowance for doubtful accounts to reserve for potentially uncollectible customer financing receivables as historically all of its receivables on the consolidated balance sheets have been paid and are expected to be paid in full.
Accounts Receivable - Accounts receivable primarily represents trade receivables from sales to customers recorded at net realizable value. As the Company does for its customer financing receivables, the Company reviews its accounts receivable by aging category to identify significant customer balances with known disputes or collection issues. In determining the allowance, the Company makes judgments about the creditworthiness of a majority of its customers based on ongoing credit evaluations. The Company also considers its historical level of credit losses and current economic trends that might impact the level of future credit losses. The Company writes off accounts receivable when they are deemed uncollectible. The Company has not had to maintain an allowance for doubtful accounts to reserve for potentially uncollectible accounts receivable as historically all of its receivables on the consolidated balance sheets have been paid and are expected to be paid in full.
Inventories - Inventories consist principally of raw materials, work-in-process and finished goods and are stated on a first-in, first-out basis at the lower of cost or net realizable value.
The Company records inventory excess and obsolescence provisions for estimated obsolete or unsellable inventory, including inventory from purchase commitments, equal to the difference between the cost of inventory and estimated net realizable value based upon assumptions about market conditions and future demand for product generally expected to be utilized over the next 12 to 24 months, including product needed to fulfill the company’s warranty obligations. If actual future demand for the Company’s products is less than currently forecasted, additional inventory provisions may be required. Once a provision is recorded, it is maintained until the product to which it relates to is sold or otherwise disposed. The inventory reserves were $14.1 million and $15.7 million as of June 30, 2018 and December 31, 2017, respectively.
Property, Plant and Equipment - Property, plant and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation. Energy Servers are depreciated to their residual values over the terms of the power purchase and tariff agreements. Leasehold improvements are depreciated over the shorter of the lease term or their estimated depreciable lives. Buildings are amortized over the shorter of the lease or property term or their estimated depreciable lives.
Depreciation is calculated using the straight-line method over the estimated depreciable lives of the respective assets as follows:
Depreciable Lives
Energy Servers15-21 years
Computers, software and hardware3-5 years
Machinery and equipment5-10 years
Furniture and fixtures3-5 years
Leasehold improvements1-5 years
Buildings35 years
When assets are retired or disposed, the assets and related accumulated depreciation and amortization are removed from the Company's general ledger and the resulting gain or loss is reflected in the consolidated statements of operations.
Foreign Currency Transactions -
The functional currencycurrencies of the Company’smost of our foreign subsidiaries isare the U.S. dollar since theythe subsidiaries are considered financially and operationally integrated. Foreignintegrated with their domestic parent. For these subsidiaries, the foreign currency monetary assets and liabilities are remeasured

into U.S. dollars at end-of-period exchange rates. Nonmonetary assets and liabilities such as property, plant and equipment and equity are remeasured at historical exchange rates. Revenue and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the previously noted balance sheet amounts which are remeasured at historical exchange rates. TransactionAny currency transaction gains and losses are included as a component of other expense net in the Company’sour condensed consolidated statements of operations and have not been significant for all periods presented.operations.
Convertible Preferred Stock Warrants - The Company accounts for freestanding warrants to purchase sharesfunctional currency of our joint venture in the Republic of Korea is the local currency, the South Korean won ("KRW"), since the joint venture is financially independent of its convertible preferred stockU.S. parent and the KRW is the currency in which the joint venture generates and expends cash. Assets and liabilities of this entity are translated at the rate of exchange at the balance sheet date. Revenue and expenses are translated at the weighted average rate of exchange during the period. For this entity, translation adjustments resulting from the process of translating the KRW financial statements into U.S. dollars are included in other comprehensive loss. Translation adjustments attributable to noncontrolling interests are allocated to and reported as liabilities onpart of the consolidated balance sheets at fair value upon issuance. The convertible preferred stock warrants are recorded as a liability because the underlying shares of convertible preferred stock are contingently redeemable which, therefore, may obligate the Company to transfer assets at some pointnoncontrolling interests in the future. The warrants are subject to remeasurement to fair value at each balance sheet date or immediately before exercise of the warrants. Any change in fair valuecondensed consolidated financial statements.
Goodwill
Goodwill is recognized in conjunction with business acquisitions as the consolidated statements of operations. The Company’s convertible preferred stock warrants will continue to be remeasured until the earlierexcess of the exercise or expirationpurchase consideration for the business acquisition over the fair value of warrants, theidentifiable assets acquired and liabilities assumed. The fair value of identifiable assets and liabilities, and thus goodwill, is subject to redetermination within a measurement period of up to one year following completion of a deemed liquidation event,business acquisition.
Goodwill is tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. We acquired the remaining noncontrolling equity interest in our related party Bloom Energy Japan Limited as of July 1, 2021 and recognized goodwill of $1.7 million as of September 30, 2021.
Recent Accounting Pronouncements
Other than the adoption of the accounting guidance mentioned below, there have been no other significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.
Accounting Guidance Implemented in 2021
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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"). The new standard simplifies the accounting for convertible instruments by eliminating the conversion ofoption separation model for convertible preferred stock into common stock or untildebt that can be settled in cash and by eliminating the measurement model for beneficial conversion features. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted as early as fiscal years (including interim periods) beginning after December 15, 2020. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. There will no longer be a debt discount representing the difference between the carrying value, excluding issuance costs, and the principal of the convertible preferred stock candebt instrument and, as a result, there will no longer trigger a deemed liquidation event. At that time,be interest expense from the amortization of the debt discount over the term of the convertible preferred stock warrant liability willdebt instrument. The amendments in this update also require the if-converted method to be reclassifiedapplied for all convertible instruments when calculating diluted earnings per share.
We elected to convertible preferred stock or additional paid-in capital,early adopt ASU 2020-06 as applicable. These warrants were valuedof January 1, 2021 using the modified retrospective transition method, which resulted in a cumulative-effect adjustment to the opening balance of accumulated deficit on the date of issuance, using the Probability-Weighted Expected Return Model (PWERM). In accordance with ASC 480 - Distinguish Liability from Equity (ASC 480), these warrants are classified within warrant liability in the consolidated balance sheets.
Allocation of Profits and Losses of Consolidated Partnerships to Noncontrolling Interests - The Company generally allocates 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 PPE Entities. The determination of equity in earnings under the HLBV method requires management to determine how proceeds upon a hypothetical liquidation of the entity at book value would be allocated between its investors. The noncontrolling interests balance is presented as a component of permanent equity in the consolidated balance sheets. Noncontrolling interests with redemption features, such as put options, that are not solely within the Company’s control are considered redeemable noncontrolling interests. Exercisability of put options are solely dependent upon the passage of time, and hence, such put options are considered to be probable of becoming exercisable. The Company elected to accrete changes in the redemption value over theadoption. Prior period from the date it becomes probable that the instrument will become redeemable to the earliest redemption date of the instrument using an interest method. The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redeemable noncontrolling interests are in the temporary equity section in the mezzanine section of the consolidated balance sheets as redeemable noncontrolling interests. Refer to Note 12 - Power Purchase Agreement Programs for more information.
For income tax purposes, the Equity Investor committed to invest in the PPE Entities receives a greater proportion of the share of losses and other income tax benefits. This includes the allocation of investment tax credits which are distributed to the Equity Investor through an Investment Company subsidiary of the Company. Allocations are initially based on the terms specified in each respective partnership agreement until the Equity Investor’s targeted rate of return specified in the partnership agreement is met (the "flip" of the flip structure) whereupon the allocations change. In some cases, after the Equity Investors receive their contractual rate of return, the Company receives substantially all of the remaining value attributable to the long-term recurring customer payments and the other incentives.
Recent Accounting Pronouncements
Revenue Recognition - In May 2014, the FASB issued guidance which will replace numerous requirements in US GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date by one year to December 15, 2018 for annual reporting periods beginning after that date. The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016. During 2016, the FASB issued several amendments to the standard, including clarification to the guidance on reporting revenues as a principal versus an agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability, presentation of sales taxes, impairment testing for contract costs and disclosure of performance obligations.
The two permitted transition methods under the new standard are (1) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, and the cumulative effect of applying the standard would be recognized at the earliest period shown, or (2) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company is in the process of assessing the

impact on the Company’scondensed consolidated financial statements were not restated upon adoption.
Upon adoption of ASU 2020-06, we combined the previously separated equity component with the liability component of our 2.5% Green Convertible Senior Notes due August 2025. These components are now together classified as recourse debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs
18

previously allocated to equity was reclassified to debt and whether it will adoptbe amortized as interest expense. Accordingly, we recorded a decrease to accumulated deficit of $5.3 million, a decrease to additional paid-in capital of $126.8 million, and an increase to recourse debt, non-current of approximately $121.5 million.
There is no deferred tax impact related to the adoption of ASU 2020-06 due to our full retrospective or modified retrospective approach.valuation allowance.
LeasesAccounting Guidance Not Yet Adopted
Cessation of LIBOR - In February 2016,March 2020, the FASB issued ASU 2016-02, Leases2020-04, Reference Rate Reform (Topic 842)848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which will replace most existing leaseprovides optional expedients for a limited period of time for accounting guidance in US GAAP. The core principle offor contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate ("LIBOR") or other reference rate expected to be discontinued. ASU 2020-04 is that an entity should recognize the rightseffective immediately and obligations resulting from leases as assetsmay be applied prospectively to contract modifications made and liabilities. ASU 2016-02 requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. ASU 2016-02 will be effective for the Company beginning in fiscal 2020, and requires the modified retrospective method of adoption. The Company is evaluating the impact of this guidancehedging relationships entered into or evaluated on its consolidated financial statements and disclosures.
Financial Instruments - In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The pronouncement was issued to provide more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. This pronouncement will be effective for the Company from fiscal year 2021. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognizedor before the effective date. The Company isDecember 31, 2022. We are currently evaluating the impact of the adoption of this updateASU 2020-04 on itsour consolidated financial statements.
Statement of Cash Flows Lessor with Variable Lease Payments - In August 2016,July 2021, the FASB issued ASU 2016-15, Classification ofNo. 2021-05, Leases (Topic 842): Lessors - Certain Cash Receipts and CashLeases with Variable Lease Payments (Topic 230) ("ASU 2021-05"), which clarifies the classification of the activity in the consolidated statements of cash flowsmodifies ASC 842 to require lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and how the predominant principle should be applied when cash receipts and cash paymentswould have more than one class of cash flows. This pronouncement will be effective for the Company from fiscal year 2019, with early adoption permitted. Adoption will be applied retrospectively to all periods presented. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.
Income Taxes - In October 2016, the FASB issued ASU 2016-16, Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), which requires that the entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.selling losses if they were classified as sales-type or direct financing leases. The amendments in this ASU 2021-05 are effective for public business entities in annual reporting periods beginning after December 15, 2017 and for the interim periods therein, and for all other entities in annual reporting periods beginning after December 15, 2018, and interim reporting periods in annual reporting periods beginning after December 15, 2019. Early adoption is permitted only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. The Company is currently evaluating the impact of its pending adoption of this standard on its consolidated financials.
Statement of Cash Flows - In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows—Restricted Cash (Topic 230), related to the presentation of restricted cash in the statement of cash flows. The pronouncement requires that a statement of cash flows explain the change during the period in cash, cash equivalents, and amounts generally described as restricted cash. Amounts generally described as restricted cash are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. Refer to Note 3 - Financial Instruments for more information. The Company elected to early adopt the updated guidance in January 2017 resulting in the application of its requirements to all applicable periods presented. The adoption of this guidance did not have an effect on the Company’s results of operations, financial position or liquidity, other than the presentation of restricted cash or restricted cash equivalents in the statements of cash flows. The Company elected to early adopt the updated guidance in January 2017 resulting in the application of its requirements to all applicable periods presented. The adoption of this guidance did not have an effect on the Company’s results of operations, financial position or liquidity, other than the presentation of restricted cash or restricted cash equivalents in the statements of cash flows.
Financial Instruments - In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features and Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Per the ASU, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The ASU is effective for public entities for fiscal years beginning after December 15, 20182021, and earlyinterim periods beginning after December 15, 2022. Early adoption is permitted. The Company has elected to early adoptWe are currently evaluating the ASU on January 1, 2018. Theimpact of the adoption of the standard did not have a material impactASU 2021-05 on the Company’sour consolidated financial statements.


3. Revenue Recognition
Contract Balances
The following table provides information about accounts receivables, contract assets, customer deposits and deferred revenue from contracts with customers (in thousands):

September 30,December 31,
 20212020
Accounts receivable$62,066 $96,186 
Contract assets27,745 3,327 
Customer deposits37,911 66,171 
Deferred revenue111,870 135,578 
Contract assets relate to contracts for which revenue is recognized upon transfer of control of performance obligations, however billing milestones have not been reached. Customer deposits and deferred revenue are payments received from customers or invoiced amounts prior to transfer of controls of performance obligations. Customer deposits are refundable fees until certain milestones are met.
Contract Assets
During the three months ended September 30, 2021, contract assets increased from $18.6 million to $27.7 million. Contract assets of $20.9 million were recognized when the transfers of controls of performance obligations were satisfied but the related billing milestones had not been met. Contract assets of $11.8 million from the beginning of the period were transferred to accounts receivable. During the three months ended September 30, 2020, contract assets increased from $3.0 million to $11.4 million. Contract assets of $8.4 million were recognized when the transfers of controls of performance obligations were satisfied but the related billing milestones had not been met. Contract assets of $0.1 million from the beginning of the period were transferred to accounts receivable.
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During the nine months ended September 30, 2021, contract assets increased from $3.3 million to $27.7 million. Contract assets of $24.4 million were recognized when the transfers of control of performance obligations were satisfied but the related billing milestones had not been met. During the nine months ended September 30, 2020, contract assets increased from $2.8 million to $11.4 million. Contract assets of $8.6 million were recognized when the transfers of control of performance obligations were satisfied but the related billing milestones had not been met. No contract asset balances from the beginning of the periods were transferred to accounts receivable.
Deferred Revenue
Deferred revenue activity, including deferred incentive revenue activity, during the three and nine months ended September 30, 2021 and 2020 consists of the following (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
 
Beginning balance$116,255 $169,253 $135,578 $175,455 
Additions175,423 166,504 541,519 464,135 
Revenue recognized(179,808)(178,713)(565,227)(482,546)
Ending balance$111,870 $157,044 $111,870 $157,044 
Disaggregated Revenue
We disaggregate revenue from contracts with customers into four revenue categories: (i) product, (ii) installation, (iii) services and (iv) electricity (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Revenue from contracts with customers: 
Product revenue $128,550 $131,076 $413,347 $346,832 
Installation revenue 22,172 26,603 53,710 73,060 
Services revenue 39,251 26,141 111,375 77,496 
Electricity revenue 804 344 2,107 488 
Total revenue from contract with customers190,777 184,164 580,539 497,876 
Revenue from contracts accounted for as leases:
Electricity revenue16,451 16,141 49,166 46,984 
Total revenue$207,228 $200,305 $629,705 $544,860 
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4. Financial Instruments
Cash, Cash Equivalents and Restricted Cash
The following table summarizes the Company’scarrying values of cash, and cash equivalents and restricted cash (in thousands):
  June 30,
2018		 December 31,
2017
         
  
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
         
Cash $58,492
 $58,492
 $101,356
 $101,356
Money market funds 91,380
 91,380
 79,256
 79,256
  $149,872
 $149,872
 $180,612
 $180,612
As reported        
Cash and cash equivalents $91,596
 $91,596
 $103,828
 $103,828
Restricted cash 58,276
 58,276
 76,784
 76,784
  $149,872
 $149,872
 $180,612
 $180,612
As of June 30, 2018approximate fair values and December 31, 2017, the Company had restricted cash of $58.3 million and $76.8 million, respectively,are as follows (in thousands):
  June 30,
2018		 December 31,
2017
     
Restricted cash related to PPA Entities $4,735
 $7,969
Restricted cash 21,125
 36,418
Restricted cash, current 25,860
 44,387
Restricted cash related to PPA Entities 27,604
 26,748
Restricted cash 4,812
 5,649
Restricted cash, non-current 32,416
 32,397
Total restricted cash $58,276
 $76,784
September 30,December 31,
 20212020
As Held:
Cash$291,830 $180,808 
Money market funds28,071 235,902 
$319,901 $416,710 
As Reported:
Cash and cash equivalents$121,861 $246,947 
Restricted cash198,040 169,763 
$319,901 $416,710 
Short-Term Investments
AsRestricted cash consisted of Junethe following (in thousands):
September 30,December 31,
 20212020
Current:  
Restricted cash$64,059 $26,706 
Restricted cash related to PPA Entities1
1,256 25,764 
Restricted cash, current65,315 52,470 
Non-current:
Restricted cash117,501 286 
Restricted cash related to PPA Entities1
15,224 117,007 
Restricted cash, non-current132,725 117,293 
$198,040 $169,763 
1 We have VIEs that represent a portion of the condensed consolidated balances recorded within the "restricted cash" and other financial statement line items in the condensed consolidated balance sheets (see Note 11 - Portfolio Financings). In addition, the restricted cash held in the PPA II and PPA IIIb entities as of September 30, 20182021, includes $34.2 million and $1.2 million of current restricted cash, respectively, and $65.2 million and $13.3 million of non-current restricted cash, respectively. The restricted cash held in the PPA II and PPA IIIb entities as of December 31, 2017, the Company had short-term investments in U.S. Treasury Bills of $15.72020, includes $20.3 million and $26.8$0.7 million of current restricted cash, respectively, and $88.4 million and $13.3 million of non-current restricted cash, respectively. These entities are not considered VIEs.
Derivative InstrumentsFactoring Arrangements
We sell certain customer trade receivables on a non-recourse basis under factoring arrangements with our designated financial institution. These transactions are accounted for as sales and cash proceeds are included in cash used in operating activities. We derecognized $113.9 million and $49.3 million of accounts receivable during the nine months ended September 30, 2021 and during fiscal year ended December 31, 2020, respectively, under these factoring arrangements. The Company has derivative financial instrumentscosts of factoring such accounts receivable on our condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 were not material.
21

5. Fair Value
Our accounting policy for the fair value measurement of cash equivalents, the fair value of contingent consideration related to business combinations, natural gas fixed price forward contracts, embedded Escalation Protection Plan ("EPP") derivatives and interest rate swaps. See Note 7 - Derivative Instruments swap agreements have not changed from the policies described in our Annual Report on Form 10-K for a full description of the Company's derivative financial instruments.

4. Fair Valueyear ended December 31, 2020.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below setsset forth, by level, the Company’sour financial assets that wereare accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):
  Fair Value Measured at Reporting Date Using
June 30, 2018 Level 1 Level 2 Level 3 Total
Assets        
Cash equivalents        
Money market funds $91,380
 $—
 $—
 $91,380
Short-term investments 15,703
 —
 —
 15,703
Bank loan swap agreements —
 912
 —
 912
  $107,083
 $912
 $—
 $107,995
Liabilities        
Derivatives        
Natural gas fixed price forward contracts $—
 $—
 $13,127
 $13,127
Embedded derivative on 6% promissory notes —
 —
 176,686
 176,686
Bank loan swap agreements —
 2,747
 —
 2,747
Stock warrants        
Preferred stock warrants —
 —
 2,369
 2,369
  $—
 $2,747
 $192,182
 $194,929
 Fair Value Measured at Reporting Date Using
September 30, 2021Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$28,071 $— $— $28,071 
$28,071 $— $— $28,071 
Liabilities
Contingent consideration$— $— $3,623 $3,623 
Derivatives:
Embedded EPP derivatives— — 7,186 7,186 
Interest rate swap agreements— 11,853 — 11,853 
$— $11,853 $10,809 $22,662 
  Fair Value Measured at Reporting Date Using
December 31, 2017 Level 1 Level 2 Level 3 Total
Assets        
Cash equivalents        
Money market funds $79,256
 $—
 $—
 $79,256
Short-term investments 26,816
 —
 —
 26,816
Bank loan swap agreements —
 52
 —
 52
  $106,072
 $52
 $—
 $106,124
Liabilities        
Derivatives        
Natural gas fixed price forward contracts $—
 $—
 $15,368
 $15,368
Embedded derivative on 6% promissory notes —
 —
 140,771
 140,771
Bank loan swap agreements —
 5,904
 —
 5,904
Stock warrants        
Preferred stock warrants —
 —
 9,825
 9,825
  $—
 $5,904
 $165,964
 $171,868

 Fair Value Measured at Reporting Date Using
December 31, 2020Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$235,902 $— $— $235,902 
$235,902 $— $— $235,902 
Liabilities
Derivatives:
Natural gas fixed price forward contracts$— $— $2,574 $2,574 
Embedded EPP derivatives— — 5,541 5,541 
Interest rate swap agreements— 15,989 — 15,989 
$— $15,989 $8,115 $24,104 
Money Market Funds - Money market funds are classified as Level 1 financial assets because they are valued using quoted market prices for identical securities.
Short-Term Investments - Short-term investments, whichsecurities and are comprised of U.S. Treasury Bills with maturities of 12 months or less, aretherefore classified as Level 1 financial assets because theyassets.
Natural Gas Fixed Price Forward Contracts - As of September 30, 2021, natural gas fixed price forward contracts were valued using a combination of factors including the counterparty's credit rating and estimates of future natural gas prices. The leveling of each financial instrument is reassessed at the end of each period and is based on pricing information received from third-party pricing sources. During 2021, we transferred natural gas forward contracts from Level 3 to Level 2. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria.
22

For the three months ended September 30, 2021 and 2020, we recognized an unrealized gain of $0.1 million and an unrealized gain of $0.7 million, respectively, as a result of a change in the fair value of our natural gas fixed price forward contracts during these periods. We realized gains of $0.1 million and $1.2 million for the three months ended September 30, 2021 and 2020, respectively, on the settlement of these contracts in cost of revenue on our condensed consolidated statements of operations.
For the nine months ended September 30, 2021 and 2020, we recognized an unrealized gain of $1.1 million and no unrealized gains or losses, respectively. We realized gains of $1.5 million and $3.7 million for the nine months ended September 30, 2021 and 2020, respectively, on the settlement of these contracts in cost of revenue on our condensed consolidated statements of operations.
Embedded Escalation Protection Plan Derivative Liability in Sales Contracts - We estimate the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo simulation model, which considers various potential electricity price curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. We have classified these derivatives as a Level 3 financial liability.
For the three months ended September 30, 2021 and 2020, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized loss of $0.2 million and an unrealized gain of $1.5 million, respectively, in (loss) gain on revaluation of embedded derivatives on our condensed consolidated statements of operations.
For the nine months ended September 30, 2021 and 2020, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized loss of $1.6 million and an unrealized gain of $2.2 million, respectively, in (loss) gain on revaluation of embedded derivatives on our condensed consolidated statements of operations.
The changes in the Level 3 financial liabilities during the nine months ended September 30, 2021 were as follows (in thousands):
Natural
Gas
Fixed Price
Forward
Contracts		Embedded EPP Derivative LiabilityTotal
Liabilities at December 31, 2019$6,968 $6,176 $13,144 
Settlement of natural gas fixed price forward contracts(4,503)— (4,503)
Changes in fair value109 (635)(526)
Liabilities at December 31, 20202,574 5,541 8,115 
Changes in fair value— 1,645 1,645 
Transfer from Level 3 to Level 2 in fair value hierarchy(2,574)— (2,574)
Liabilities at September 30, 2021$— $7,186 $7,186 
Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted market prices for identical securities.
Bank Loan Swap Agreements - The Company enters into interest rate swap agreements to swap variable interest payments on certain debt for fixed interest payments. The interest rate swapssimilar contracts and are therefore classified as Level 2 financial assets as quoted prices for similar liabilities are used for valuation.assets. Interest rate swaps are designed as hedging instruments and are recognized at

fair value on the Company'sour condensed consolidated balance sheets. As of JuneSeptember 30, 2018, $0.12021, we expect $2.7 million of the gainloss on the interest rate swaps accumulated in other comprehensive loss is expected to be reclassified into earnings in the next twelve12 months.
Natural Gas Fixed Price Forward Contracts - The Company enters into fixed price natural gas forward contracts. The following table provides the fair value of the Company’s natural gas fixed price contracts (dollars in thousands):
  June 30, 2018 December 31, 2017
  
Number of
Contracts
(MMBTU)(2)
 
Fair
Value
 
Number of
Contracts
(MMBTU)(2)
 
Fair
Value
       
Liabilities(1)        
Natural gas fixed price forward contracts (not under hedging relationships) 3,752
 $13,127
 4,332
 $15,368
         
(1) Recorded in other current liabilities and derivative liabilities in the consolidated balance sheets.
(2) One MMBTU is a traditional unit of energy used to describe the heat value (energy content) of fuels.
The natural gas fixed price forward contracts were valued at Level 3 as there were no observable inputs supported by market activity. The Company estimates the fair value of the contracts using a combination of factors including the Company’s credit rate and future natural gas prices.
For the three months ended June 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded gains of $0.8 million and $0.9 million, respectively, and recorded gains on the settlement of these contracts of $1.2 million, $1.1 million, respectively, in cost of revenue on the consolidated statement of operations. For the six months ended June 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded losses of $0.1 million and $0.7 million, respectively, and recorded gains on the settlement of these contracts of $2.3 million and $2.2 million, respectively, in cost of revenue on the consolidated statement of operations.
Embedded Derivative on 6% Convertible Promissory Notes - On December 15, 2015, the Company issued $160.0 million of 6% Convertible Promissory Notes (6% Notes) that mature in December 2020. In addition, on January 29, 2016 and September 20, 2016, the Company issued an additional $25.0 million and $75.0 million, respectively, of 6% Notes. The 6% Notes are convertible at the option of the holders at a conversion price per share equal to the lower of $46.37 and 75% of the offering price of the Company’s common stock sold in the IPO. The conversion feature is classified as an embedded derivative.
The valuation of the conversion feature was classified within Level 3 as it was valued using the binomial lattice method, which utilizes significant inputs that are unobservable in the market. Fair value was determined by estimated event dates from May 31, 2018 to June 30, 2019, estimated probabilities of likely events under the scenario which is based upon facts existing through the date of the Company's IPO, ITC tax credit renewed in February 2018, assumed event dates ranging from 5.0% to 35.0%, estimated maturity dates on December 1, 2020, estimated volatility of 40% to 50%, estimated common stock prices at estimated event dates ranging from $15 to $26, and risk free discount rates ranging from 1.68% to 2.35%.
Preferred Stock Warrants - The fair value of the preferred stock warrants were $2.4 million and $9.8 million, respectively, as of June 30, 2018 and December 31, 2017. The preferred stock warrants were valued at Level 3 as there were no observable inputs supported by market activity. The Company estimates the fair value of the preferred stock warrants using a probability-weighted expected return model which considers various potential liquidity outcomes and assigned probabilities to each to arrive at the weighted equity value and the changes in fair value are recorded in gain (loss) on revaluation of warrant liabilities in the consolidated statements of operations.

There were no transfers between fair value measurement levels during the three and six ended June 30, 2018 and 2017. The changes in the Level 3 financial assets were as follows (in thousands):
  
Natural
Gas
Fixed Price
Forward
Contracts
 
Preferred
Stock
Warrants
 
Derivative
Liability
 Total
         
Balances at December 31, 2016 $18,585
 $12,885
 $115,807
 $147,277
Settlement of natural gas fixed price forward contracts (4,248) —
 —
 (4,248)
Embedded derivative on notes —
 —
 6,804
 6,804
Changes in fair value 1,031
 (3,060) 18,160
 16,131
Balances at December 31, 2017 $15,368
 $9,825
 $140,771
 $165,964
Settlement of natural gas fixed price forward contracts (2,292) —
 —
 (2,292)
Embedded derivative on notes —
 —
 2,235
 2,235
Changes in fair value 51
 (7,456) 7,497
 92
Balances at June 30, 2018 $13,127
 $2,369
 $150,503
 $165,999
Significant changes in any assumption input in isolation can result in a significant change in the fair value measurement. Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock and an increase in the remaining term of the conversion feature would each result in a directionally similar change in the estimated fair value of the Company’s derivative liability. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability.
Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
Customer Receivables and Debt Instruments - The Company estimatedfair value for customer financing receivables is based on a discounted cash flow model, whereby the fair valuesvalue approximates the present value of its customer financingthe receivables (Level 3). The senior secured notes, term loans and the estimated fair value of convertible promissory notes are based on rates currently being offered for instruments with similar maturities and terms (Level 3).
The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):
23

  June 30, 2018 December 31, 2017
  
Carrying
Value
 Fair Value 
Carrying
Value
 Fair Value
       
Customer receivables:        
Customer financing receivables $75,361
 $52,517
 $77,885
 $55,255
Debt instruments:        
5.22% senior secured notes $84,191
 $87,275
 $89,564
 $95,114
Term loan due September 2028 36,684
 44,599
 36,940
 46,713
Term loan due October 2020 24,133
 26,797
 24,364
 27,206
6.07% senior secured notes 83,223
 88,781
 84,032
 93,264
Term loan due December 2021 124,526
 130,025
 125,596
 131,817
Term loan due November 2020 4,050
 4,265
 4,888
 5,148
8% & 5% convertible promissory notes 254,120
 98,486
 244,717
 211,000
6% convertible promissory notes and embedded derivatives 290,382
 360,565
 377,496
 359,865
10% notes 95,140
 101,953
 94,517
 106,124
 September 30, 2021December 31, 2020
 Net Carrying
Value		Fair ValueNet Carrying
Value		Fair Value
   
 Customer receivables
Customer financing receivables$46,674 $39,545 $50,746 $42,679 
Debt instruments
Recourse:
10.25% Senior Secured Notes due March 202768,879 73,345 68,614 71,831 
2.5% Green Convertible Senior Notes due August 2025222,371 317,078 99,394 426,229 
Non-recourse:
7.5% Term Loan due September 202829,699 36,370 31,746 37,658 
6.07% Senior Secured Notes due March 203074,289 84,961 77,007 89,654 
LIBOR + 2.5% Term Loan due December 2021108,958 109,513 114,138 116,113 


Long-Lived Assets - The Company’s long-lived assets include property, plant and equipment. The carrying amounts of the Company’s long-lived assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. No material impairment of any long-lived assets was identified in the three and six months ended June 30, 2018 and 2017.
5. Supplemental6. Balance Sheet Information
Accounts Receivable
Accounts receivable primarily represents trade receivables from sales to customers recorded at net realizable value. Two customers accounted for 51.0% and 16.9% of accounts receivable at June 30, 2018. Two customers accounted for 21.4% and 10.1% of accounts receivable at December 31, 2017. At June 30, 2018 and December 31, 2017, the Company did not maintain any allowances for doubtful accounts as it deemed all of its receivables fully collectible.Components
Inventories Net
The components of inventory consistedconsist of the following (in thousands):
September 30,December 31,
 20212020
Raw materials$94,051 $79,090 
Work-in-progress40,822 29,063 
Finished goods47,682 33,906 
$182,555 $142,059 
  June 30,
2018		 December 31,
2017
     
Raw materials $49,629
 $49,963
Work-in-progress 26,854
 19,998
Finished goods 59,950
 20,299
  $136,433
 $90,260
The inventory reserves were $14.5 million and $14.0 million as of September 30, 2021 and December 31, 2020, respectively.
Prepaid ExpenseExpenses and Other Current Assets
Prepaid expenses and other current assets consistedconsist of the following (in thousands):
September 30,December 31,
 20212020
   
Prepaid hardware and software maintenance$4,034 $5,227 
Receivables from employees5,184 5,160 
Other prepaid expenses and other current assets22,728 20,331 
$31,946 $30,718 
24
  June 30,
2018		 December 31,
2017
     
Government incentives receivable $1,194
 $1,836
Prepaid expenses and other current assets 21,809
 24,840
  $23,003
 $26,676

Property, Plant and Equipment, Net
Property, plant and equipment, net, consistedconsists of the following (in thousands):
September 30,December 31,
 20212020
   
Energy Servers$675,083 $669,422 
Computers, software and hardware21,105 20,432 
Machinery and equipment112,634 106,644 
Furniture and fixtures8,531 8,455 
Leasehold improvements38,156 37,497 
Building46,730 46,730 
Construction-in-progress62,906 21,118 
965,145 910,298 
Less: accumulated depreciation(349,631)(309,670)
$615,514 $600,628 
  June 30,
2018		 December 31,
2017
     
Energy Servers $511,239
 $511,153
Computers, software and hardware 19,743
 19,384
Machinery and equipment 98,397
 97,158
Furniture and fixtures 4,695
 4,679
Leasehold improvements 22,931
 22,799
Building 40,512
 40,512
Construction in progress 9,486
 9,898
  707,003
 705,583
Less: Accumulated depreciation (229,238) (207,794)
  $477,765
 $497,789
Depreciation expense related to property, plant and equipment was $13.3 million and $13.0 million for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense related to property, plant and equipment was $40.1 million and $38.9 million for the nine months ended September 30, 2021 and 2020, respectively.

The Company’s property,Property, plant and equipment under operating leases by the PPA Entities was $397.2$368.0 million and $397.0$368.0 million as of June 30, 2018 and December 31, 2017, respectively. The accumulated depreciation for these assets was $64.7$133.5 million and $51.9$115.9 million as of JuneSeptember 30, 20182021 and December 31, 2017,2020, respectively. Depreciation expense related to property, plant and equipment for the Companythese assets was $21.6$5.9 million and $23.6$5.9 million for the sixthree months ended JuneSeptember 30, 20182021 and 2017,2020, respectively. Depreciation expense for these assets was $17.6 million and $18.0 million for the nine months ended September 30, 2021 and 2020, respectively.
Other Long-Term Assets
Other long-term assets consistedconsist of the following (in thousands):
September 30,December 31,
20212020
   
Prepaid insurance$10,112 $11,792 
Deferred commissions7,039 6,732 
Long-term lease receivable7,797 6,995 
Goodwill1,719 — 
Prepaid and other long-term assets11,926 8,992 
$38,593 $34,511 
25
  June 30,
2018		 December 31,
2017
     
Prepaid and other long-term assets $32,567
 $31,446
Equity-method investments 4,506
 5,014
Long-term deposits 1,313
 1,000
  $38,386
 $37,460

Accrued Warranty
Accrued warranty liabilities consistedconsist of the following (in thousands):
September 30,December 31,
 June 30,
2018		 December 31,
2017		 20212020
       
Product warranty $9,022
 $7,661
Product warranty$1,107 $1,549 
Operations and maintenance services agreements 5,906
 9,150
Product performanceProduct performance6,800 8,605 
Maintenance services contractsMaintenance services contracts— 109 
 $14,928
 $16,811
$7,907 $10,263 
Changes in the standard product warranty liabilityand product performance liabilities were as follows (in thousands):
Balances at December 31, 2016$8,104
Accrued warranty, net7,058
Warranty expenditures during period(7,501)
Balances at December 31, 2017$7,661
Accrued warranty, net3,343
Warranty expenditures during period(1,982)
Balances at June 30, 2018$9,022
Balances at December 31, 2020$10,154 
Accrued warranty, net6,682 
Warranty expenditures during the year-to-date period(8,929)
Balances at September 30, 2021$7,907 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consistedconsist of the following (in thousands):
September 30,December 31,
20212020
 June 30,
2018		 December 31,
2017		   
    
Compensation and benefits $13,974
 $13,121
Compensation and benefits$24,393 $28,343 
Current portion of derivative liabilities 4,296
 5,492
Current portion of derivative liabilities12,415 19,116 
Managed services liabilities 6,416
 3,678
Sales-related liabilitiesSales-related liabilities6,232 14,479 
Accrued installation 5,437
 3,348
Accrued installation8,854 16,468 
Sales tax liabilities 1,139
 5,524
Sales tax liabilities1,304 2,732 
Interest payable 4,671
 5,520
Interest payable719 2,224 
Other 18,899
 30,966
Other31,960 28,642 
 $54,832
 $67,649
$85,877 $112,004 
Other Long-Term Liabilities
Accrued otherOther long-term liabilities consistedconsist of the following (in thousands):
September 30,December 31,
 20212020
Delaware grant$9,495 $9,212 
Other17,260 8,056 
$26,755 $17,268 
  June 30,
2018		 December 31,
2017
     
Delaware grant $10,469
 $10,469
Managed services liabilities 30,589
 31,087
Other 11,095
 11,359
  $52,153
 $52,915
In March 2012,We recorded a long-term liability for the Company entered into an agreement withpotential future repayment of the incentive grant received from the Delaware Economic Development Authority to provide a grant of $16.5$9.5 million to the Companyand $9.2 million as an incentive to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. The Company has so far received $12.0 million of the grant which is contingent upon the Company meeting certain milestones related to the construction of the manufacturing facility and the employment of full time workers at the facility through September 30, 2023. As of June 30, 2018, the Company had paid $1.5 million for recapture provisions2021 and have recorded $10.5 million in other long-term liabilities for any potential repayments.December 31, 2020, respectively. See Note 13 - Commitments and Contingencies for a full description of the grant.
The Company has entered into managed services agreements that provide for the payment of property taxes and insurance premiums on behalf of the customer. These obligations are included in each agreement’s contract value and are recorded as short-term or long-term liabilities, based on the estimated payment dates. The long-term managed services liabilities accrued were 30.6 million and $31.1 million as of June 30, 2018 and December 31, 2017, respectively.
Customer Financing Leases, Receivable
The components of investment in sales-type financing leases consisted of the following (in thousands):
26
  June 30,
2018		 December 31,
2017
     
Total minimum lease payments to be received $105,195
 $109,431
Less: Amounts representing estimated executing costs (26,496) (27,815)
Net present value of minimum lease payments to be received 78,699
 81,616
Estimated residual value of leased assets 1,050
 1,051
Less: Unearned income (4,388) (4,781)
Net investment in sales-type financing leases 75,361
 77,886
Less: Current portion (5,398) (5,209)
Non-current portion of investment in sales-type financing leases $69,963
 $72,677
The future scheduled customer payments from sales-type financing leases were as follows (in thousands) as of June 30, 2018:

  Remaining2018 2019 2020 2021 2022 Thereafter
Future minimum lease payments, less interest $2,685
 $5,594
 $6,022
 $6,415
 $6,853
 $46,742

6.7. Outstanding Loans and Security Agreements
The following is a summary of the Company’sour debt as of JuneSeptember 30, 20182021 (in thousands)thousands, except percentage data):
 Unpaid
Principal
Balance		Net Carrying ValueUnused
Borrowing
Capacity		Interest
Rate		Maturity DatesEntityRecourse
 CurrentLong-
Term		Total
10.25% Senior Secured Notes due March 2027$70,000 $6,034 $62,845 $68,879 $— 10.25%March 2027CompanyYes
2.5% Green Convertible Senior Notes due August 2025230,000 — 222,371 222,371 — 2.5%August 2025CompanyYes
Total recourse debt300,000 6,034 285,216 291,250 — 
7.5% Term Loan due September 202831,912 3,315 26,384 29,699 — 7.5%September 
2028		PPA IIIaNo
6.07% Senior Secured Notes due March 203075,016 4,467 69,822 74,289 — 6.07%March 2030PPA IVNo
LIBOR + 2.5% Term Loan due December 2021109,109 — 108,958 108,958 — LIBOR plus
margin		December 2021PPA VNo
Letters of Credit due December 2021— — — — 759 2.25%December 2021PPA VNo
Total non-recourse debt216,037 7,782 205,164 212,946 759 
Total debt$516,037 $13,816 $490,380 $504,196 $759 
  
Unpaid
Principal
Balance
 Net Carrying Value 
Unused
Borrowing
Capacity
 
Interest
Rate
 Maturity Dates Entity Recourse
  Current 
Long-
Term
 Total 
5.22% senior secured notes $85,513
 $11,687
 $72,504
 $84,191
 $—
 5.2% March 2025 PPA II No
Term loan 41,301
 1,630
 35,054
 36,684
 —
 7.5% September 2028 PPA IIIa No
Term loan 25,153
 890
 23,243
 24,133
 —
 LIBOR
plus margin		 October 2020 PPA IIIb No
6.07% senior secured notes 84,418
 2,150
 81,073
 83,223
 —
 6.1% March 2030 PPA IV No
Term loan 126,963
 3,298
 121,228
 124,526
 —
 LIBOR plus
margin		 December 2021 PPA V No
Letters of Credit —
 —
 —
 —
 1,504
 2.25% December 2021 PPA V No
Total non-recourse debt 363,348
 19,655
 333,102
 352,757
 1,504
        
Term loan 4,050
 1,688
 2,362
 4,050
 —
 LIBOR
plus margin		 November 2020 Company Yes
8%/5% convertible promissory notes 254,120
 8,663
 245,457
 254,120
 —
 8.0%/5.0% December 2019 &
December 2020		 Company Yes
6% convertible promissory notes 294,759
 —
 254,062
 254,062
 —
 5.0%/6.0% December 2020 Company Yes
10% notes 100,000
 —
 95,140
 95,140
 —
 10.0% July 2024 Company Yes
Total recourse debt 652,929
 10,351
 597,021
 607,372
 —
        
Total debt $1,016,277
 $30,006
 $930,123
 $960,129
 $1,504
        

The following is a summary of the Company’sour debt as of December 31, 20172020 (in thousands)thousands, except percentage data):
 Unpaid
Principal
Balance		Net Carrying ValueUnused
Borrowing
Capacity		Interest
Rate		Maturity DatesEntityRecourse
 CurrentLong-
Term		Total
10.25% Senior Secured Notes due March 2027$70,000 $— $68,614 $68,614 $— 10.25%March 2027CompanyYes
2.5% Green Convertible Senior Notes due August 2025230,000 — 99,394 99,394 — 2.5%August 2025CompanyYes
Total recourse debt300,000 — 168,008 168,008 — 
7.5% Term Loan due September 202834,456 2,826 28,920 31,746 — 7.5%September 
2028		PPA IIIaNo
6.07% Senior Secured Notes due March 203077,837 3,882 73,125 77,007 — 6.07%March 2030PPA IVNo
LIBOR + 2.5% Term Loan due December 2021114,761 114,138 — 114,138 — LIBOR plus
margin		December 2021PPA VNo
Letters of Credit due December 2021— — — — 968 2.25%December 2021PPA VNo
Total non-recourse debt227,054 120,846 102,045 222,891 968 
Total debt$527,054 $120,846 $270,053 $390,899 $968 
  
Unpaid
Principal
Balance
 Net Carrying Value 
Unused
Borrowing
Capacity
 
Interest
Rate
 
Maturity
Dates
 Entity Recourse
  Current 
Long-
Term
 Total 
5.22% senior secured notes $91,086
 $11,389
 $78,175
 $89,564
 $—
 5.2% March 2025 PPA II No
Term loan 41,927
 1,389
 35,551
 36,940
 —
 7.5% September 2028 PPA IIIa No
Term loan 25,599
 876
 23,488
 24,364
 —
 LIBOR
plus margin		 October 2020 PPA IIIb No
6.07% senior secured notes 85,303
 1,846
 82,186
 84,032
 —
 6.1% March 2030 PPA IV No
Term loan 128,403
 2,946
 122,650
 125,596
 —
 LIBOR plus
margin		 December 2021 PPA V No
Letters of Credit —
 —
 —
 —
 1,784
 2.25% December 2021 PPA V No
Total non-recourse debt 372,318
 18,446
 342,050
 360,496
 1,784
        
Term loan 5,000
 1,690
 3,197
 4,887
 —
 LIBOR
plus margin		 November 2020 Company Yes
8% convertible promissory notes 244,717
 —
 244,717
 244,717
 —
 8.0% December 2019 &
December 2020		 Company Yes
6% convertible promissory notes 286,069
 —
 236,724
 236,724
 —
 5.0%/6.0% December 2020 Company Yes
10% notes 100,000
 —
 94,517
 94,517
 —
 10.0% July 2024 Company Yes
Total recourse debt 635,786
 1,690
 579,155
 580,845
 —
        
Total debt $1,008,104
 $20,136
 $921,205
 $941,341
 $1,784
        

Recourse debt refers to debt that we have an obligation to pay. Non-recourse debt refers to debt that is recourse to only specified assets or subsidiaries of the Company. Recourse debt refers to debt that is recourse to the Company’s general assets.our subsidiaries. The differences between the unpaid principal balances and the

net carrying values are dueapply to debt discounts and deferred financing costs. The Company wasWe and all of our subsidiaries were in compliance with all financial covenants as of JuneSeptember 30, 20182021 and December 31, 2017.2020.
Recourse Debt Facilities
10.25% Senior Secured Notes due March 2027 - On May 1, 2020, we issued $70.0 million of 10.25% Senior Secured Notes in a private placement ("10.25% Senior Secured Notes"). The 10.25% Senior Secured Notes are governed by an indenture (the “Senior Secured Notes Indenture”) entered into among us, the guarantor 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. The 10.25% Senior Secured Notes are supported by a $150.0 million indenture between us and U.S. Bank National Association, which contained an accordion feature for an additional $80.0 million of notes that could be issued on or prior to September 27, 2021. We chose not to exercise this accordion feature, which has now expired.
27

Interest on the 10.25% Senior Secured Notes is payable quarterly, 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 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 non-current balance of the outstanding unpaid principal of the 10.25% Senior Secured Notes was $64.0 million as of September 30, 2021. The current balance of the outstanding unpaid principal of the 10.25% Senior Secured Notes was $6.0 million as of September 30, 2021.
2.5% Green Convertible Senior Notes due August 2025 - In August 2020, we issued $230.0 million aggregate principal amount of our 2.5%Green Convertible Senior Notes due August 2025 (the "Green Notes"), unless earlier repurchased, redeemed or converted . The principal amount of the Green Notes are $230.0 million, less initial purchaser's discount of $6.9 million and other issuance costs of $3.0 million resulting in net proceeds of $220.1 million.
The Green Notes are senior, unsecured obligations accruing interest at a rate of2.5% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2021.
We may not redeem the Green Notes prior to August 21, 2023. We may elect to redeem, at face value, all or any portion of the Green Notes at any time on or after August 21, 2023 and on or before the twenty-sixth trading day immediately before the maturity date, provided certain conditions are met.
Before May 15, 2025, the noteholders have the right to convert their Green Notes only upon the occurrence of certain events, including a conversion upon satisfaction of a condition relating to the closing price of our common stock ("the Closing Price Condition"). If the Closing Price Condition is met on at least 20 of the last 30 consecutive trading days in any quarter, the noteholders may convert their Green Notes at any time during the immediately following quarter. The Closing Price Condition was not met during the three months ended September 30, 2021 and accordingly, the noteholders may not convert their Green Notes at any time during the quarter ending December 31, 2021. From and after May 15, 2025, the noteholders may convert their Green Notes at any time at their election until the close of business on the second trading day immediately before the maturity date. Should the noteholders elect to convert their Green Notes, we may elect to settle the conversion by paying or delivering, as applicable, cash, shares of our Class A common stock or a combination thereof.
The initial conversion rate is 61.6808 shares of Class A common stock per $1,000 principal amount of notes, which represents an initial conversion price of approximately $16.21 per share of Class A common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” as defined occur, the conversion rate will, in certain circumstances, be increased for a specified period of time.
We adopted ASU 2020-06 as of January 1, 2021 using the modified retrospective transition method. Upon adoption, we combined the previously separated equity component of the Green Notes with the liability component, which is now together classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was reclassified to debt and amortized as interest expense. Accordingly, we recorded a net decrease to accumulated deficit of $5.3 million, a decrease to additional paid-in capital of $126.8 million, and an increase to recourse debt, non-current, of approximately $121.5 million upon adoption as of January 1, 2021.
Interest expense for the three and nine months ended September 30, 2021 was $1.9 million and $5.8 million, including amortization of issuance costs of $0.5 million and $1.5 million, respectively.
Non-recourse Debt Facilities
5.22% Senior Secured Notes - In March 2013, PPA Company II refinanced its existing debt by issuing 5.22% Senior Secured Notes (PPA II Notes) due March 30, 2025. The total amount of the loan proceeds was $144.8 million, including $28.8 million to repay outstanding principal of existing debt, $21.7 million for debt service reserves and transaction costs and $94.3 million to fund the remaining system purchases. The loan is a fixed rate term loan that bears an annual interest rate of 5.22% payable quarterly. The loan has a fixed amortization schedule of the principal, payable quarterly, which began March 30, 2014 that requires repayment in full by March 30, 2025. The Note Purchase Agreement requires the Company to maintain a debt service reserve, the balance of which was $11.2 million and $11.3 million as of June 30, 2018 and December 31, 2017, respectively, and was included as part of long-term restricted cash in the consolidated balance sheets. The PPA II Notes are secured by all the assets of PPA II.
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 the Companyus to maintain a debt service reserve for all funded systems, the balance of which was $3.7$3.6 million and $3.7$3.8 million as of JuneSeptember 30, 20182021 and December 31, 2017,2020, respectively, andwhich 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.
Term Loan due October 2020 - In September 2013, PPA IIIb entered into a credit agreement to help fund the purchase and installation of Energy Servers. In accordance with that agreement, PPA IIIb issued floating rate debt based on LIBOR plus a margin of 5.2%, paid quarterly. The aggregate amount of the debt facility is $32.5 million. The credit agreement requires the Company to maintain a debt service reserve for all funded systems, the balance of which was $1.7 million and $1.7 million June 30, 2018 and December 31, 2017, respectively, and was included as part of long-term restricted cash in the consolidated balance sheets. The loan is secured by all assets of PPA IIIb and requires quarterly principal payments starting in July 2014. In September 2013, PPA IIIb entered into pay-fixed, receive-float interest rate swap agreement to convert the floating-rate loan into a fixed-rate loan.
28

6.07% Senior Secured Notes due March 2030 - In July 2014, PPA IV issued senior securedThe notes (PPA IV Notes) amounting to $99.0 million to third parties to help fund the purchase and installation of Energy Servers. The PPA IV Notes bear a fixed interest rate of 6.07% payable quarterly. The principal amount of the PPA IV Notes isper annum payable quarterly, startingwhich began in December 2015 and endingends in March 2030. The Note Purchase Agreementnote purchase agreement requires the Companyus to maintain a debt service reserve, the balance of which was $7.2$8.9 million and $8.5 million as of JuneSeptember 30, 20182021 and $7.0 million as of December 31, 2017.2020, respectively, which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The PPA IV Notesnotes are secured by all the assets of the PPA IV.
LIBOR + 2.5% Term Loan due December 2021 and Letters of Credit due December 2021 - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of Energy Servers.term loan due December 2021. The lenders are a group of five financial institutions. In addition, the lenders further had commitments to the letter of credit (LC) facility with the aggregate principal amount of $6.4 million. The LC facility is to fund the Debt Service Reserve Account. The loan was initially advanced as a construction loan during the developmentcurrent portion of the PPA V Project and converted into a term loan on February 28, 2017 (“LIBOR + 2.5% Term Conversion Date”). As part of the term loan’s conversion, the LC facility commitments were adjusted down to total of $6.2 million. The amount borrowedLoan as of JuneSeptember 30, 20182021 and December 31, 20172020 was $4.6 millionnone and $4.4$114.1 million, respectively. The unused borrowing capacityIn November 2021, PPA V entered into a $136 million term loan, which replaces the LIBOR + 2.5% Term Loan due December 2021. For additional information, please see Note 18 – Subsequent Events. As a result of the November 2021 refinance, we reclassified the short term obligation related to LIBOR + 2.5% Term Loan as of June 30, 2018 and December 31, 2017 was and $1.5 million and $1.8 million, respectively.non-current within the condensed consolidated balance sheet.
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’lenders’ commitments to the loan and the commitments to the LC loan,a letter of credit facility, the PPA V also pays commitment fees at 0.50%0.5% 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, the PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.

Recourse Debt Facilities
Term Loan due November 2020 - On May 22, 2013, The agreement also included commitments to a letter of credit facility with the Company entered into a $12.0aggregate principal amount of $6.4 million, financing agreement with a financial institution.later adjusted down to $6.2 million. The loan has a termamount reserved under the Letter of 90 months, payable monthly at a variable rate equal to one-month LIBOR plus the applicable margin. The weighted average interest rateCredit as of December 31, 2017 was 5.1%. As of JuneSeptember 30, 20182021 and December 31, 2017, the debt outstanding2020 was $4.1$5.4 million and $4.9$5.2 million, respectively.
8% Convertible Promissory Notes - In December 2014,respectively, and the Company entered into a three year $132.2 million convertible promissory note agreements with certain investors, including $10.0 million each from three related parties. The related parties consisted of Independent Board Members of the Company from Alberta Investment Management Corporation, KPCB Holdings, Inc. and New Enterprise Associates. The notes were amended to mature in December 2018.
As part of the agreements with certain investors, the Company entered into two more promissory note agreements in January and February 2015 for an additional $34.0 million. In June 2015, the Company entered into an additional promissory note agreement for $27.0 million requiring principal and interest accrued as due upon maturity and were amended to mature in December 2018.
The notes, which bore a fixed interest rate of 8.0%, compounded monthly, were due at maturity or at the election of the investor, with accrued interest due in December of each year which, at the election of the investor, can be paid or accrued. As of June 30, 2018 and December 31, 2017, the total amount outstandingunused capacity was $254.1$0.8 million and $244.7$1.0 million, respectively, including accrued interest.respectively.
Investors held the right to convert the unpaid principalRepayment Schedule and accrued interest to Series G convertible preferred stock at any time at the price of $38.64. Upon the occurrence of an IPO, the outstanding principal and accrued interest under the notes would mandatorily convert into Series G convertible preferred stock.
On January 18, 2018, amendments were finalized to extend the maturity dates for all 8% Notes. The Constellation NewEnergy, Inc. note (the Constellation Note) was extended to December 2020 and interest rate decreased from 8% to 5%. All other 8% Notes were extended to December 2019.
As the Company had the intent and ability to extend the maturity of the debt from December 2018 to December 2020 for the Constellation Note and from December 2018 to December 2019 for all other 8% Notes, $245.5 million and $244.7 million of the debt was classified as noncurrent as of June 30, 2018 and December 31, 2017.
6% Convertible Promissory Notes (Originally 5% Convertible Promissory Notes) - In December 2015, January 2016 and September 2016 the Company entered into six promissory note agreements with J.P. Morgan, Canadian Pension Plan Investment Board (CPPIB), Mehetia Inc., New Enterprise Associates, and KPCB Holdings, Inc. The total value of the promissory notes is $260.0 million and originally bore a 5% fixed interest rate, compounded monthly, and are entirely due at maturity. Due to a reduction of collateral as a result of the issuance of 10% Secure Notes in June 2017 (see the discussion below headed 10% Notes), a 1% interest increase was negotiated between the Company and investors changing the interest rate from 5% to 6% effective July 1, 2017.
In connection with the issuance of the 6% Notes, the Company agreed to issue to J.P. Morgan and CPPIB, upon the occurrence of certain conditions, warrants to purchase the Company’s common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. On August 31, 2017, J.P. Morgan transferred its rights to CPPIB and the warrants were issued.
As of June 30, 2018 and December 31, 2017, the amount outstanding was $294.8 million and $286.1 million, respectively, including accrued interest. At the election of the investors, the accrued interest and the unpaid principal can be converted into common stock at any time, with no provision for mandatory conversion upon IPO. In certain circumstances, the notes are also redeemable at the Company’s option, in whole or in part, in connection with a Change of Control or at a qualified inital public offering at a redemption price. In January 2018, the Company amended the terms of the 6% Notes to extend the convertible put option dates to December 2019.
10% Notes - In June 2017, the Company issued $100.0 million of senior secured notes. The 10% Notes mature in July 2024 and bear a 10.0% fixed rate of interest, payable semi-annually. The notes have a continuing security interest in the cash flows payable to the Company as servicing, operations and maintenance fees, as well as administrative fees from the five active power purchase agreements in the Company’s Bloom Electrons program. Under the terms of the indenture governing the 10% Notes, the Company is required to comply with various restrictive covenants, including meeting reporting requirements such as the preparation and delivery of audited consolidated financial statements and certain restrictions on investments.

Interest Expense
The following table presents detaildetails of the Company’s entireour outstanding loan principal repayment schedule as of JuneSeptember 30, 20182021 (in thousands):
Remaining 2018$19,322
2019241,136
2020389,909
2021153,639
202240,059
Thereafter172,212
 $1,016,277
Remainder of 2021$3,253 
202225,765 
202332,430 
202436,369 
2025270,613 
Thereafter147,607 
$516,037 
Interest expense of $26.2$14.5 million and $25.6$20.3 million for the three months ended JuneSeptember 30, 20182021 and 2017,2020, respectively, and $43.8 million and $57.5 million for the nine months ended September 30, 2021 and 2020, respectively, was recorded in interest expense on the condensed consolidated statements of operations. InterestThis interest expense includes interest expense - related parties of $49.2 million and $49.9$0.4 million for the sixthree months ended JuneSeptember 30, 20182020, and 2017, respectively, was recorded in$2.5 million for the nine months ended September 30, 2020, respectively. We did not incur any interest expense on- related parties during the consolidated statements of operations.three or nine months ended September 30, 2021.
7.8. Derivative Financial Instruments
The Company usesInterest Rate Swaps
We use various financial instruments to minimize the impact of variable market conditions on itsour results of operations. The Company employs natural gas forward contracts to protect against the economic impact of natural gas market prices and the Company usesWe use interest rate swaps to minimize the impact of fluctuations fromof interest rate changes on itsour outstanding debt where LIBOR is applied. The Company doesWe do not enter into derivative contracts for trading or speculative purposes.
29

The fair values of the derivatives designated as cash flow hedges as of JuneSeptember 30, 20182021 and December 31, 20172020 on the Company'sour condensed consolidated balance sheets wereare as follows:
follows (in thousands):
  June 30,
2018		 December 31,
2017
     
Derivatives designated as hedging instruments    
Other long-term assets $912
 $52
Total assets $912
 $52
Interest rate swap    
Accrued other current liabilities $155
 $845
Derivative liabilities 2,528
 5,060
Total liabilities $2,683
 $5,905
September 30,December 31,
 20212020
Liabilities
Accrued expenses and other current liabilities$11,853 $15,989 
Natural Gas Derivatives
On September 1, 2011, the CompanyPPA V - In July 2015, PPA V entered into a fixed price fixed quantity fuel forward contract with a gas supplier. This fuel forward contract is used as part of the Company’s program to manage the risk for controlling the overall cost of natural gas. The Company's PPA Company I is the only PPA Company for which gas was provided by the Company. The fuel forward contract meets the definition of a derivative under US GAAP. The Company has not elected to designate this contract as a hedge and, accordingly, any changes in its fair value is recorded within cost of revenue in the statements of operations. The fair value of the contract is determined using a combination of factors including the Company’s credit rate and future natural gas prices.
For the three months ended June 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a gain of $0.8 million and $0.9 million, respectively. For the six months ended June 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a loss of $0.1 million and $0.7 million, respectively. For the three months ended June 30, 2018 and 2017, the Company recorded gains on the settlement of these contracts of $1.2 million and $1.1 million, respectively. For the six months ended June 30, 2018 and 2017, the Company recorded gains on the settlement of these contracts of $2.3 million and $2.2 million, respectively. Gains and losses were recorded in cost of revenue on the consolidated statement of operations.

Interest Rate Swaps
PPA Company IIIb - In September 2013, PPA Company IIIb entered into an9 interest rate swap arrangementagreements to convert a variable interest rate on debt to a fixed rate. The Companyrate and we designated and documented its interest rate swap arrangement as a cash flow hedge. The swap’s term ends on October 1, 2020 which is concurrent with the final maturity of the debt floating interest rates reset on a quarterly basis. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive loss and was recognized as interest expense on settlement. The notional amounts of the swap were $25.2 million and $25.6 million as of June 30, 2018 and December 31, 2017, respectively. The Company measures the swap at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk.
The Company recorded a gain of $17,000 and a loss of $14,000 during the three months ended June 30, 2018 and 2017, respectively, due to the change in swap’s fair value. The Company recorded a gain of $54,000 and a loss of $30,000 during the six months ended June 30, 2018 and 2017, respectively, attributable to the change in swap’s fair value. These gains and losses were included in other expense, net in the consolidated statement of operations.
PPA Company V - In July 2015, PPA Company V entered into nine interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan. The loss on the swaps prior to designation was recorded in current-period earnings. In July 2015, the Company designated and documented its interest rate swap arrangements as cash flow hedges. ThreeNaN of these swaps matured in 2016, three3 will mature on December 21,31, 2021 and the remaining three3 will mature on SeptemberJune 30, 2031. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change wasis recorded in accumulated other comprehensive loss and wasis recognized as interest expense on settlement. The notional amounts of the swaps were $187.9are $178.9 million and $188.1$181.4 million as of JuneSeptember 30, 20182021 and December 31, 2017,2020, respectively. The Company measures
We measure the swaps at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk. The Company recorded a gain of $55,000 and $20,000 during the three months ended June 30, 2018 and 2017, respectively, attributable to the change in swaps’ fair value. The Company recorded a gain of $109,000 and a gain of $53,000We realized immaterial gains attributable to the change in valuation during the sixthree and nine months ended JuneSeptember 30, 20182021 and 2017. These2020, and these gains wereare included in other expense, net, in the condensed consolidated statementstatements of operations.
The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive loss and in earnings forare as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Beginning balance$12,651 $17,881 $15,989 $9,238 
Loss (gain) recognized in other comprehensive loss(264)(72)(2,548)9,212 
Amounts reclassified from other comprehensive loss to earnings(499)(501)(1,483)(1,068)
Net loss (gain) recognized in other comprehensive loss(763)(573)(4,031)8,144 
Gain recognized in earnings(35)(36)(105)(110)
Ending balance$11,853 $17,272 $11,853 $17,272 
Embedded EPP Derivatives in Sales Contracts
For the year ended December 31, 2017, and in the sixthree months ended JuneSeptember 30, 2018, were as follows:
Balances at December 31, 2016$6,937
  
Loss recognized in other comprehensive loss669
Amounts reclassified from other comprehensive loss to earnings(1,563)
Net gain recognized in other comprehensive loss(894)
Gain recognized in earnings(190)
Balances at December 31, 2017$5,853
  
Gain recognized in other comprehensive loss(3,622)
Amounts reclassified from other comprehensive loss to earnings(297)
Net gain recognized in other comprehensive loss(3,919)
Gain recognized in earnings(163)
Balances at June 30, 2018$1,771
6% Convertible Promissory Notes
On December 15, 2015, January 29, 2016,2021 and September 10, 2016, the Company issued $160.0 million, $25.0 million, and $75.0 million, respectively, of 6% Convertible Promissory Notes ("6% Notes") that mature in December 2020. The 6% Notes are convertible at the option of the holders at a conversion price per share equal to the lower of $46.37 and 75% of the offering price of the Company’s common stock sold in an initial public offering. The valuation of this embedded put feature is2020, we recorded as a derivative liability in the consolidated balance sheet. The notes were initially recorded net of a discount of $6.3 million and the fair value of the embedded EPP derivatives withinand recognized an unrealized loss of $0.2 million and an unrealized gain of $1.5 million, respectively. For the notes was $115.8 million. Fair value was determined using the

binomial lattice method. The debt discount is being amortized through interest expense on the consolidated statements of operations over an accelerated three year amortization period based on when the Notes become puttable.
The Company measuresnine months ended September 30, 2021 and 2020, we recorded the fair value of the embedded EPP derivatives at each reporting date and the Company recorded arecognized an unrealized loss of $23.5$1.6 million and a loss of $0.5 million attributable to the change in valuation for the three months ended June 30, 2018 and 2017, respectively. The Company recorded aan unrealized gain of $2.4$2.2 million, and a loss of $31.0 million attributable to the change in valuation for the six months ended June 30, 2018 and 2017, respectively. These gains and losses wereare included within loss on revaluation of warrant liabilities and embedded derivatives in the condensed consolidated statementstatements of operations.
8. Convertible Stock and Warrants
Convertible Preferred Stock
The following table summarizes the Company’s convertible preferred stock as of June 30, 2018 (in thousands, except share data):
  
Shares
Authorized
 
Shares
Issued and
Outstanding
 
Carrying
Value at
June 30,
2018
 
Liquidation
Preference
         
Series A preferred 9,374,101
 9,374,101
 $8,956
 $4,689
Series B preferred 7,868,856
 7,868,856
 11,941
 11,998
Series C preferred 5,979,069
 5,979,069
 44,928
 45,000
Series D preferred 6,443,830
 6,443,831
 102,648
 103,907
Series E preferred 9,486,398
 9,486,398
 198,264
 167,767
Series F preferred 14,597,248
 13,885,893
 376,962
 385,750
Series G preferred 26,712,107
 18,702,014
 722,142
 722,646
  80,461,609
 71,740,162
 $1,465,841
 $1,441,757
Preferred Stock Warrants
The Company accounts for its issuance of preferred stock warrants at fair value. The Company has issued warrants to purchase Series F and Series G preferred stock. The following table summarizes the warrants outstanding, together with their respective fair values (in thousands, except warrants outstanding):
  June 30, 2018 December 31, 2017
  Warrants
Outstanding		 Fair
Value of
Warrants		 
Warrants
Outstanding
 
Fair
Value of
Warrants
       
Series F 581,182
 $2,327
 581,182
 $8,378
Series G 279,606
 42
 279,606
 1,447
  860,788
 $2,369
 860,788
 $9,825
Common Stock Warrants
During 2014 and in connection with a dispute settlement with the principals of a securities placement agent, the Company issued warrants to purchase 33,333 shares of the Company’s common stock at $38.64 per share. The fair value of $3.3these derivatives was $7.2 million and $4.0 million as of September 30, 2021 and 2020, respectively.
9. Leases
Facilities, Office Buildings and Vehicles
We lease most of our facilities, office buildings and vehicles under operating and finance leases that expire at various dates through February 2036. We lease various manufacturing facilities in Sunnyvale, Fremont and Mountain View, California. Our Sunnyvale manufacturing facility lease was recordedentered into in April 2005 and expires in December 2023. In June 2020 and in March 2021, we signed leases in Fremont that will expire in 2027 and 2036, respectively, to replace our manufacturing facilities in Sunnyvale and Mountain View. These existing plants together comprise approximately 534,894 square feet of space. In June 2021, we extended the lease term for our headquarters in San Jose, California to 2031 and leased two additional floors. We lease additional office space as expensefield offices in the consolidated statementsUnited States and around the world including in China, India, Japan, the Republic of operations in 2013 whenKorea, Taiwan and the obligation became probable. The common stock warrants are immediately exercisable and expire five years fromUnited Arab Emirates.
30

Some of these arrangements have free rent periods or escalating rent payment provisions. We recognize lease cost under such arrangements on a straight-line basis over the date of issuance.
During 2016, in connection with the 6% Convertible Promissory Notes entered in December 2015 and September 2016, the Company recorded a $9.2 million warrant expense for convertible redeemable common stock warrants issued to J.P. Morgan and CPPIB, to purchase the Company’s common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. During 2017, the fair valuelife of the right to common stock warrants was re-measured and $0.2 million in warrant expenses was charged to the consolidated statement of operations, and on August 31, 2017, J.P. Morgan assigned their warrants to CPPIB and all 312,888 warrant shares were issued to CPPIB, and the Company reclassified the $9.4 million of accrued warrant liabilities to additional paid in capital, which is not subject to further remeasurement in the fair value.

9. Income Taxes
leases. For the three months ended JuneSeptember 30, 20182021 and 2017, the Company recorded an2020, rent expense for income taxes of $0.1all occupied facilities was $4.4 million on a pre-tax loss of $50.1and $2.8 million, for an effective tax rate of (0.3)% and an expense for income taxes of $0.2 million on a pre-tax loss of $67.4 million for an effective tax rate of (0.3)%, respectively. For the sixnine months ended JuneSeptember 30, 20182021 and 2017, the Company recorded an2020, rent expense for income taxesall occupied facilities was $11.4 million and $6.8 million, respectively.
Our leases have lease terms ranging from less than 1 year to 15 years, some of $0.5 million on a pre-tax losswhich include options to extend the leases. The lease term is the non-cancelable period of $72.1 millionthe lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised.
Operating and financing lease right-of-use assets and lease liabilities for an effective tax ratefacilities, office buildings and vehicles as of (0.6)%September 30, 2021 and an expenseDecember 31, 2020 were as follows (in thousands):
September 30,December 31,
20212020
Assets:
Operating lease right-of-use assets, net 1, 2
$70,055 $35,621 
Financing lease right-of-use assets, net 2, 3, 4
2,943 334 
Total$72,998 $35,955 
Liabilities:
Current:
Operating lease liabilities$6,206 $7,899 
Financing lease liabilities 5
798 74 
Total current lease liabilities7,004 7,973 
Non-current:
Operating lease liabilities78,146 41,849 
Financing lease liabilities 6
2,165 267 
Total non-current lease liabilities80,311 42,116 
Total lease liabilities$87,315 $50,089 
1 These assets primarily include leases for income taxesfacilities, office buildings and vehicles.
2 Net of $0.4 million on a pre-tax lossaccumulated amortization.
3 These assets primarily include leases for vehicles.
4 Included in property, plant and equipment, net, in the condensed consolidated balance sheets, net of $132.5 million for an effective tax rateaccumulated amortization.
5 Included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.
6 Included in other long-term liabilities in the condensed consolidated balance sheets.
31

The components of (0.3)%, respectively. The effective tax rateour facilities, office buildings and vehicles' lease costs for the periods presented is lower thanthree and nine months ended September 30, 2021 and 2020 were as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Operating lease costs$3,925 $2,683 $10,620 $6,280 
Financing lease costs:
Amortization of financing lease right-of-use assets214 15 1,096 32 
Interest expense for financing lease liabilities51 4 296 10 
Total financing lease costs265 19 1,392 42 
Short-term lease costs625 131 951 668 
Total lease costs$4,815 $2,833 $12,963 $6,990 

Weighted average remaining lease terms and discount rates for our facilities, office buildings and vehicles as of September 30, 2021 and December 31, 2020 were as follows:
September 30,December 31,
20212020
Remaining lease term (years):
Operating leases9.3 years6.7 years
Finance leases3.6 years4.2 years
Discount rate:
Operating leases9.3 %8.7 %
Finance leases7.6 %7.0 %

Future lease payments under lease agreements for our facilities, office buildings, and vehicles as of September 30, 2021, were as follows (in thousands):
Operating LeasesFinance Leases
Remainder of 2021$3,581 $240 
202213,076 960 
202314,949 955 
202413,455 782 
202513,477 313 
Thereafter79,085 88 
Total minimum lease payments137,623 3,338 
Less: amounts representing interest or imputed interest(53,271)(375)
Present value of lease liabilities$84,352 $2,963 

32

Managed Services and Portfolio Financings Through PPA Entities
Certain of our customers enter into Managed Services or Portfolio Financings through a PPA Entity to finance their lease of Bloom Energy Servers. Prior to our adoption of ASC 842 as of January 1, 2020, such arrangements with customers that qualified as leases were classified as either sales-type leases or operating leases. For all pre-existing Managed Services Financings or Portfolio Financings through PPA Entities, we have carried over the statutory federal tax rateaccounting classifications for those transactions and continue to account for such transactions as either sales-type leases or operating leases under ASC 842. Customer arrangements under Managed Services and Portfolio Financings through PPA Entities entered into after January 1, 2021 do not contain a lease under ASC 842 and are accounted for under ASC 606 as revenue arrangements.
Lease agreements under our Managed Services Financings and Portfolio Financings through PPA Entities include non-cancellable lease terms, during which terms the majority of our investment in Energy Servers under lease are typically recovered. We mitigate remaining residual value risk of its Energy Servers through its provision of maintenance on the Energy Servers during the lease term and through insurance whose proceeds are payable in the event of theft, loss, damage, or destruction.
Managed Services - Our Managed Services Financings with financiers that result in failed sale-and-leaseback transactions are accounted for as financing transactions. Payments received from the financier are recognized as financing obligations in our condensed consolidated balance sheets. These financing obligations are included in each agreements' contract value and are recognized as short-term or long-term liabilities based on the estimated payment dates. The lease agreements expire on various dates through 2034. For successful sale-and-leaseback transactions, we recorded right-of-use assets and lease liabilities and recorded lease expense over the lease term. The recognized lease expense has been immaterial.
At September 30, 2021, future lease payments under the Managed Services financing obligations and the sublease payments from the customers under the related operating leases were as follows (in thousands):
Financing Obligations
Sublease Payments1
Remainder of 2021$10,412 $(10,412)
202242,265 (42,265)
202343,223 (43,223)
202441,141 (41,141)
202540,106 (40,106)
Thereafter90,023 (90,023)
Total lease payments267,170 $(267,170)
Less: imputed interest(154,762) 
Total lease obligations112,408  
Less: current obligations(14,260) 
Long-term lease obligations$98,148  
1 Sublease Payments primarily due to a full valuation allowance against U.S. deferred tax assets.
A valuation allowance is providedrepresents the fees received by the bank from our customer for the amount of deferred tax assets that, based on available evidence, is not more-likely-than-notelectricity generated by our Energy Servers leased under our Managed Services and other similar arrangements, which also pay down our financing obligation to be realized. Management believes that, based on available evidence both positivethe bank.
The long-term financing obligations, as reflected in our condensed consolidated balance sheets, were $456.3 million and negative, it is more likely than not that the U.S. deferred tax assets will not be utilized and as such, a full valuation allowance has been recorded. The valuation allowance for deferred tax assets was $542.4$460.0 million as of September 30, 2021 and December 31, 2017. There were no releases from2020, respectively. The difference between these obligations and the valuation allowanceprincipal obligations in the table above will be offset against the carrying value of the related Energy Servers at the end of the lease and the remainder recognized as a gain at that point.
33

Portfolio Financings through PPA Entities - Customer arrangements entered into prior to January 1, 2020 under Portfolio Financing arrangements through a PPA Entity that qualified as leases are accounted for as either period.sales-type leases or operating leases. Since January 1, 2020, we have not entered into any new PPAs with customers under such arrangements.
AtThe components of our aggregate net investment in sales-type leases under our Portfolio Financings through PPA entities consisted of the following (in thousands):
September 30,December 31,
20212020
Lease payment receivables, net1
$45,784 $49,806 
Estimated residual value of leased assets (unguaranteed)890 890 
Net investment in sales-type leases46,674 50,696 
Less: current portion(5,693)(5,428)
Non-current portion of net investment in sales-type leases$40,981 $45,268 
1 Net of current estimated credit losses of approximately $0.1 million as of September 30, 2021 and December 31, 2017, the Company had federal and state net operating loss carryforwards of $1.7 billion and $1.5 billion, respectively, which will expire, if unused, beginning in 2022 and 2018, respectively. In addition, at December 31, 2017 the Company had approximately $16.1 million of federal research credit, $6.6 million of federal investment tax credit, and $12.2 million of state research credit carryforwards. The federal tax credit carryforwards begin to expire in 2022. The state credit carryforwards may be carried forward indefinitely. The Company has not recorded deferred tax assets for the federal and state research credit carryforwards as the entire amount of the carryforwards represent unrecognized tax benefits.
U.S. law H.R.1, commonly referred as to the Tax Cuts and Jobs Act of 2017 (The Act) was enacted on December 22, 2017. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. For the Global Intangible Low-Taxed Income (GILTI) provisions of the Tax Act, the Company has not yet completed its assessment or elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed. The Company is in the measurement period, however the Company believes it has made reasonable estimate for all effects for periods presented.2020.
As a result of The Act,September 30, 2021, the U.S. statutory tax rate was loweredfuture scheduled customer payments from 34 percentsales-type leases were as follows (in thousands):
Future minimum lease payments
Remainder of 2021$1,494 
20226,110 
20236,435 
20246,797 
20257,125 
Thereafter19,176 
Total undiscounted cash flows47,137 
Less: imputed interest(1,302)
Present value of lease payments1
$45,835 
1 Amount comprises a current and long-term portion of lease receivables of $5.7 million and $41.0 million, respectively, after giving effect to a $0.1 million current expected credit loss reserve on the long-term portion, which is reflected as a component of the net investment in sales-type leases presented in our condensed consolidated statement of financial position as customer financing receivables.
Future estimated operating lease payments we expect to 21 percent effective on January 1, 2018. The Company is required to remeasure the U.S. deferred tax assets and liabilities to the new tax rate. The U.S. operation is in a net deferred tax asset position, offset by a full valuation allowance.receive from Portfolio Financing arrangements through PPA Entities as of September 30, 2021, were as follows (in thousands):

Operating Leases
Remainder of 2021$10,850 
202244,205 
202345,290 
202446,533 
202547,553 
Thereafter264,018 
Total lease payments$458,449 

34

10. Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts):
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2018 2017 2018 2017
       
Numerator:        
Net loss $(45,677) $(63,475) $(63,393) $(123,007)
Less: noncumulative dividends to preferred stockholders —
 —
 —
 —
Less: undistributed earnings to participating securities —
 —
 —
 —
Net loss attributable to common stockholders-basic (45,677) (63,475) (63,393) (123,007)
Add: adjustments to undistributed earnings to participating securities —
 —
 —
 —
Net loss attributable to common stockholders-diluted $(45,677) $(63,475) $(63,393) $(123,007)
Denominator:        
Weighted average shares of common stock-basic 10,536
 10,209
 10,470
 10,176
Effect of potentially dilutive stock options —
 —
 —
 —
Weighted average shares of common stock-diluted 10,536
 10,209
 10,470
 10,176
Net loss per share attributable to common stockholders:        
Basic and diluted $(4.34) $(6.22) $(6.05) $(12.09)
The following common stock equivalents (in thousands) were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2018 2017 2018 2017
       
Convertible and non-convertible redeemable preferred stock 85,945
 85,009
 85,945
 85,009
Stock options to purchase common stock 2,148
 3,091
 2,148
 3,091
Convertible redeemable preferred stock warrants 60
 60
 60
 60
Convertible redeemable common stock warrants 312
 312
 312
 312
Total 88,465
 88,472
 88,465
 88,472
11. Stock-Based Compensation Expense and Employee Benefit PlanPlans
2002 Stock PlanStock-Based Compensation Expense
The Company's 2002 Stock Plan (the 2002 Plan) was approved in April 2002 and amended in June 2011. In August 2012 and in connection with the adoption of the 2012 Plan, shares authorized for issuance under the 2002 Plan were cancelled, except for those shares reserved for issuance upon exercise of outstanding stock options. Any outstanding stock options granted under the 2002 Plan will remain outstanding, subject to the terms of the 2002 Plan and applicable award agreements, until such shares are issued under those awards (by exercise of stock options) or until the awards terminate or expire by their terms. No additional awards have been or will be granted under the 2002 Plan after the adoption of the 2012 Equity Incentive Plan.
As of June 30, 2018, options to purchase 2.6 million shares of Class B common stock were outstanding under the 2002 Plan and no shares were available for future grant. As of June 30, 2018, the weighted average exercise price of outstanding options was $19.05 per share.

2012 Equity Incentive Plan
The Company's 2012 Equity Incentive Plan (the 2012 Plan) was approved in August 2012. The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights and restricted stock awards (RSUs), all of which may be granted to employees, including officers, and to non-employee directors and consultants except the Company may grant incentive stock options only to employees. Under the 2012 Plan, incentive and nonqualified stock options may be granted at a price not less than fair value and 85% of the fair value of common stock, respectively, and at 110% of fair value to holders of 10% or more of voting stock.
As of June 30, 2018, options to purchase 11.6 million shares of Class B common stock were outstanding under the 2012 Plan and 14.8 million shares were available for future grant. As of June 30, 2018, the weighted average exercise price of outstanding options under the 2012 Plan was $30.95 per share.
As of June 30, 2018, the Company had outstanding RSUs that may be settled for 3,107,101 shares of Class B common stock which were granted pursuant to the Company's 2012 Equity Incentive Plan.
2018 Equity Incentive Plan
The 2018 Equity Incentive Plan (the 2018 Plan) was approved in April, 2018. The 2018 Plan became effective upon the IPO and will serve as the successor to the 2012 Plan. The Company has reserved 13.3 million shares of Class A common stock under the 2018 Plan, and no more than 26.7 million shares of Class A common stock will be issued pursuant to the exercise of incentive stock options.
The 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards and stock bonuses. The 2018 Plan will provide for the grant of awards to employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options will be at least equal to the fair market value of Class A common stock on the date of grant.
Activity
The following table summarizes the components of employee and non-employee stock-based compensation expense in the condensed consolidated statements of operations (in thousands):
 Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2018 2017 2018 2017 2021202020212020
      
Cost of revenue $1,971
 $1,879
 $3,869
 $3,637
Cost of revenue$2,945 $3,568 $9,749 $13,811 
Research and development 1,739
 1,377
 3,376
 2,706
Research and development5,678 4,103 15,876 14,913 
Sales and marketing 1,214
 1,379
 2,166
 2,620
Sales and marketing4,391 2,234 12,486 8,358 
General and administrative 2,894
 3,383
 6,362
 5,700
General and administrative7,952 5,830 19,198 20,303 
Total stock-based compensation $7,818
 $8,018
 $15,773
 $14,663
$20,966 $15,735 $57,309 $57,385 
Stock Option and Stock Award Activity
The following table summarizes the stock option and RSU activity is as follows:under our stock plans during the reporting period:
 Outstanding Options
 Number of
Shares		Weighted
Average
Exercise
Price		Remaining
Contractual
Life (Years)		Aggregate
Intrinsic
Value
   (in thousands)
Balances at December 31, 202015,354,271 $21.27 6.0$129,855 
Exercised(2,597,003)23.90 
Cancelled(973,720)14.94 
Balances at September 30, 202111,783,548 21.22 5.450,366 
Vested and expected to vest at September 30, 202111,619,420 21.38 5.448,719 
Exercisable at September 30, 20219,328,149 24.26 4.925,881 
    Outstanding Options/RSUs  
  
Options/
RSUs
Available
for Grant
 
Number of
Shares
 
Outstanding
Options
Weighted
Average
Exercise
Price
 
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
          (in thousands)
Balances at December 31, 2016 2,768,450
 13,171,196
 $23.85
 6.11 $74,717
Added to plan 647,159
 —
      
Granted (2,698,594) 2,698,594
 $30.96
    
Exercised —
 (157,049) $2.76
    
Cancelled 967,760
 (967,760) $7.44
    
Expired (647,159) —
      
Balances at December 31, 2017 1,037,616
 14,744,981
 $26.42
 6.19 $52,703
Added to plan 13,878,793
 —
      
Granted (423,854) 423,854
 $27.95
    
Exercised —
 (219,724) $3.69
    
Cancelled 813,078
 (813,078) $9.32
    
Expired (543,306) —
      
Balances at June 30, 2018 14,762,327
 14,136,033
 $28.11
 6.16 $31,403
Vested and expected to vest at June 30, 2018   10,917,867
 $28.08
 6.13 $31,402
Exercisable at June 30, 2018   7,483,523
 $26.77
 5.04 $31,349

Stock Options -During the three months ended JuneSeptember 30, 20182021 and 2017, the Company2020, we recognized $7.6$2.7 million and $7.4$4.4 million of employee stock-based compensation expense for stock options, respectively. During the sixnine months ended JuneSeptember 30, 20182021 and 2017, the Company2020, we recognized $15.4$10.0 million and $13.9$14.9 million of employee stock-based compensation expense for stock options, respectively. No stock-based compensation costs were capitalizedWe did not grant options in the three and sixnine months ended JuneSeptember 30, 2018 and 2017.
During the three months ended June 30, 2018 and 2017, the Company recognized $0.2 million and $0.1 million2021. We granted 200,000 options of non-employee stock-based compensation expense, respectively. During the six months ended June 30, 2018 and 2017, the Company recognized $0.4 million and $0.8 million of non-employee stock-based compensation expense, respectively. No non-employee stock-based compensation costs were capitalized inClass A common stock during the three and sixnine months ended JuneSeptember 30, 20182020 and 2017.
During the three months ended June 30, 2018 and 2017, the intrinsicweighted average grant-date fair value of stockthose options exercised was $3.9 million and $2.2 million, respectively. During the six months ended June 30, 2018 and 2017, the intrinsic value of stock options exercised was $5.9 million and $2.5 million, respectively.
The Company granted 313,909 and 1,519,861 options during the three months ended June 30, 2018 and 2017, respectively. The Company granted 423,854 and 1,681,673 options during the six months ended June 30, 2018 and 2017, respectively.$7.30 per share.
As of JuneSeptember 30, 2018 the Company2021 and 2020, we had unrecognized compensation costexpense related to unvested stock options of $52.6 million.$9.0 million and $25.1 million, respectively. This expense is expected to be recognized over the remaining weighted-average period of 2.12 years. The Company had no excess tax benefits in1.2 years and 2.1 years, respectively. Cash received from stock options exercised totaled $62.1 million and $4.2 million for the three and sixnine months ended JuneSeptember 30, 20182021 and 2017.2020, respectively.
Restricted
35

A summary of our stock awards activity and related information is as follows:
Number of
Awards
Outstanding		Weighted
Average Grant
Date Fair
Value
Unvested Balance at December 31, 20206,418,788 $13.71 
Granted5,566,751 24.27 
Vested(2,533,027)16.65 
Forfeited(1,184,222)16.37 
Unvested Balance at September 30, 20218,268,290 19.54 
Stock Units (RSUs)Awards - RSU award shares shall begin vesting at the end of the lock-up period following the IPO, and the remaining shares will vest on the first and second anniversary date of such date. The estimated fair value of RSU awardsrestricted stock units ("RSUs") and performance stock units ("PSUs") is based on the fair value of the Company’sour Class A common stock on the date of grant.
The total fair value of RSUs granted during For the three months ended JuneSeptember 30, 20182021 and 2017 was $0.92020, we recognized $15.8 million and $13.4$9.6 million of stock-based compensation expense for stock awards, respectively. The total fair value of RSUs granted duringFor the sixnine months ended JuneSeptember 30, 20182021 and 2017, was $1.32020, we recognized $40.6 million and $14.8$33.3 million of stock-based compensation expense for stock awards, respectively.
As of JuneSeptember 30, 2018, the Company2021 and 2020, we had $96.2$119.1 million and $62.0 million of unrecognized stock-based compensation costexpense related to unvested RSUs. This expense isstock awards, expected to be recognized over a weighted average period of 1.4 years.2.4 years and 2.2 years, respectively.

A summaryDuring 2020 and 2021, we granted PSUs to certain executive officers and employees that only vest upon the achievement of certain specific financial or operational performance criteria. Stock-based compensation expense associated with these PSUs is recognized over the service period as we evaluate the probability of the Company’s RSUachievement of the performance conditions.
In May 2021, we issued RSUs and PSUs to our Chief Executive Officer. The RSUs vest over four years. Some of the PSUs can be earned based on achieving certain financial performance goals while the remaining are earned based upon achieving certain stock price goals. The PSUs will be subject to a two-year post-vest holding period in which the award holder will be restricted from selling any shares (net of shares settled for taxes). As of September 30, 2021, the unamortized compensation expense for the RSUs and PSUs was $27.0 million. Actual compensation expense is dependent on the performance of the PSUs that vest based upon a performance condition. We estimated the fair value of the PSUs that vest based on a market condition on the date of grant using a Monte Carlo simulation with the following assumptions: (i) expected volatility of 71.2%, (ii) risk-free interest rate of 1.6%, and (iii) no expected dividend yield.
The following table presents the stock activity and related information isthe total number of shares available for grant under our stock plans as follows:of September 30, 2021:
  
Number of
Awards
Outstanding
 
Weighted
Average Grant
Date Fair
Value
     
Unvested Balance at December 31, 2016 2,666,446
 $30.95
Granted 552,481
 30.96
Vested (33,896) 30.96
Forfeited (44,453) 30.95
Unvested Balance at December 31, 2017 3,140,578
 30.95
Granted 41,246
 30.96
Vested (3,615) 30.96
Forfeited (71,108) 30.94
Unvested Balance at June 30, 2018 3,107,101
 $30.95
Plan Shares Available
for Grant
Balances at December 31, 202020,233,754 
Added to plan7,969,144 
Granted(5,566,751)
Cancelled2,157,942 
Expired(358,854)
Balances at September 30, 202124,435,235 
2018 Employee Stock Purchase Plan
In April 2018,During the Company adoptednine months ended September 30, 2021 and 2020, we recognized $4.5 million and $5.2 million of stock-based compensation expense for the 2018 Employee Stock Purchase Plan, (ESPP). The ESPP became effective uponrespectively. We issued 1,945,305 shares in the IPO in July 2018nine
36

months ended September 30, 2021. During the nine months ended September 30, 2021, we added an additional 1,902,572 shares and subsequent to the date of these financial statements. The ESPP is intended to qualify under Section 423 of the Code. 3,333,333there were 2,544,668 shares of Class A common stock are initially reservedavailable for issuance under the ESPP.as of September 30, 2021.
Employee Benefit PlanAs of September 30, 2021 and 2020, we had $13.7 million and $2.6 million of unrecognized stock-based compensation expense, expected to be recognized over a weighted average period of 1.2 years and 0.5 years, respectively.
The Company maintains a tax-qualified 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age. Under the 401(k) plan, employees may elect to defer up to 60% of eligible compensation, subject to applicable annual Code limits. The Company does not match any contributions made by employees, including executives, but has the discretion to do so. The Company intends for the 401(k) plan to qualify under Section 401(a) and 501(a) of the Internal Revenue Code so that contributions and income earned on contributions are not taxable to employees until withdrawn from the plan.
12. Power Purchase Agreement Programs11. Portfolio Financings
Overview
In mid-2010,We have developed 3 financing options that enable customers' use of the Company began offering its Energy Servers through its Bloom Electrons program, which the Company denotes as Power Purchase Agreement Programs, financed via investment entities. Underthird-party ownership financing arrangements. For additional information on these arrangements, an operating entity is created (the Operating Company) which purchases the Energy Server from the Company. The end customer then enters into a power purchase agreement (PPA) with the Operating Company to purchase the power generated by the Energy Server(s) at a specified rate per kilowatt hour for a specified term which can range from 10 to 21 years. In some cases similar to direct purchases and leases, the standard one-year warranty and performance guarantees are included in the price of the product. The Operating Company also enters into a master services agreement (MSA) with the Company following the first year of service to extend the warranty services and guarantees over the term of the PPA. In other cases, the MSA, including warranties and guarantees, are billedfinancing options, see our Annual Report on a quarterly basis starting in the first quarter following the placed-in-service date of the energy server(s) and continuing over the term of the PPA. The first of such arrangements was considered a sales-type lease and the product revenue from that agreement was recognized up-front in the same manner as direct purchase and lease transactions. Substantially all of the Company’s subsequent PPAs have been accounted for as operating leases with the related revenue under those agreements recognized ratably over the PPA term as electricity revenue. The Company recognizes the cost of revenue, primarily product costs and maintenance service costs, over the shorter of the estimated useful life of the Energy Server or the term of the PPA.
The Company and third-party equity investors (Equity Investors) contribute funds into a limited liability investment entity (Investment Company) that owns and is parent to the Operating Company (together, the PPA Entities). The PPA Entities constitute variable investment entities (VIEs) under US GAAP. The Company has considered the provisions within the contractual agreements which grant it power to manage and make decisions affecting the operations of these VIEs. The Company considers that the rights granted to the Equity Investors under the contractual agreements are more protective in nature rather than participating. Therefore, the Company has determined under the power and benefits criterion of ASC 810 - Consolidations thatit is the primary beneficiary of these VIEs.

As the primary beneficiary of these VIEs, the Company consolidates in its financial statements the financial position, results of operations and cash flows of the PPA Entities, and all intercompany balances and transactions between the Company and the PPA Entities are eliminated in the consolidated financial statements.
The Company established six different PPA Entities to date. The contributed funds are restricted for use by the Operating Company to the purchase Energy Servers manufactured by the Company in its normal course of operations. All six PPA Entities utilized their entire available financing capacity and completed the purchase of Energy Servers as of June 30, 2018. Any debt incurred by the Operating Companies is non-recourse to the Company. Under these structures, each Investment Company is treated as a partnership for U.S. federal income tax purposes. Equity Investors receive investment tax credits and accelerated tax depreciation benefits.
The Operating Company acquires Energy Servers from the Company for cash payments that are made on a similar schedule as if the Operating Company were a customer purchasing an Energy Server from the Company outright. In the consolidated financial statements, the sale of Energy Servers by the Company to the Operating Company are treated as intercompany transactions after the elimination of intercompany balances. The acquisition of Energy Servers by the Operating Company is accounted for as a non-cash reclassification from inventory to Energy Servers within property, plant and equipment, net on the Company’s consolidated balance sheets. In arrangements qualifying for sales-type leases, the Company reduces these recorded assets by amounts received from U.S. Treasury Department cash grants and from similar state incentive rebates.
The Operating Company sells the electricity to end customers under PPAs. Cash generated by the electricity sales, as well as receipts from any applicable government incentive program, is used to pay operating expenses (including the management and services the Company provides to maintain the Energy Servers over the term of the PPA) and to service the non-recourse debt, with the remaining cash flows distributed to the Equity Investors. In transactions accounted for as sales-type leases, the Company recognizes subsequent customer billings as electricity revenue over the term of the PPA and amortizes any applicable government incentive program grants as a reduction to depreciation of the Energy Server over the term of the PPA. In transactions accounted for as operating leases, the Company recognizes subsequent customer payments and any applicable government incentive program grants as electricity revenue over the term of the PPA.
Upon sale or liquidation of a PPA Entity, distributions would occur in the order of priority specified in the contractual agreements.

The table below shows the details of the Investment Companies from inception to the periods indicated (dollars in thousands):
  PPA I 
PPA
Company II
 
PPA
Company IIIa
 
PPA
Company IIIb
 
PPA
Company IV
 
PPA
Company V
Maximum size of installation (in megawatts) 25 30 10 6 21 40
Term of power purchase agreements (years) 10 21 15 15 15 15
First system installed Sep-10 Jun-12 Feb-13 Aug-13 Sep-14 Jun-15
Last system installed Mar-13 Nov-13 Jun-14 Jun-15 Mar-16 Dec-16
Income (loss) and tax benefits allocation to Equity Investor 99% 99% 99% 99% 90% 99%
Cash allocation to Equity Investor 80% 99% 99% 99% 90% 90%
Income (loss), tax and cash allocations to Equity Investor after the flip date 22% 5% 5% 5% No flip No flip
Equity Investor(1) Credit Suisse Credit Suisse US Bank US Bank Exelon
Corporation		 Exelon
Corporation
Put option date(2) 10th anniversary
of initial
funding date		 10th anniversary
of initial
funding date		 1st anniversary
of flip point		 1st anniversary
of flip point		 N/A N/A
Activity as of June 30, 2018:
Installed size (in megawatts) 5
 30
 10
 5
 19
 37
Company cash contributions $180,699
 $22,442
 $32,223
 $22,658
 $11,669
 $27,932
Company non-cash contributions(3) $—
 $—
 $8,655
 $2,082
 $—
 $—
Equity Investor cash contributions $100,000
 $139,993
 $36,967
 $20,152
 $84,782
 $227,344
Distributions to Equity Investor $(81,016) $(116,942) $(3,691) $(1,604) $(4,275) $(63,936)
Debt financing $—
 $144,813
 $44,968
 $28,676
 $99,000
 $131,237
Debt repayment—principal $—
 $(59,300) $(3,668) $(3,523) $(14,582) $(4,274)
Activity as of December 31, 2017:          
Installed size (in megawatts) 5
 30
 10
 5
 19
 37
Company cash contributions $180,699
 $22,442
 $32,223
 $22,658
 $11,669
 $27,932
Company non-cash contributions(3) $—
 $—
 $8,655
 $2,082
 $—
 $—
Equity Investor cash contributions $100,000
 $139,993
 $36,967
 $20,152
 $84,782
 $227,344
Distributions to Equity Investor $(81,016) $(111,296) $(3,324) $(1,404) $(2,565) $(60,286)
Debt financing $—
 $144,813
 $44,968
 $28,676
 $99,000
 $131,237
Debt repayment—principal $—
 $(53,726) $(3,041) $(3,077) $(13,697) $(2,834)
(1)Investor name represents ultimate parent of subsidiary financing the project.
(2)Investor right on the certain date, upon giving the Company advance written notice, to sell the membership interests to the Company or resign or withdraw from the Company.
(3)Non-cash contributions consisted of warrants that were issued by the Company to respective lenders to each PPA Entity, as required by such entity’s credit agreements. The corresponding values are being amortized using the effective interest method over the debt term.
Some of the Company's PPA Entities contain structured provisions whereby the allocation of income and equity to the Equity Investors changes at some point in time after the formation of the PPA Entity. The change in allocations to Equity Investors (or the "flip") occurs based either on a specified future date or once the Equity Investors reaches its targeted rate of return. For PPA Entities with a specified future dateForm 10-K for the flip, the flip occurs January 1 of the calendarfiscal year immediately following the year that includes the fifth anniversary of the date the last site achieves commercial operation.
The noncontrolling interests in PPA Company II, PPA Company IIIa and PPA Company IIIb are redeemable as a result of the put option held by the Equity Investors. The redemption value is the put amount. At June 30, 2018, andended December 31, 2017, the carrying value of redeemable noncontrolling interests of $54.9 million and $58.2 million, respectively, exceeded the maximum redemption value.

2020.
PPA Entities’ Aggregate Assets and Liabilities
Generally, Operating Companythe assets of an operating company owned by an investment company can be used to settle only the Operating Companyoperating company obligations, and Operating Companythe operating company creditors do not have recourse to us. The following are the Company. The aggregate carrying values of the PPA Entities’our VIEs' assets and liabilities in the Company'sour condensed consolidated balance sheets, after eliminations of intercompany transactions and balances, wereincluding each of the PPA Entities in the PPA IIIa transaction, the PPA IV transaction and the PPA V transaction (in thousands):
 September 30,December 31,
20212020
   
Assets
Current assets:
Cash and cash equivalents$3,069 $1,421 
Restricted cash1,256 4,698 
Accounts receivable4,262 4,420 
Customer financing receivable5,693 5,428 
Prepaid expenses and other current assets3,072 3,048 
Total current assets17,352 19,015 
Property and equipment, net234,436 252,020 
Customer financing receivable, non-current40,981 45,268 
Restricted cash, non-current15,224 15,320 
Other long-term assets— 37 
Total assets$307,993 $331,660 
Liabilities
Current liabilities:
Accrued expenses and other current liabilities$15,430 $19,510 
Deferred revenue and customer deposits662 662 
Non-recourse debt7,782 120,846 
Total current liabilities23,874 141,018 
Deferred revenue and customer deposits, non-current5,577 6,072 
Non-recourse debt, non-current439,779 102,045 
Total liabilities$469,230 $249,135 
We consolidated each PPA Entity as follows:
  June 30,
2018		 December 31,
2017
     
Assets    
Current assets    
Cash and cash equivalents��$9,691
 $9,549
Restricted cash 4,735
 7,969
Accounts receivable 7,293
 7,680
Customer financing receivable 5,398
 5,209
Prepaid expenses and other current assets 1,802
 6,365
Total current assets 28,919
 36,772
Property and equipment, net 414,684
 430,464
Customer financing receivable, non-current 69,963
 72,677
Restricted cash 27,604
 26,748
Other long-term assets 4,423
 3,767
Total assets $545,593
 $570,428
Liabilities    
Current liabilities    
Accounts payable $482
 $520
Accrued other current liabilities 1,569
 2,378
Deferred revenue and customer deposits 786
 786
Current portion of debt 19,655
 18,446
Total current liabilities 22,492
 22,130
Derivative liabilities 2,528
 5,060
Deferred revenue 9,092
 9,482
Long-term portion of debt 333,102
 342,050
Other long-term liabilities 1,514
 1,226
Total liabilities $368,728
 $379,948
As stated above,VIEs in the Company is aPPA IV transaction and the PPA V transaction, as we remain the minority shareholder in each of these transactions but have determined that we are the PPA Entities for the administrationprimary beneficiary of the Company's Bloom Electrons program.these VIEs. These PPA Entities contain debt that is non-recourse to the Company. The PPA Entities alsous and own Energy Server assets for which the Company doeswe do not have title. Although

37

12. Related Party Transactions
Our operations include the Company will continue to have Power Purchase Agreement Program entities in the future and offer customers the ability to purchase electricity without the purchase of Energy Servers, the Company does not intend to be a minority investor in any new Power Purchase Agreement Program entities.

The Company believes that by presenting assets and liabilities separate from the PPA Entities, it provides a better view of the true operations of the Company's core business. The table below provides detail into the assets and liabilities of Bloom Energy separate from the PPA Entities. The following table shows Bloom Energy, the PPA Entities combined and Company consolidated balances as of June 30, 2018, and December 31, 2017related party transactions (in thousands):
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
Total revenue from related parties$3,333 $742 $8,227 $2,672 
Interest expense to related parties— 353 — 2,513 
  June 30, 2018 December 31, 2017
  Bloom PPA Entities Consolidated Bloom PPA Entities Consolidated
     
Assets            
Current assets $361,354
 $28,919
 $390,273
 $383,209
 $36,772
 $419,981
Long-term assets 250,790
 516,674
 767,464
 267,350
 533,656
 801,006
Total assets 612,144
 545,593
 1,157,737
 650,559
 570,428
 1,220,987
Liabilities            
Current liabilities 215,303
 2,837
 218,140
 247,464
 3,684
 251,148
Current portion of debt 10,351
 19,655
 30,006
 1,690
 18,446
 20,136
Long-term liabilities 531,137
 13,134
 544,271
 513,367
 15,768
 529,135
Long-term portion of debt 597,021
 333,102
 930,123
 579,155
 342,050
 921,205
Total liabilities $1,353,812
 $368,728
 $1,722,540
 $1,341,676
 $379,948
 $1,721,624
Bloom Energy Japan Limited
In May 2013, we entered into a joint venture with Softbank Corp. ("Softbank"), which was accounted for as an equity method investment. Under this arrangement, we sold Energy Servers and provided maintenance services to the joint venture. On July 1, 2021 (the "BEJ Closing Date"), we acquired Softbank's 50% interest in the joint venture for a cash payment of $2.0 million and subject to a $3.6 million earn out. As of the BEJ Closing Date, Bloom Energy Japan Limited ("Bloom Energy Japan") is no longer considered a related party.
For the three and nine months ended September 30, 2020, we recognized related party total revenue of $0.7 million and $2.7 million, respectively. For the nine months ended September 30, 2021, we recognized related party total revenue of $1.6 million. We had no accounts receivable from this joint venture as of September 30, 2021.
SK ecoplant Joint Venture
In September 2019, we entered into a joint venture agreement with SK ecoplant 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 and is accounted for as a consolidated subsidiary. For the three and nine months ended September 30, 2021, we recognized related party revenue of $3.3 million and $6.6 million, respectively. As of September 30, 2021, we had outstanding accounts receivable of $3.6 million. We recognized no related party revenue for the three and nine months ended September 30, 2020.
13. Commitments and Contingencies
Commitments
Leases - The Company leases its facilities, office buildings and equipment under operating leases that expire at various dates through December 2020. The Company’s headquarters are used for corporate administration, research and development, sales and marketing and manufacturing, and currently consists of approximately 31,000 square feet of occupied space in Sunnyvale, California under lease through December 2018. In April 2018, the Company entered into a new lease for the Company's headquarters commencing in January 2019 to occupy approximately 181,000 square feet of office space in San Jose, California through December 2028.
During the three months ended June 30, 2018 and 2017, rent expense for all occupied facilities was $1.4 million and $1.4 million, respectively. During the six months ended June 30, 2018 and 2017, rent expense for all occupied facilities was $2.9 million and $2.9 million, respectively.
Beginning in December 2015, the Company is a party to master lease agreements that provide for the sale of Energy Servers to third parties and the simultaneous leaseback of the systems, which the Company then subleases to its customers. The lease agreements expire on various dates through 2025 and there was no rent expense for the three and six months ended June 30, 2018 and 2017.
At June 30, 2018, future minimum lease payments under operating leases were as follows (in thousands):
Remainder of 2018$3,781
20197,398
20206,882
20215,097
20224,382
Thereafter25,249
 $52,789
Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and ensure an adequate supply of inventories, the Company has agreements with its component suppliers and contract manufacturers to allow them to procure long lead-time component inventory based on a rolling production forecast. The Company is contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in

accordance with its forecasts. The Company can generally give notice of order cancellation at least 90 days prior to the delivery date. However, the Company issues purchase orders to its component suppliers and third-party manufacturers that may not be cancelable. As of JuneSeptember 30, 20182021 and December 31, 2017, the Company2020, we had no material open purchase orders with itsour component suppliers and third-party manufacturers that are not cancelable.cancellable.
Power Purchase Agreement ProgramPortfolio Financings Performance Guarantees - Under the terms of the Bloom Electrons program (Refer to Note 12 - Power Purchase Agreement Programs), customers agree to purchase power from the Company’s Energy Servers at negotiated rates, generally for periods of up to twenty-one years. The Company is responsible for all operating costs necessary to maintain, monitor and repair the Energy Servers, including the fuel necessary to operate the systems for some PPA contracts. The risk associated with the future market price of fuel purchase obligations is mitigated with commodity contract futures.
The PPA EntitiesWe guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. TheWe paid $0.2 million and $5.7 million for the nine months ended September 30, 2021 and 2020, respectively.
Letters of Credit - In 2019, pursuant to the PPA Entities monitorII upgrade of Energy Servers, we agreed to indemnify our financing partner for losses that may be incurred in the needevent of certain regulatory, legal or legislative development and established a cash-collateralized letter of credit facility for any accruals arising fromthis purpose. As of September 30, 2021, the balance of this cash-collateralized letter of credit was $99.4 million, of which $34.2 million and $65.2 million is recognized as short-term and long-term restricted cash, respectively.
Pledged Funds - In 2019, pursuant to the PPA IIIb refinancing and energy servers upgrade program, we pledged $20.0 million for a seven-year period to secure our operations and maintenance obligations with respect to the totality of our obligations to the financier. We categorized the $20.0 million as restricted cash on our condensed consolidated balance sheet as of December 31, 2019. It was agreed all or a portion of such guarantees, which are calculatedfunds would be released if we meet certain credit rating and/or market capitalization milestones prior to the end of the pledge period. If we do not meet the required criteria within the first five-year period, the funds would still be released to us over the following two years as long as the difference between committedenergy servers continue to perform in compliance with our warranty obligations. In December of 2020, we met our first milestone and actual power output33% or between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by$6.6 million
of the contractual rates with the customer. Amounts payable under these guarantees are accrued in periods when the guarantees are not met and are recorded in cost of service revenue in the consolidated statements of operations. The PPA Entities did not have any such payments during the three and six months ended June 30, 2018 and 2017$20.0 million was released and no such liabilities aslonger required to be pledged. As of JuneSeptember 30, 2018 and December 31, 2017.2021, the balance of the long-term restricted cash was $13.3 million.
Contingencies
Indemnification Agreements - The Company entersWe enter into standard indemnification agreements with itsour customers and certain other business partners in the ordinary course of business. The Company’sOur exposure under these agreements is unknown because it involves future claims that may be made against the Company in the future,us but have not yet been made. To date, the Company haswe have not paid any claims or been required to defend any action related to itsour indemnification obligations. However, the Companywe may record charges in the future as a result of these indemnification obligations.
Warranty Costs Contingent Consideration - Our acquisition of Softbank's 50% interest in Bloom Energy Japan included a contingent consideration related to a potential sale of Energy Servers of up to 10.5 megawatts of aggregate baseload. We recorded a contingent consideration of $3.6 million in other long-term liabilities. The Company generally warrants its products sold to its direct customers for oneconsideration can be earned on or before the two year following the date of acceptanceanniversary of the products (the standard one-year warranty). As partBEJ Closing Date. For a further discussion of its MSAs, the Company provides output and efficiency guarantees (collectively “performance guarantees”) to its customers when systems operate below contractually specified levelsour acquisition of efficiency and output. Such amounts have not been material to date.
The standard one-year warranty covers defects in materials and workmanship under normal use and service conditions, and against manufacturing or performance defects. The Company’s warranty accrual represents its best estimate of the amount necessary to settle future and existing claims during the warranty period, as of the balance sheet date.
The Company’s obligations under its standard one-year warranty and MSA agreements are generallySoftbank's interest in the form of product replacement, repair or reimbursement for higher customer electricity costs. Further, if the Energy Servers run at a lower efficiency or power output than the Company committed under its performance guarantee, the Company will reimburse the customer for the underperformance. The Company’s aggregate reimbursement obligation for this performance guarantee for each order is capped at a portion of the purchase price.joint venture, please see Note 17 - Business Combinations.
Delaware Economic Development Authority - In March 2012, the Companywe entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 million to us as an incentive to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. The grant contains two types of milestones that the Company must complete to retain the entire amount of the grant proceeds. The first milestone was to provide employment for 900 full time workers in Delaware by the end of the first recapture periodAs of September 30, 2017. The second milestone was to pay these full time workers a cumulative total of $108.02021, we have recorded $1.0 million in compensation by September 30, 2017. Further, there are two additional recapture periods at which time the Company must continue to employ 900 full time workerscurrent liabilities and the cumulative total compensation paid by the Company is required to be at least $324.0 million by September 30, 2023. As of June 30, 2018, the Company had 328 full time workers in Delaware and paid $80.4 million in cumulative compensation. The Company has so far received $12.0 million of the grant which is contingent upon meeting the milestones through September 30, 2023. In the event that the Company does not meet the milestones, it may have to repay the Delaware Economic Development Authority including up to $5.0 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. As of June 30, 2018, the Company had paid $1.5 million for recapture provisions and have recorded $10.5$9.5 million in other long-term liabilities for any potential repayments.future repayments of this grant.
Self-Generation Incentive Program (SGIP) - The Company’s PPA Entities’ customers receive payments under the SGIP which is a program specific to the State of California that provides financial incentives for the installation of new, qualifying self-generation equipment that the Company owns. The SGIP program issues 50% of the fully anticipated amount in the first year the equipment is placed into service. The remaining incentive is then paid based on the size of the equipment (i.e., nameplate kilowatt capacity) over the subsequent five years.

The SGIP program has operational criteria primarily related to fuel mixture and minimum output for the first five years after the qualified equipment is placed in service. If the operational criteria are not fulfilled, it could result in a partial refund of funds received. However, for certain PPA Entities, the Company makes SGIP reservations on behalf of the PPA Entity and therefore, the PPA Entity bears the risk of loss if these funds are not paid.
Investment Tax Credits (ITC) - Through December 31, 2016, purchase of the Company’sOur Energy Servers wereare eligible for federal investment tax credits, or ITCs that accrued to eligiblequalified property under Internal Revenue Code Section 48. The48 when placed into service. However, the ITC program has operational criteria that extend for the first five years after the qualified equipment is placed in service.years. If the qualified energy property is disposed of or otherwise ceases to be qualified investment credit property before the close of the five yearfive-year recapture period is fulfilled, it could result in a partial reduction of the incentives. The Company's purchase of Energy Servers wereare purchased by the PPA Entities, other financial sponsors, or customers and, therefore, the PPA Entitiesthese parties bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future.future although in certain limited circumstances we do provide indemnification for such risk.
Legal Matters - From time to time, the Company isWe are involved in disputes, claims, litigation, investigations,various legal proceedings and/or other legal actions consisting of commercial, securities, and employment matters that arise in the ordinary course of business. The Company reviewsWe review all legal matters at least quarterly and assessesassess whether an accrual for loss contingencies needs to be recorded. The assessment reflects the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular situation. The Company recordsWe record an accrual for loss contingencies when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so the actual liability in any such matters may be materially different from the Company’sour estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on the Company’sour consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.

In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a statement of claim with the American Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27, 2014 (the “Confidential Agreement”). On May 7, 2019, KPCB and NEA were dismissed with prejudice. On June 15, 2019, a second amended statement of claim was filed against us alleging securities fraud, fraudulent inducement, a breach of the Confidential Agreement, and violation of the California unfair competition law. On July 16, 2019, we filed our answering statement and affirmative defenses. On September 27, 2019, we filed a motion to dismiss the statement of claim. On March 24, 2020, the Tribunal denied our motion to dismiss in part, and ordered that claimant’s relief is limited to rescission of the Confidential Agreement or remedies consistent with rescission, and not expectation damages. On September 14, 2020, the Tribunal issued an interim order dismissing the claimant’s remaining claims and requesting further briefing on the issue of prevailing party. On November 10, 2020, the Tribunal issued an order declaring us the prevailing party and requesting a motion for award of attorney’s fees. On March 17, 2021, we received the final award for attorneys' fees and costs. On March 26, 2021, we filed a petition in the Northern District of California to confirm the award. Messrs. Badger and Daubenspeck have taken the position that the award should be vacated, including on the ground that one of the arbitrators made insufficient disclosures or was biased against them. The Northern District of California rejected the arguments made by Messrs. Badger and Daubenspeck and confirmed the arbitration award and entered a separate judgment in our favor as stated in the final award.
In June 2019, Messrs. Daubenspeck and Badger filed a complaint against our Chief Executive Officer ("CEO") and our former Chief Financial Officer ("CFO") in the United States District Court for the Northern District of Illinois asserting nearly identical claims as those in the pending arbitration discussed above. The lawsuit was stayed pending the outcome of the
arbitration. The stay was lifted on October 20, 2020. On March 19, 2021 we filed a motion to dismiss the case on several grounds. On May 3, 2021, plaintiffs filed a motion to stay the lawsuit pending the outcome of the petition to confirm the arbitration award in the Northern District of California. We believe the complaint to be without merit and that the issues were previously tried and dismissed in the arbitration. We are unable to estimate any range of reasonably possible losses.
In March 2019, the Lincolnshire Police Pension Fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara, against us, certain members of our senior management, certain of our directors and the underwriters in our July 25, 2018 initial public offering ("IPO") alleging violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the "Securities Act"), for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with the IPO. Two related class action cases were subsequently filed in the Santa Clara County Superior Court against the same defendants containing the same allegations; Rodriquez vs Bloom Energy et al. was filed on April 22, 2019 and Evans vs Bloom Energy et al. was filed on May 7, 2019. These cases have been consolidated. Plaintiffs' consolidated amended complaint was filed with the court on September 12, 2019. On October 4, 2019, defendants moved to stay the lawsuit pending the federal district court action discussed below. On December 7, 2019, the Superior Court issued an order staying the action through resolution of the parallel federal litigation mentioned below. We believe the complaint to be without merit and we intend to defend this action vigorously. We are unable to estimate any range of reasonably possible losses.

In May 2019, Elissa Roberts filed a class action complaint in the federal district court for the Northern District of California against us, certain members of our senior management team, and certain of our directors alleging violations under Section 11 and 15 of the Securities Act for alleged misleading statements or omissions in our Registration Statement on Form S-1 filed with the SEC in connection with the IPO. On September 3, 2019, James Hunt was appointed as lead plaintiff and Levi & Korsinsky was appointed as plaintiff’s counsel. On November 4, 2019, plaintiffs filed an amended complaint adding as defendants our IPO underwriters, adding claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and extending the putative class period to September 16, 2019. On April 21, 2020, plaintiffs filed a second amended complaint adding claims under the Securities Act. The second amended complaint also adds
PricewaterhouseCoopers ("PwC") as a defendant, adds allegations pertaining to the February 2020 revision and restatement of our financial statements for certain previous periods, and, as to claims under the Exchange Act, extends the putative class period through February 12, 2020. On July 1, 2020, we moved to dismiss the second amended complaint. On September 29, 2021, the court entered an order dismissing with leave to amend (1) plaintiffs’ Securities Act claims as to five of seven challenged statements or groups of statements, and (2) plaintiffs’ Exchange Act claims in their entirety. On October 22, 2021, plaintiffs moved for entry of final judgment as to the dismissal of their claims against PwC, which would enable plaintiffs to immediately appeal that dismissal. We intent to respond by opposing this motion unless plaintiffs agree to waive their right to seek to amend and their right to appeal the dismissed claims against us and underwriter defendants. We believe the complaint to be without merit and we intend to defend this action vigorously. We are unable to predict the outcome of this litigation at this time and accordingly are not able to estimate any range of reasonably possible losses.
In September 2019, we received a books and records demand from purported stockholder Dennis Jacob (“Jacob Demand”). The Jacob Demand cites allegations from the September 17, 2019 report prepared by admitted short seller Hindenburg Research. In November 2019, we received a substantially similar books and records demand from the same law firm on behalf of purported stockholder Michael Bolouri (“Bolouri Demand” and, together with the Jacob Demand, the “Demands”). On January 13, 2020, Messrs. Jacob and Bolouri filed a complaint in the Delaware Court of Chancery to enforce the Demands in the matter styled Jacob, et al. v. Bloom Energy Corp., C.A. No. 2020-0023-JRS. On March 9, 2020, Messrs. Jacob and Bolouri filed an amended complaint in the Delaware Court of Chancery to add allegations regarding the restatement. The court held a one-day trial on December 7, 2020. On February 25, 2021, the Delaware Court of Chancery issued a decision rejecting the Bolouri Demand but granting in part the Jacob Demand allowing limited access to certain books and records pertaining to the allegations made in the Hindenburg Research Report. On March 29, 2021, the Court of Chancery entered a Final Order and Judgment regarding the required production of documents. On April 28, 2021, we produced documents to Mr. Jacob that were responsive to the Final Order and Judgment. We are unable to estimate any range of reasonably possible losses.
In March 2020, Francisco Sanchez filed a class action complaint in Santa Clara County Superior Court against us alleging certain wage and hour violations under the California Labor Code and Industrial Welfare Commission Wage Orders and that we engaged in unfair business practices under the California Business and Professions Code, and in July 2020 he amended his complaint to add claims under the California Labor Code Private Attorneys General Act. On November 30, 2020, we filed a motion to compel arbitration and the motion was to be heard on March 5, 2021. On February 24, 2021, Mr. Sanchez dismissed the individual and class action claims without prejudice, leaving one cause of action for enforcement of the Private Attorney Generals Act. In April 2021, an amended complaint reflecting these changes was filed with the Santa Clara Superior Court. The parties have agreed to attend a mediation on January 10, 2022. Given that the case is still in its early stages, we are unable to estimate any range of reasonably possible losses.

In June 2021, we filed a petition for writ of mandate and a complaint for declaratory and injunctive relief in the Santa Clara Superior Court against the City of Santa Clara for failure to issue building permits for two of our customer installations and asking the court to require the City of Santa Clara to process and issue the building permits. On October 6, 2021, we filed an amended complaint against the City of Santa Clara adding additional claims for damages, including violations of due process, equal protection, retaliation and interference with prospective economic advantage. If we are unable to secure building permits for these customer installations in a timely fashion, our customers will terminate their contracts with us and select another energy provider. In addition, if we are no longer able to install our Energy Servers in Santa Clara under building permits, we may not able to secure future customer bookings for installation in the City of Santa Clara.
14. Segment Information and Concentration of Risk
Segments and the Chief Operating Decision Maker (CODM)
The Company’sOur chief operating decision makers (CODMs)("CODMs"), the Chief Executive OfficerCEO and the Chief Financial Officer,CFO, review financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The CODMs allocate resources and make operational decisions based on direct involvement with the Company’sour operations and product development efforts. The Company isWe are managed under a functionally-based organizational structure with the head of each function reporting to the Chief Executive Officer.CEO. The CODMs assess performance, including incentive compensation, based upon consolidated operations performance and financial results on a consolidated basis. As such, the Company haswe have a single operating unit structure and are a single reporting segment and operating unit structure.segment.
Concentration of Geographic Risk
Substantially all of the Company’s revenue and long-lived assets are attributable to operations in the United States for all periods presented.15. Income Taxes
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivables, customer financing lease receivables and counterparties to derivative instruments.
The Company only invests cash and cash equivalents in institutions which maintain the highest ratings of creditworthiness. Short-term investments consist of U.S. Treasury Bills. The Company conducts periodic evaluations of the creditworthiness of its customers and the collectability of its accounts receivable and financing leases receivable and provides for potential credit losses as necessary in the consolidated financial statements. The Company limits its credit risk on derivative instruments by dealing only with counterparties that are considered to be of high credit quality.
To date, the Company has neither provided an allowance for uncollectible accounts nor experienced any credit loss.
Concentrations of Customer Risk
The Company's Energy Servers are sold at a significant purchase price with few numerical sales in any given quarter. Consequently in any particular period, a substantial proportion of total revenue is concentrated in a relatively small number of customers. In subsequent periods, the same is true for a different set of customers. Therefore, although revenue is highly concentrated in a few customers in a single quarterly period, such is not the case when examining revenue over longer terms.
InFor the three months ended JuneSeptember 30, 2018, total revenue2021 and 2020, we recorded provisions for income taxes of $0.2 million and an immaterial amount on pre-tax losses of $56.5 million and $17.9 million for effective tax rates of (0.3)% and 0.0%, respectively. For the nine months ended September 30, 2021 and 2020, we recorded provisions for income taxes of $0.6 million and $0.3 million on pre-tax losses of $144.3 million and $147.2 million for effective tax rates of (0.4)% and (0.2)%, respectively.
The effective tax rate for the three and nine months ended September 30, 2021 and 2020 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.
16. Net Loss per Share Available to Common Stockholders
The following table sets forth the computation of our net loss per share available to common stockholders, basic and diluted (in thousands, except share and per share amounts):
Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
   
Numerator:
Net loss available to Class A and Class B common stockholders$(52,370)$(11,954)$(131,122)$(130,415)
Denominator:
Weighted average shares of common stock, basic and diluted174,269 138,964 172,601 129,571 
Net loss per share available to Class A and Class B common stockholders, basic and diluted$(0.30)$(0.09)$(0.76)$(1.01)

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The following common stock equivalents (in thousands) were excluded from Macerichthe computation of our net loss per share available to common stockholders, diluted, for the three and nine months presented as their inclusion would have been antidilutive:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
   
Convertible notes14,187 32,957 14,187 31,765 
Stock options and awards5,415 6,321 6,998 5,518 
19,602 39,278 21,185 37,283 

17. Business Combinations
On July 1, 2021, we acquired Softbank's 50% interest in Bloom Energy Japan, for an aggregate purchase price of $2.0 million, as set forth in the Share Purchase Agreement between the parties (the "Purchase Agreement"). After purchasing the remaining 50% interest in Bloom Energy Japan from Softbank, we own 100% of Bloom Energy Japan. The Southern Company represented 19%transaction was accounted for as a step acquisition, which required the re-measurement of our previously held 50% ownership interest in the joint venture to fair value and 16%the acquired net assets became part of our operations upon closing.
In accordance with ASC 805, we allocated the purchase price of our acquisitions to the tangible assets, liabilities and intangible assets acquired based on fair values and we recorded the excess purchase price over those fair values as goodwill. The fair value of assets acquired and liabilities assumed as part of this transaction are not material. The fair value of net tangible assets acquired approximated their carrying value. The Purchase Agreement included an earn-out related to a potential sale of Energy Servers to an identified customer (up to 10.5 megawatts of aggregate baseload) for an additional payment of up to approximately $3.6 million, which can be earned on or before the two year anniversary of the Company’s total revenue, respectively. InBEJ Closing Date. We believe that the six months ended June 30, 2018, total revenue from The Southern Company and Korea Energy represented 53% and 17%fair value of this contingent consideration falls within Level 3 of the Company's total revenue, respectively. In the three months ended June 30, 2017, total revenue from Macerich and The Southern Company, represented 19% and 16% of the Company’s total

revenue, respectively. In the six months ended June 30, 2017, total revenue from The Southern Company and Korea Energy represented 53% and 17% of total revenue, respectively.
Concentrations of Supply Risk
The Company’s products are manufactured using a rare earth mineral. The suppliers for this raw material are primarily located in Asia. A significant disruption in the operations of one or more of these suppliers could impact the production of the Company’s products which could have a material adverse effect on its business, financial condition and results of operations.
Cybersecurity Risk
All of the Company's installed Energy Servers are connected to and controlled and monitored by the Company's centralized remote monitoring service. Additionally, the Company relies on internal computer networks for many of the systems used to operate the business generally. The Company may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and cyber-attacks. The Company takes protective measures and endeavors to modify these internal systems as circumstances warrant to prevent unauthorized intrusions or disruptions.
15. Related Party Transactions
The Company’s operations included the following related party transactions (in thousands):
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2018 2017 2018 2017
       
Interest paid or payable to related parties (included in interest expense) $13,923
 $9,414
 $25,985
 $16,930
Consulting expenses paid to related parties (included in general and administrative expense) 52
 50
 102
 101
As of June 30, 2018 and December 31, 2017, the Company had $108.8 million and $107.0 million, respectively, in debt and convertible notes from investors considered to be related parties.
8% Convertible Promissory Notes
In December 2014, the Company entered into a three year $132.2 million convertible promissory note agreements with certain investors, including $10.0 million each from related parties Alberta Investment Management Corporation, KPCB Holdings, Inc. and New Enterprise Associates. The notes were amended to mature in December 2018. The loans, which bear a fixed interest rate of 8.0%, compounded monthly, are due at maturity or at the election of the investor, with accrued interest due in December of each year which, at the election of the investor, can be paid or accrued. Investors have the right to convert the unpaid principal and accrued interest to Series G convertible preferred stock at any time at the price of $38.64. If an initial public offering occurs prior to the payment in full, the outstanding principal and accrued interest will mandatorily convert into Series G convertible preferred stock. As of June 30, 2018 and December 31, 2017, the Company had $39.9 million and $38.3 million, respectively, in 8% Convertible Promissory Notes from investors considered to be related parties. Upon completion of the initial public offering in July 2018, the 8% Notes converted into 1,038,050 Series G convertible preferred stock and concurrently converted into shares of Series B common stock.
6% Convertible Promissory Notes (Originally 5% Convertible Promissory Notes)
In December 2015, January 2016 and September 2016 the Company entered into six promissory note agreements with related parties Canadian Pension Plan Investment Board (CPPIB), New Enterprise Associates, KPCB Holdings, Inc., J.P. Morgan and one other non-related party. The totalfair value of the promissory notes is $260.0 million and originally bore a 5% fixed interest rate, compounded monthly, and are entirely due at maturity. Due to a reduction of collateralhierarchy as a result of the issuanceunobservable inputs used for the measurement of this future event and have recorded the value in other notes,long-term liabilities. Acquisition-related costs were expensed as incurred and were not material.
Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the expected benefits of streamlining our marketing and sales activities in Japan. We recognized acquired goodwill of $1.7 million which is is recorded in long-term assets as of September 30, 2021. This acquired goodwill is not deductible for tax purposes. In connection with the acquisition and as a 1%result of the re-measurement, we recognized $2.0 million fair value investment on the previously written-off equity investment in our original 50% interest increase was negotiated changing the interest rate from 5% to 6% effectivein Bloom Energy Japan as of July 1, 2017.2021 as a gain in other income (expense), net on our condensed consolidated statement of operations.
As of June 30, 2018 and December 31, 2017,
18. Subsequent Events
Other than those items discussed below, there have been no subsequent events that occurred during the amount outstandingperiod subsequent to the related parties was $27.6 million and $26.8 million, respectively, including accrued interest. Atdate of these condensed consolidated financial statements that would require adjustment to our disclosure in the election ofcondensed consolidated financial statements as presented.
Securities Purchase Agreement
On October 23, 2021, we entered into the investors, the accrued interest and the unpaid principal can be converted into common stock at any timeSPA with no provision for mandatory conversion upon the initial public offering. In certain circumstances, the notes are also redeemable at the Company’s option, in whole or in part,SK ecoplant in connection with a Changestrategic partnership. Pursuant to the SPA, we have agreed to sell to SK ecoplant 10,000,000 shares of Control orzero coupon, non-voting redeemable convertible Series A preferred stock in us, par value $0.0001 per share, (the “RCPS”), at a qualified IPO at a redemption price. In January 2018,purchase price of $25.50 per share or an aggregate purchase price of approximately $255.0 million (the “Initial Investment”). The SPA contains liquidation preferences, customary representations, warranties, covenants and conditions to the Company amended the termsclosing of the 6% NotesInitial Investment (the "First Closing"), including receipt of all approvals or the termination or expiration of all waiting periods required under applicable antitrust laws. The SPA
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may be terminated by either us or SK ecoplant if the First Closing has not occurred by December 31, 2021, subject to extendextension to March 31, 2022 in the convertible putevent certain approvals have not been obtained.
In addition to the Initial Investment, following the First Closing and on or prior to November 30, 2023, SK ecoplant will have the option dates(but not the obligation) to December 2019.

purchase a minimum of 11,000,000 shares of our Class A Common Stock at the higher of (i) $23.00 per share and (ii) 115 percent (115%) of the volume-weighted average closing price of the twenty (20) consecutive trading day period immediately preceding the notice to purchase such shares (the “Second Investment”). The maximum amount of capital stock that SK ecoplant and its subsidiaries may hold is capped at 15% of our issued and outstanding capital stock (inclusive of the RCPS purchased in the Initial Investment and any other purchases of our stock). The SPA contains customary representations, warranties, covenants and conditions to closing of the Second Investment. Simultaneous with the execution of the SPA, we and SK ecoplant have executed an Amendment to the Joint Venture Agreement, an amendment and restatement to our Preferred Distribution Agreement with SK ecoplant and a new Commercial Cooperation Agreement regarding initiatives pertaining to the hydrogen market and general market expansion for the Bloom Energy Server and Bloom Energy Electrolyzer.
Term Loan due September 2028Agreement
In 2013 and 2014, the Company obtainedNovember 2021, PPA V entered into a $45.0$136 million term loan from related party Alberta Investment Management Corporation ("Alberta") to funddue June 2031. This replaces the purchase and installationLIBOR +2.5% Term Loan due December 2021. This new non-recourse debt was issued at an interest rate of Energy Servers related to PPA IIIa3.04%. For additional information on the LIBOR + 2.5% Term Loan due September 2028. The Company repaid $0.3 million and $0.2 million of outstanding debt to Alberta in the three months ended June 30, 2018 and 2017, respectively. The Company repaid $0.6 million and $0.4 million of outstanding debt to Alberta in the six months ended June 30, 2018 and 2017, respectively. Furthermore, the Company paid $0.8 million and of interest to Alberta in the three months ended June 30, 2018 and 2017, respectively, and Company paid $1.6 million and of interest to Alberta in the six months ended June 30, 2018 and 2017, respectively. The balance of the loan as of June 30, 2018 and December 31, 2017 was $41.3 million and $41.9 million, respectively.
Common Stock Warrants
In connection with the 6% Convertible Promissory Notes, the Company agreed to issue common stock warrants to related parties J.P. Morgan and CPPIB for the right to purchase the Company’s common stock up to a maximum of 146,666 shares and 166,222 shares, respectively. During 2017, the fair value of the right to common stock warrants was re-measured and $0.2 million in warrant expenses was charged to the consolidated statement of operations. On August 31, 2017, J.P. Morgan assigned their warrants to CPPIB and all 312,888 warrant shares were issued to CPPIB, and the Company reclassified the $9.4 million of accrued warrant liabilities to additional paid in capital, which is not subject to further remeasurement in the fair value.
Consulting Arrangement
In January 2009, the Company entered into a consulting agreement with General Colin L. Powell, a member of the Company’s board of directors, pursuant to which General Powell performs certain strategic planning and advisory services for the Company. Pursuant to this consulting agreement, General Powell receives compensation of $125,000 per year and reimbursement for reasonable expenses.
16. Subsequent Events
Authorized Shares and Reverse Stock Split2021, please see Note 7 - The Company’s board of directors and stockholders approved an amended and restated certificate of incorporation to effect a 2-for-3 reverse stock split of the Company’s Class B common stock on July 5, 2018 and July 18, 2018, respectively. The Company filed the amended and restated certificate of incorporation on July 19, 2018 which effected the 2-for-3 reverse stock split and reduced the authorized number of shares for both Class A common stock and Class B common stock from 600,000,000 shares to 400,000,000 shares for each class. The financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in par value of Class B common stock to accumulated deficit.
Initial Public Offering - In July 2018, the Company successfully completed an initial public stock offering (IPO) with the sale of 20,700,000 shares of Class A common stock, at a price of $15.00 per share, resulting in net cash proceeds of $284.3 million, net of underwriting discounts and commissions.
8% Convertible Promissory Notes Converted (8% Notes) - In July 2018, the $221.6 million, including principal and accrued interest, of outstanding 8% Notes automatically converted into shares of Class B common stock upon which which were convertible. See Note 6 - OutstandingOutstanding Loans and Security Agreements for details. Upon the Company's IPO, the original notes converted to shares of Series G convertible preferred stock at a conversion price of $38.64 per share and, concurrently, each such share of Series G convertible preferred stock converted automatically into one share of Class B common stock. 5,734,440 shares of Class B common stock were issued from conversions and the debt was retired..
Convertible Preferred Stock - Shares of the Company's convertible preferred stock were convertible into an equal number of shares of Class B common stock upon the completion of the IPO in July 2018. 71,740,162 shares of Class B common stock were issued from the conversion of convertible preferred stock.
Warrants - On August 31, 2017 and in connection with the issuance of the 6% Convertible Promissory Notes, the Company issued common stock warrants to CPPIB to purchase up to 312,888 shares of the Company’s common stock. All the warrants were exercised for Class B Common stock upon the completion of the IPO in July 2018.
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Litigation - In July 2018, the Company received a Statement of Claim from two former executives of Advanced Equities, Inc. seeking to compel arbitration and alleging a breach of a confidential agreement from June 2014. This Statement of Claim sought, among other things, to void the indemnification and confidentiality provisions under the confidential agreement and to recover attorneys’ fees and costs. The Statement of Claim was dismissed without prejudice on July 22, 2018.


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements "forward-looking statements" within the meaning of the federal securities laws. All statements contained in this Quarterly Report on Form 10-Q other than statementssafe harbor provisions of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “predict,” “project,” “potential,” ”seek,” “intend,” “could,” “would,” “should,” “expect,” “plan” and similar expressions are intended to identify forward-looking statements.
You should not rely uponthe Private Securities Litigation Reform Act of 1995. These forward-looking statements as predictions of future events. We haveare based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations, estimates, and projections about future eventsour industry, management’s beliefs, and trends that we believe may affectcertain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products, services, business financial condition, operating results,strategies, impact of COVID-19, timing and prospects. The outcomesize of the events described in thesetransaction with SK ecoplant, operations, supply chain, new markets, government incentive programs, growth of the hydrogen market and the sufficiency of our cash and our liquidity. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” "targets," "forecasts," “will,” “would,” “could,” “can,” “may” and similar terms. These statements are based on the beliefs and assumptions of our management based on information currently available to management at the time they are made. Such forward-looking statements isare subject to risks, uncertainties and other factors includingthat 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” and elsewhereincluded in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties or the extent to which any factor, or combinationPart II, Item 1A of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially and adversely from those described or anticipated in the forward-looking statements.
Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our plans and expectations regarding future financial results, expected operating results, business strategies, the sufficiency of our cash and our liquidity, projected costs and cost reduction, development of new products and improvements to our existing products, the impact of recently adopted accounting pronouncements, our manufacturing capacity and manufacturing costs, the adequacy of our agreements with our suppliers, legislative actions and regulatory compliance, competitive positions, management's plans and objectives for future operations, our ability to obtain financing, our ability to comply with debt covenants or cure defaults, if any, our ability to repay our obligations as they come due, our ability to continue as a going concern, trends in average selling prices, the success of our PPA Entities, expected capital expenditures, warranty matters, outcomes of litigation, our exposure to foreign exchange, interest and credit risk, general business and economic conditions in our markets, industry trends,other filings with the impact of changes in government incentives, risks related to privacySecurities and data security, the likelihood of any impairment of project assets, long-lived assets, and investments, trends in revenue, cost of revenue and gross profit (loss), trends in operating expenses,Exchange Commission, including research and development expense, sales and marketing expense, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue, our limited operating history and our nascent industry, the significant losses we have incurred in the past, the significant upfront costs of our Energy Servers, the risk of manufacturing defects in our Energy Servers, the availability of rebates, tax credits and other tax benefits, and other financial incentives, the sufficiency of our existing cash and cash equivalent balances and cash flow from operations to meet our working capital and capital expenditure needs, and general market, political, economic and business conditions, including potential changes in tariffs.
The forward-looking statements made in this QuarterlyAnnual Report on Form 10-Q relate10-K for the fiscal year ended December 31, 2020 filed on February 26, 2021. Such forward-looking statements speak only to events as of the date on which the statements are made.of this report. We undertake nodisclaim any obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information orsuch statements. You should review these risk factors for a more complete understanding of the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosedrisks associated with an investment in our forward-looking statements and you should not place undue reliance on our forward-looking statements.
You should read thesecurities. The following discussion of our financial condition and results of operationsanalysis should be read in conjunction with theour condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our prospectus for the sale of our Class A common stock effective July 24, 2018 filed with the Securities and Exchange Commission. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Overview
Description of Bloom Energy
We provide an advanced distributed electriccreated the first large-scale, commercially viable solid oxide fuel-cell based power generation solution, basedplatform that provides clean and resilient power to businesses, essential services and critical infrastructure. Our technology, invented in the 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 proprietary solid oxide fuel cell technology that provides ourcan 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 multinational corporations who are leaders in adopting new technologies. We also have strong relationships with a reliable, resilient, sustainablesome of the largest utility companies in the United States and more cost effective clean alternative to the electric grid. Our solution, the Bloom Energy Server, is an on-site stationary power generation platform, capableRepublic of delivering uninterrupted, 24x7 base load power that is fault tolerant, resilient and clean. We currently primarily target commercial and industrial customers.Korea.
We market and sell our Energy Servers primarily through our direct sales organization in the United States.States, and also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a material financial commitment, fromwe have developed a number of financing options to support sales of our Energy Servers to customers we typically seek to engage customers that havewho lack the financial capability to either purchase our Energy Servers directly, who prefer to finance the acquisition using third-party financing or arrange creditworthy counterpartieswho prefer to financing agreements. 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.
Our solution
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Strategic Investment
On October 23, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with SK ecoplant Co., Ltd. formerly SK Engineering & Construction Co., Ltd. (“SK ecoplant”) in connection with a strategic partnership. Pursuant to the SPA, we have agreed to sell to SK ecoplant 10 million shares of zero coupon, non-voting redeemable convertible Series A preferred stock in us, par value $0.0001 per share ("RCPS"), at a purchase price of $25.50 per share or an aggregate purchase price of approximately $255 million (the “Initial Investment”). The SPA contains liquidation preferences, customary representations, warranties, covenants and conditions to the closing of the Initial Investment (the "First Closing"), including receipt of all approvals or the termination or expiration of all waiting periods required under applicable antitrust laws.
In addition to the Initial Investment, following the First Closing and on or prior to November 30, 2023, SK ecoplant will have the option (but not the obligation) to purchase a minimum of 11 million shares of our Class A Common Stock at the higher of (i) US$23 and (ii) one hundred and fifteen percent (115%) of the volume-weighted average closing price of the twenty (20) consecutive trading day period immediately preceding the notice to purchase such shares. The maximum amount of capital stock that SK ecoplant and its subsidiaries may hold is capablecapped at 15 percent of addressing customer needs across a wide rangeour issued and outstanding capital stock (inclusive of industry verticals. The industries we currently serve consist of banking and financial services, cloud services, technology and data centers, communications and media, consumer packaged goods and consumables, education, government, healthcare, hospitality, logistics, manufacturing, real estate, retail and utilities. Our Energy Servers are deployed at customer sites across 11 statesthe RCPS purchased in the United States,Initial Investment and any other purchases of our stock).
Simultaneous with the execution of the SPA, we and SK ecoplant executed an amendment to the Joint Venture Agreement, an amendment and restatement to our Preferred Distribution Agreement ("PDA Restatement") and a new Commercial Cooperation Agreement regarding initiatives pertaining to the hydrogen market and general market expansion for the Bloom Energy Server and Bloom Energy Electrolyzer. For more detail about the SPA we entered into with SK ecoplant, please see Note 18 - Subsequent Events, and for more information about our joint venture with SK ecoplant, please see Note 12 - Related Party Transactions.
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” in California and Delaware, where we manufacture and perform many of our R&D activities, as well as in India, Japanother states and South Korea. Our customer base includes 25 of the Fortune 100 companies. We believe thatcountries where we are currently capturing only a small percentageinstalling or maintaining our Energy Servers. While many of our largest customers’ total energy spend, which gives us an opportunity for growthemployees continue to work from home unless they are directly supporting essential manufacturing production operations, installation work, and service and maintenance activities as well as some R&D and general administrative functions, we have implemented a phased-in return of employees who were not included in these essential groups, including at our headquarters in San Jose, California. We maintain protocols to minimize the risk of COVID-19 transmission within those customers, particularlyour facilities, including enhanced cleaning and masking if required by the local authorities. We will continue to 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 continues to be adversely affected by the COVID-19 pandemic.
Liquidity and Capital Resources
COVID-19 created disruptions throughout various aspects of our business as the pricenoted herein, and impacted our results of grid power increasesoperations in the areas wherethree and nine months ended September 30, 2021. Throughout 2020, we were conservative with our existing customers have additional sites. Sinceworking capital spend, maintaining as much flexibility as possible around the timing of revenuetaking and paying for inventory and manufacturing our product while managing potential changes or delays in installations. While we recognize depends,improved our liquidity in part, on2020, we increased our working capital spend in the option chosenfirst half of 2021. We have entered into new leases to maintain 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 enhance our marketing efforts and to expand into new geographies both domestically and internationally.
We believe we have the sufficient capital to run our business over the next 12 months, including the completion of the build out of our manufacturing facilities. Our working capital will be strengthened with the closing of our transaction with SK ecoplant as described above. In addition, we may still enter the equity or debt market as need to support the expansion of our business. 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 customeragreements governing our and our PPA Entities’ outstanding indebtedness, may limit our financial and operating activities and
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may adversely affect our ability to financeincur 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 purchaseterms of and risks associated with our debt.
Sales
We have not experienced a significant impact on our selling activity related to COVID-19 during the three and nine months ended September 30, 2021.
Customer Financing
The ongoing COVID-19 pandemic resulted in a significant drop in the ability of many financiers (particularly financing institutions) to monetize tax credits, primarily the result of a potential drop in taxable income stemming from the pandemic. However, during the last two quarters, we began to see this constraint improving. As of September 30, 2021, we had obtained financing for almost all of the Energy Server, customers that may have accountedfinancing required for a significant amount of product revenue in one period may not necessarily accountour remaining 2021 installations. In addition, our ability to obtain financing for similar amounts of product revenue in future periods.
To date, substantially all of our revenue has been derived from customers based in the United States. However, we are increasing our sales efforts outside of the United States, with initial customer installations in India, Japan and South Korea.
Although the size of each system deployment can vary substantially and usually exceeds 250 kilowatts, we measure and track our system deployments and customer acceptances in 100 kilowatt equivalents. As of June 30, 2018, we had installed 3,281 of such systems, which is equivalent to 328 total megawatts.
The purchase of our Energy Servers and related installation costs have historically qualified forpartly depends on the Federal Investment Tax Credit (ITC). Through 2016,creditworthiness of our customers, and a few of our customers’ credit ratings have fallen during the pandemic, which can impact the financing partners could take advantagefor their use of ITC. They could receive a tax creditan Energy Server. We continue to work on obtaining the remaining financing required for our remaining 2021 installations but if we are unable to secure financing for any of 30%our remaining 2021 installations or $3,000 per kilowattany new installations, our revenue, cash flow and liquidity will be materially impacted.
Installations and Maintenance of their equipment purchase priceEnergy Servers
Our installation and maintenance operations were impacted by the COVID-19 pandemic in 2020 and these impacts continued during the three and nine months ended September 30, 2021. Our installation projects have experienced some 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; and the installation cost on their federal tax returns. This federal tax benefit expired at the end of 2016. Accordingly, in 2017, customers no longer received the ITC benefit on purchasesdecreased productivity of our Energy Servers. In ordergeneral 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. Our installations completed during the three and nine months ended September 30, 2021 were minimally impacted by these factors, but given our mitigation strategies, we were able to offset the negative economic impact ofcomplete all our planned installations except one that lost benefitis scheduled to our customers and financing partners, in 2017 we lowered our selling price to customers. Because many customers or financing partners would monetize the tax credit upfront, the actual impact to our selling price was generally greater than 30%. Subsequently, the ITC was reinstated by the U.S. Congress on February 9, 2018 and made retroactive to January 1, 2017. The resulting benefit of the ITC renewal was recognized on our financial statementsbe completed in the three months ending MarchDecember 31, 2018.2021.
We manufactureAs 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, atif we are unable to replace worn parts in accordance with our facilitiesstandard maintenance schedule, we may be subject to increased costs in Californiathe future. During the three and Delaware. Duenine months ended September 30, 2021, we experienced no delays in servicing our Energy Servers due to COVID-19.
Supply Chain
During 2020 and the intensivenine months ended September 30, 2021, we experienced COVID-19 related delays from certain vendors and suppliers, although we were able to mitigate the impact so that we did not experience delays in the manufacturing process necessary to build our systems, a significant portion of our manufacturing costs is fixed. We obtain our materials and components through a variety of third parties. Components and materials, direct labor and overhead such as facility and equipment expenses comprise the substantial majority of the costsinstallation of our Energy Servers. AsWe have a global supply chain and obtain components from Asia, Europe and India. 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 the COVID-19 pandemic or related effects.
During the three and nine months ended September 30, 2021, we continued to experience supply chain disruptions due to direct and indirect COVID-19 impacts. There have commercializedbeen a number of disruptions throughout the global supply chain as the global economy opens up and introduced successive generationsdrives demand for certain components that has outpaced the return of the global supply chain to full production. Although we were able to find alternatives for many component shortages, we experienced some delays and cost increases with respect to container shortages, ocean shipping and air freight. We have put actions in place to mitigate the disruptions by booking alternate sea routes, limiting our use of air shipments, creating virtual hubs and consolidating shipments coming from the same region. During the three months ended September 30, 2021, we continued to manage disruptions from an increase in lead times for most of our components due to a variety of factors, including supply shortages, shipping delays and labor shortages, and we expect this to continue into the fourth quarter of 2021. During the three months ended September 30, 2021, raw material pricing remained challenging. In addition, we expect component shortages especially for semiconductors and specialty metals to persist at least through the first half of 2022. In the event we are unable to mitigate the impact of price increases in raw materials, electronic components and freight, it could delay the manufacturing and installation of our Energy Servers, which would adversely impact our cash flows and results of operations, including revenue and gross margin.
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If spikes in COVID-19 occur in regions in which our supply chain operates, including as a result of the Delta variant, we could experience a delay in components and incur further freight price increases, which could in turn impact production and installations and our cash flow and results of operations, including revenue and gross margin.
Manufacturing
To date, COVID-19 has not impacted our production given the safety protocols we have focused on reducing production costs. Our product costs per system manufactured have generally declined since delivering our first commercial product. These cost declines are the result of continuous improvements and increased automationput in our manufacturing processes as well as our ability to reduce the costs of our materials and components, allowing us to gain greater economies of scale with our growth.
We believe we have made significant improvements in our efficiency and the quality of our products. Our success depends in part onplace augmented by our ability to increase our products’ useful lives,shifts and obtain a contingent work force for some of the manufacturing activities. We have incurred additional labor expense due to enhanced safety protocols designed to minimize exposure and risk of COVID-19 transmission. 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 would significantly reducecould adversely impact our costcash flow and results of services to maintain theoperation, including revenue.
Purchase and Financing Options
Overview
Initially, we offered our Energy Servers over time.
Purchase Options
Ouronly as direct sale, in which the customer purchases the product directly from us for cash payments made in installments. Over time, we learned that while interested in our Energy Servers, some customers may chooselacked the interest or financial capability to purchase our Energy Servers outright or may choosedirectly. Additionally, some of these customers were not in a position to lease them through oneoptimize the use of federal tax benefits associated with the ownership of our financing partners as a traditional leaseEnergy Servers like the federal Investment Tax Credit ("ITC") or a sale-leaseback sublease arrangement, the latter of whichaccelerated depreciation.
In order to expand our offerings to those unable to or those who prefer not directly purchase our Energy Servers, we refer to as managed services. Our customers may also purchase electricity through Bloom Electrons, our power purchase financing program.

Depending on the financing arrangement, either our customers or the financing provider may utilize investment tax credits and other government incentives. The timing of the product-related cash flows to the Company is generally consistent across all the abovesubsequently developed three financing options whether direct purchase arrangements, leases or managed services.
We provide warranties and performance guarantees regarding the Energy Servers’ efficiency and output under all of our financing arrangements. Under direct purchase and traditional lease options, the warranty and guarantee is included in the pricethat enabled customers' use of the Energy Server forServers with a pay as you go model through third-party ownership financing arrangements.
Under the first year. The warrantyTraditional 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 guarantee may be renewed annually at the customer’s option as ancustomer and (ii) provide ongoing operations and maintenance services agreement at predetermined prices for the Energy Servers (such arrangement, a period“Traditional Lease”).
Alternatively, a customer may enter into one of up to 20 years. Historically, our customers have almost always exercised their option to renew under these operations and maintenance services agreements. Undertwo major types of contracts with us for the managed services program, the operations and maintenance performance guarantees are included in the priceuse of the Energy Server forServers or the purchase of electricity generated by the Energy Servers. The first type of contract has a fixed period of 10 years, which may be extended at the optionmonthly payment component that is required regardless of the partiesEnergy 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 upeach kilowatt-hour produced by the Energy Servers (a “Power Purchase Agreement” or "PPA"). PPAs are typically financed on a portfolio basis. PPAs have been financed through tax equity partnerships, acquisition financings and direct sales to an additional 10 years with all payments made annually.investors (each, a “Portfolio Financing”).
Our capacity to offer our Energy Servers through any of the financingthese financed arrangements above depends in large part on the ability of the financing party or parties involved in providing payment forto optimize the Energy Servers to monetize eitherfederal tax benefits associated with a fuel cell, like the related investment tax credits,ITC or accelerated tax depreciation and other incentives, and/or the future power purchase obligations of the end customer.depreciation. Interest rate fluctuations wouldmay also impact the attractiveness of any lease financing offerings for our customers. Additionally,customers, and currency exchange fluctuations may also impact the managed services optionattractiveness of international offerings. Our ability to finance a Managed Services Agreement or a PPA is limited by the creditworthiness of the customercustomer. Additionally, the Traditional Lease and as with all leases,Managed Services Financing options are also limited by the customer’s willingness to commit to making fixed payments regardless of the outputperformance of our obligations under the customer agreement.
In each of our financing options, we typically perform the functions of a project developer, including identifying end customers and financiers, leading the negotiations of the system.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.
The portion
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Warranties and Guaranties
We typically provide warranties and guaranties regarding the performance (efficiency and output) of acceptancesthe Energy Servers’ to both the customer and in the three months ended June 30, 2018 attributable to each payment option was as follows: direct purchase 75%, traditional lease 25%, managed services 0%, and Bloom Electrons 0%. The portioncase of revenue inPortfolio Financings, the three months ended June 30, 2018 attributable to each payment option was as follows: direct purchase 63%, traditional lease 19%, managed services 5%, and Bloom Electrons 13%. The portion of acceptances in the three months ended June 30, 2017 attributable to each payment option was as follows: direct purchase 65%, traditional lease 4%, managed services 31%, and Bloom Electrons 0%. The portion of revenue in the three months ended June 30, 2017 attributable to each payment option was as follows: direct purchase 61%, traditional lease 6%, managed services 8%, and Bloom Electrons 25%.
The portion of acceptances in the six months ended June 30, 2018 attributable to each payment option was as follows: direct purchase 87%, traditional lease 13%, managed services 0%, and Bloom Electrons 0%. The portion of revenue in the six months ended June 30, 2018 attributable to each payment option was as follows: direct purchase 72%, traditional lease 10%, managed services 5%, and Bloom Electrons 13%. The portion of acceptances in the six months ended June 30, 2017 attributable to each payment option was as follows: direct purchase 53%, traditional lease 10%, managed services 37%, and Bloom Electrons 0%. The portion of revenue in the six months ended June 30, 2017 attributable to each payment option was as follows: direct purchase 51%, traditional lease 13%, managed services 8%, and Bloom Electrons 28%.
The portion of acceptances in 2017 attributable to each payment option was as follows: direct purchase 72%, traditional lease 7%, managed services 21%, and Bloom Electrons 0%. The portion of revenue in 2017 attributable to each payment option was as follows: direct purchase 61%, traditional lease 7%, managed services 8%, and Bloom Electrons 24%. In 2017, we observed a shift in our customers’ purchase option preferences to our direct purchase options.
Purchase and Lease Programs
Initially, we only offered our Energy Servers on a purchase basis, in which the customer purchases the product directly from us. Included within our direct purchase option are sales we makeinvestor. We refer to a third party who in turn, sells electricity through one“performance warranty” as a commitment where the failure of its own power purchase agreement programs of which we have no equity interest. The sales of ourthe Energy Servers to satisfy the third party entity have many of the same terms and conditions as a standard sale, as described above. We referstated performance level obligates us to these arrangements as Third-Party PPA Entities. The substantial majority of sales made as direct purchases in recent periods are pursuant to Third-Party PPA Entities finance arrangements. Payment for the purchase of our product is generally broken down into multiple installments, which may include payments upon signing of the purchase agreement, within 180 days prior to shipment, upon shipment 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 one-year warranty, customers have the option to enter into annual operations and maintenance services agreements with us at a price determined at the time of purchase of the Energy Server, which may be renewed each year for up to 20 years. Pursuant to the service warranty, we warrant minimum efficiency and output levels. In the event thatrepair or replace the Energy Servers as necessary to improve performance. If we fail to satisfy these warranty levels,complete such repair or replacement, or if repair or replacement is impossible, we may be obligated to repurchase the applicable Energy Servers iffrom 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 unable to repairin the Managed Services Agreement or replace duringPPA, as the applicable cure period. Across allcase 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 agreements, includingagreement.
Direct Purchase
There are customers who purchase and lease programs, as of June 30, 2018, we have incurred no repurchase obligationsour Energy Servers directly pursuant to such warranties.a fuel cell system supply and installation agreement. In addition, in some cases, we guarantee minimum outputconnection with the purchase of Energy Servers, the customers enter into an O&M Agreement that provide for certain performance warranties and efficiency levels greater thanguaranties. The O&M Agreement may either be (i) for a one-year period, subject to annual renewal at the warranty levels and pay certain capped performance guarantee amounts if those levels are not achieved. 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 20 years.
These performance guarantees are

negotiated on a case-by-case basis, but we typically provide an Output Guarantyoutput guaranty of 95% measured annually and an Efficiency Guarantyefficiency 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). The fleet of Energy Servers deployed pursuant to purchase agreements performed at an average output of approximately 86% for three and six months ended June 30, 2018, and a lifetime average efficiency of approximately 52% through June 30, 2018. As of JuneSeptember 30, 2018,2021, our obligation to make payments for underperformance on the direct purchase projects was capped at an aggregate total of approximately $54.7$106.7 million (including payments both for low output and for low efficiency). As of JuneSeptember 30, 2018,2021, our aggregate remaining potential liability under this cap was approximately $41.6$85.2 million.
Third-Party Power PurchaseOverview 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 transaction structures is described in further detail below.

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Managed Services Financing
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Under our Managed Services Financing option, we enter into a Managed Services Agreement Programs (Third-Party PPAs)
with a customer for a certain term. In addition to our traditional lease, managed services,exchange for the electricity generated by the Energy Server, the customer makes a monthly payment. The monthly payment always includes a fixed monthly capacity-based payment, and Bloom Electrons programs, wein some cases also sell Energy Servers under power purchase agreements whereincludes a performance-based payment based on the ownerperformance of the Energy Servers generatingServer. The fixed capacity-based payments made by the electricity deliveredcustomer 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. We assign all our rights to such fixed payments made by the customer to the endfinancier, as lessor. 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, and a financier is identified, we sell the Energy Server to the financier, as lessor, and the financier, as lessor, leases it back to us, as lessee, pursuant to a third partysale-leaseback transaction. For failed sale-and-leaseback transactions, the proceeds from the sale are recognized as a financing obligation within the condensed consolidated balance sheets. For successful sale-and-leaseback transactions, we recognize the project sale as product revenue, and recognize the right-of-use asset and financing obligations as operating leases. 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.
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 for the benefit 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 of September 30, 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%.
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Portfolio Financings
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*A type of Portfolio Financing pursuant to which we sell an entire operating company to an investor or tax-equity partnership in which we have no equity interests. Underin the purchaser is referred to as a Third-Party PPA.
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 Third-Partytransactions include an equity investment by 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 identify end customers, leadsell an entire Operating 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 negotiations with such end customers regardingsale of each Energy Server purchased by the offtake agreements to purchase electricity,Operating 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 thenPPAs through a Portfolio Financing, we enter into a sale, engineering and procurement and construction agreement (“EPC Agreement”) and an Energy Server sales and operations and maintenance agreementO&M Agreement, in each case with the Third-Party PPA entityOperating Company that both is counter-party to the portfolio of PPAs and that will eventually own the Energy Servers forServers. As counter-party to the full termportfolio of PPAs, the offtake agreement. In some cases, the applicable third-partyOperating Company, as owner assists with the identification of end customers, and the negotiation of the offtake agreements. The Third-Party PPA entity then enters into offtake agreements with the end customer, who purchases electricity from the Third-Party PPA Entity. Unlike our Bloom Electrons program, we have no equity ownership in the entity that owns the Energy Servers, and thus the third-party owner receives all cash flowscustomer payments generated under the offtake agreement(s), all investment tax credits,PPAs, any ITC, all accelerated tax depreciation benefits, and any other cash flows generated byavailable state or local benefits arising out of the ownership or operation of the Energy Servers. InServers, to the fourth quarterextent not already allocated to the end customer under the PPA.
The sales of 2016, we securedour Energy Servers to the Operating Company in connection with a commitment fromPortfolio Financing have many of the same terms and conditions as a major utility companydirect sale. Payment of the purchase price is generally broken down into multiple installments,
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which may include payments prior to financeshipment, 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, the Operating 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 50 MW30 years. After the standard one-year warranty period, the Operating 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 to the Operating Company under the O&M Agreement. We also backstop all of the Operating 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 of September 30, 2021, we had incurred no liabilities to investors in Portfolio Financings due to failure to repair or replace Energy Server deployments under a Third-Party PPA; this commitmentServers pursuant to these performance warranties. Our obligation to make payments for underperformance against the performance guaranties was subsequently expanded tocapped at an aggregate total of approximately 100.4 MW, of which we have deployed 48.0 MW as of June 30, 2018. Additionally, we have established a second Third-Party PPA with another major utility company; while$114.6 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this second program does not include a firm commitment as to total financing capacity, it permits the inclusion of sub-investment grade end customers.
For example, we have been working with financing sources to arrange for additional third-party Power Purchase Agreement Program entities, one of which will need to be finalized in order for our customers to arrange financing so that we can complete our planned installations for 2018.cap was approximately $104.6 million.
Obligations to Third-Party Owners of Energy ServersOperating Companies
In each Third-Party PPA, we andaddition to our obligations to the end customers, our Portfolio Financings involve many obligations to the Operating Company that purchases our Energy Servers. These obligations are set forth in the applicable third-party owner enter into an operationsEPC Agreement and maintenance agreement (O&M Agreement) similar to the O&M Agreements entered into under the Bloom Electrons program, which O&M Agreement, and may be renewed on an annual basis at the optioninclude some or all of the third-party owner until the end of the term of the third-party owner’s offtake agreement(s) to purchase electricity, with its end customers for such project. These offtake agreements have a fifteen-year term, but in some cases the offtake agreement and related O&M Agreement may extend for up to twenty years.following obligations:
Our obligations under the O&M Agreement include (i) •designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Third-Party PPA entity, (ii) Operating 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 Agreement, (iii) Agreements;
•operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations, (iv) regulations;
•satisfying the efficiencyperformance warranties and output warrantiesguaranties set forth in suchthe applicable O&M AgreementAgreements; and the offtake agreement(s) (Performance Warranties), and (v) 
•complying with any other specific requirements contained in the offtake agreement(s)PPAs with individual end-customer(s).end-customers.
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 or we otherwise breachperformance warranties and guaranties in the terms of the applicable O&M Agreement and we fail to remedydo not cure such failure or breach after a curein the applicable time period, or in the event that an offtake agreementa PPA terminates as a result of any failure by us to comply withperform the applicableobligations in the O&M Agreement. In some Third-Party PPAs,of our Portfolio Financings, our obligation to repurchase Energy Servers under the O&M extends to the entire fleet of Energy Servers installed pursuant to the applicable O&M Agreementsold in the event sucha systemic failure affects more than a specified number of Energy Servers.
In some cases,Portfolio Financings, we have also agreed to pay liquidated damages to the third-party ownerapplicable 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 Server(s). Servers.
Both the upfront purchase price for theour Energy Servers and the ongoing fees for our operations and maintenance are paid on a fixed dollar-per-kilowatt ($/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 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.
The O&M Agreement forOperating Company in each Third-Partyof our PPA project generally provides forEntities (with the following performance and indemnity obligations:

Efficiency Obligations. We warrantexception of one PPA Entity) has incurred debt in order to finance the applicable third-party owner that each Energy Server and/or the portfolioacquisition of Energy Servers sold to such entity will operate at an average efficiency level specified inServers. The lenders for these projects are a combination of banks and/or institutional investors. In each case, the O&M Agreement, calculated over a period specified in the O&M Agreement following the commercial operations date of such Energy Server. In some cases, we are obligated to repair and replace Energy Servers that are unable to satisfy the Efficiency Warranty, or if a repair or replacementdebt is not feasible, to repurchase such Energy Servers at the original purchase price, subject to adjustment for depreciation (“Efficiency Warranty”). In other cases, we are obligated to make a payment to compensate for the increased costs of procuring natural gas for the applicable Energy Server(s) resulting from the underperformance as against the warranted level, which payments are capped at a level specified in the applicable O&M Agreement (“Efficiency Guaranty”).
Output Obligations. In addition, we warrant that the Energy Servers will generate a minimum amount of electricity during specified periods of time.
Under O&M Agreements, our output obligations include: (i) the generation of a minimum amount of electricity, the failure of which obligates us to repair or replace the Energy Servers that are unable to satisfy such warranty, or if such repair or replacement is not feasible, to repurchase such Energy Servers at the original purchase price, subject to adjustment for depreciation (“Output Warranty”), and (ii) the generation of a minimum amount of electricity on a cumulative basis beginning on the commercial operations date of such Energy Server, the failure of which obligates us to make a payment to the applicable third-party owner based on the volumesecured by all of the shortfall below the warranted level, subject to a liability cap specified in the applicable O&M Agreement (“Output Guaranty”). Satisfaction of the Output Warranty is measured on either a cumulative basis or in each calendar month or calendar quarter, as specified in the applicable O&M Agreement. In some Third-Party PPAs, these generation obligations are aggregated across the entire fleet of Energy Servers deployed pursuant to such project; in others, each Energy Server must satisfy the minimum generation obligations measured individually.
Indemnification of Performance Warranty Expenses Under Offtake Agreements. In addition to the efficiency and output obligations, we also have agreed to indemnify certain Third-Party PPA entities for any expenses it incurs to any of the end-customers resulting from failuresassets of the applicable Energy Servers to satisfy any of the efficiency, output or other performance warranties set forth in the applicable offtake agreement(s). In addition, in the event that an offtake agreement is terminated by a customer as to any Energy Servers as a result of our failure to perform any of our obligations under the O&M Agreement, we are obligated to repurchaseOperating Company, such Energy Server from the applicable Third-Party PPA owner for a repurchase price equal to the original purchase price, subject to adjustment for depreciation.assets being primarily
Administration of Third-Party PPA Projects. Unlike the Bloom Electrons program, we perform no administrative services in the Third-Party PPA projects.
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Obligations to End Customers. While the counterparty to the offtake agreements under the Third-Party PPA program is the third-party owner, under the O&M Agreements we are obligated to perform each of the obligations of such third-party owner set forth in each offtake agreement with the end customer. As such, our obligations to the end customers under the Third-Party PPAs are in all material respects the same as our obligations to the end customers under the Bloom Electrons program.
Our Third-Party PPA programs have O&M agreements that provide for Efficiency Guarantees and Output Guarantees, subject to performance guarantee caps. The performance guarantees for our existing Third-Party PPA agreements are capped at $56.9 million. As of June 30, 2018, we have paid $0.2 million in performance guarantee payments under these Third-Party PPA programs leaving potential obligations under the performance guarantees of $56.7 million. In addition, the O&M agreements with these Third-Party PPA agreements have minimum warranty guarantees for efficiency and output. As of June 30, 2018, no warranty claims have been made under the O&M agreements for these Third-Party PPA agreements.
Over time we have also developed various lease programs with our financing partners to provide alternative financing options. These programs take the form of either (1) a traditional lease agreed directly with the financing partner or (2) managed services.
Traditional Lease
Under the traditional lease arrangement, the customer enters into a lease directly with a financing partner, which pays us for the Energy Servers pursuant to a sales agreement (a Bank Agreement, described 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 lease. The duration of our traditional leases ranges from 6 to 15 years.
Under a Bank Agreement, we are generally paid the full price of the Energy Servers as if sold as a purchase by the customer based on four milestones (on occasion negotiated with the customer, but in all cases equal to no less than 60% of the purchase price billed at the shipment milestone, described below). The four payment milestones are typically as follows:

(i) 15% upon execution of the bank’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 shipmentcomprised of the Energy Servers and (iv) 20% upon acceptancea collateral assignment of each of the Energy Servers. The bank receives title to the Energy Servers upon installation at the customer site and the customer has risk of loss while the Energy Server is in operation on the customer’s site.
The Bank Agreement provides for the installation of the Energy Servers and includes a standard one-year warranty, which includes the performance guarantees described below, with the warranty offered on an annually renewing basis at the discretion of the customer. The customer must provide gas for the Energy Servers to operate.
Warranty Commitments. We typically provide (i) an “Output Warranty” to operate at or above a specified baseload output of the Energy Servers on a site, and (ii) an “Efficiency Warranty” to operate at or above a specified level of fuel efficiency. Both are measured on a monthly basis. Upon the applicable financing partner or its customer making a warranty claim for a failure of any of our warranty commitments, we are then obligated to repair or replace the Energy Server, or if a repair or replacement is not feasible, to pay the customer an amount approximately equal to the net book value of the Energy Server, after which the Bank Agreement would be terminated. As of June 30, 2018, we have incurred no obligations to make payments pursuant to these warranty commitments.
Performance Guarantees. Our performance guarantees are negotiated on a case-by-case basis for projects deployed through the traditional lease program, 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 applicable customer. As of June 30, 2018, the fleet of Energy Servers deployed pursuant to the traditional lease programs are performing at a lifetime average output of approximately 91% and a lifetime average efficiency of approximately 55%. As of June 30, 2018, our obligation to make payments for underperformance against the performance guarantees for traditional lease projects was capped at an aggregate total of approximately $5.8 million (including payments both for low output and for low efficiency). As of June 30, 2018, our aggregate remaining potential liability under this cap was approximately $5.5 million.
Remarketing at Termination of Lease. At the end of any customer lease in the event the customer does not renew or purchase the Energy Servers, we may remarket any such Energy Servers to a third party, and 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
Under our managed services program, we initially enter into a master lease with the financing partner, which holds title to the Energy Server. Once a customer is identified, we enter into an additional operating lease with the financing partner and a service agreement with the customer. The duration of our managed services leases is currently 10 years. We begin to recognize revenue from the sale of the equipment to the financing partner once the Energy Server has been accepted by the customer. Under the master lease, we then make operating lease payments to the financing partner. Under the service agreement with the customer, there are two payment components: a monthly equipment fee calculated based on the size of the installation, which covers the amount of our lease payment, and a service payment based on the monthly output of electric power produced by the Energy Server.
Our warranty commitments under the managed services option are substantially similar to those applicable to the traditional lease program described above. Our managed services deployments do not typically include any performance guarantees above the warranty commitments, but the customer’s payment to us includes a payment that is proportionate to the output generated by the Energy Server(s) and our pricing assumes service revenues at the 95% output level. Therefore, our service revenues are lower if output is less than 95% (and higher if output exceeds 95%). As of June 30, 2018, the fleet of Energy Servers deployed pursuant to the managed services program were performing at a lifetime average output of approximately 94%.
Power Purchase Agreement Programs
In 2010, we began offering our Energy Servers through Bloom Electrons, financing for our Power Purchase Agreement Programs. These programs are financed via special purpose investment entities (the Investment Companies), which typically are majority-owned by third-party investors and by us as a minority investor. The Investment Companies own and are parent to the operating entities (the Operating Companies). The Operating Companies, together with the Investment Companies, represent the PPA Entities. The investors contribute cash to the PPA Entity in exchange for equity interests, providing funding for the PPA Entities to purchase the Energy Servers from us. As we identify end customers, the PPA Entity enters into an agreement with the end customer pursuantcontracts to which the customer agrees to purchaseOperating Company is a party, including the electric power generated byO&M Agreement and the Energy Server atPPAs. As further collateral, the lenders receive a specified rate per kilowatt hour for a specified term, which can range from 10 to 21 years. Each PPA Entity currently serves between one and nine customers. As with our purchase and leasing arrangements, the standard one-year warranty and

guarantees are includedsecurity interest in the price100% of the product to the PPA Entity. The PPA Entity typically enters into an operations and maintenance services agreement with us following the first year of service to extend the warranty services and performance guarantees. This service agreement has a term coincident with the termmembership interest of the applicable Power Purchase Agreement Project and paid for on an annual basis by the PPA Entity.Operating Company. The aggregate amount of extended warranty services payments we expectlenders have no recourse to receive over the remaining termus or to any of the Power Purchase Agreement Projects was $447.2 million as of June 30, 2018.
The mix of orders between our Bloom Electrons financing program and other purchase options is generally driven by customer preference. While we cannot predict with certainty in any given period how customers will choose to finance their purchase, we have observed that, more recently, customers tend to choose a financing option that more closely mirrors the customers’ monthly payment stream for electricity. Power purchase agreements (PPAs), including our Bloom Electrons financing program, provide for payment streams as monthly payments similar to those for grid electricity payments.
Product revenue associated with the sale of the Energy Servers under the PPAs that qualify as sales-type leases is recognized at the present value of the minimum lease payments, which approximate fair value, assuming all other conditions for revenue recognition noted above have also been met. Customer purchases financed by PPA Entities since 2014 have been accounted for as operating leases and the related revenue under those agreements have been recognized as electricity revenue as the electricity is produced and paid for by the customer. Under each PPA arrangement, while the end customer pays the PPA Entity over the life of the contract for the electricity consumed, the timing of cash receipts to us is similar to that of an end-user directly purchasing an Energy Server from us.
Under our Power Purchase Agreement Program financing arrangements, we and our Power Purchase Agreement Program equity investors (Equity Investors) contribute funds into a limited liability Investment Company, which is treated as a partnership for U.S. federal income tax purposes, and which owns(the "Equity Investors") in the Operating Company that acquires Energy Servers. This Operating Company then contracts with us to operate and service the Energy Servers. The Operating Company sells the electricity produced to the end customers under PPAs. Any debt incurred by the PPA Entities is non-recourse to us. Cash generated by the electricity sales, as well as from any applicable government incentive programs, is used to pay operating expensesfor liabilities arising out of the Operating Company (including the operations and maintenance services we provide) and to service the non-recourse debt, with the remaining cash flows distributed to the Equity Investors based on the cash distribution allocations agreed between us and the Equity Investors. For further information see Note 12 - Power Purchase Agreement Programs to our consolidated financial statements included in this Quarterly Report on Form 10-Q. The Equity Investors receive substantially all of the value attributable to the long-term recurring customer lease payments, investment tax credits, accelerated tax depreciation and, in some cases, other incentives until the Equity Investors receive their contractual rate of return. In some cases, after the Equity Investors receive their contractual rate of return, we expect to receive substantially all of the remaining value attributable to the long-term recurring customer payments and the other incentives. As of June 30, 2018, none of our customers under PPAs have defaulted on their payment obligations.
We currently operate five distinct PPA Entities. Three of these PPA Entities (PPA II, PPA IIIa and PPA IIIb) are flip structures and the remaining two (PPA IV and PPA V) are strategic long-term partnerships with the Equity Investor that do not flip during the term of the arrangements. Of the three PPA Entity flip structures, PPA II is based on the Equity Investor reaching an agreed upon internal rate of return (IRR) and PPA IIIa and PPA IIIb are based on the flip occurring at a fixed date in the future.
Since we elected to decommission PPA I and purchased the Equity Investor’s interest for $25.0 million in convertible debt, we will receive 100% of any remaining cash flows from PPA I. Prior to the decommissioning, we received cash flows from PPA I totaling $393.6 million related to the purchase of Energy Servers, distributions of incentive receipts, annual maintenance payments and monthly administrative services payments. Since the decommissioning through June 30, 2018, we have received $13.2 million from PPA I related to customer electricity billings. With respect to PPA II, we estimate that the Equity Investor will need to receive additional cash distributions of approximately $96.2 million to reach its target IRR at which point we will receive substantially all of the remaining value attributable to the long-term customer payments and other incentives. To achieve these cash distributions and the contractual internal rate of return to trigger the ownership flip, PPA II will need to generate additional aggregate revenue of approximately $383.8 million. Our PPA II contracts do not specify the date on which the flip is projected to occur; rather, the PPA II contracts set forth the conditions that will trigger the flip and define the parties’ respective rights and obligations before and after the occurrence of the flip. Based on the current contractual terms, we estimate that PPA II will flip on approximately June 30, 2028, assuming prior termination does not occur.
For PPA IIIa and PPA IIIb, the Equity Investors receive preferred distributions of 2% of their total cash investment through the flip date, a fixed date in the future, and are not dependent on additional earned amounts. In PPA IIIa and IIIb, the flip dates are January 1, 2020 and January 1, 2021, respectively, and the remaining preferred distributions to be paid through the flip dates are $1.5 million and $1.2 million, respectively. We will receive substantially all of the remaining income (loss), tax and tax allocations attributable to the long-term customer payments and other incentives after each flip date.

Even after the occurrence of the flip date for PPA II, PPA IIIa and PPA IIIb, we do not anticipate subsequent distributions to us from the PPA Entities to be material enough to support our ongoing cash needs, and therefore we will still need to generate significant cash from product sales.
The Energy Servers purchased by the PPA Entities are recorded as property, plant and equipment and included within our consolidated balance sheets. We then reduce these assets by the amounts received by the Equity Investors from U.S. Treasury grants and the associated incentive rebates. In turn, we recognize the incentive rebates and subsequent customer payments as electricity revenue over the customer lease term and amortize U.S. Treasury grants as a reduction to depreciation of the associated Energy Servers over the term of the PPA. Since our inception, government incentives have accounted for approximately 13% of the expected total cash flows for all PPA Entities. As of June 30, 2018, our PPA Entities had received a total of $282.9 million in government grants and rebates.portfolio.
We have determined that we are the primary beneficiary in these investment entities.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 the investors’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 convertible redeemable preferred stock, redeemable noncontrolling interest, stockholders' deficit and equity.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.
All five PPA Entities have utilized their entire available financing capacity However, the Operating Companies are separate and completed their purchasesdistinct legal entities, and Bloom Energy Corporation may not receive cash or other distributions from the Operating Companies except in certain limited circumstances and upon the satisfaction of Energy Servers as of June 30, 2018.
Through our Bloom Electrons financing program, a total of approximately $1.1 billion in financing has been funded through June 30, 2018, including approximately $609.2 million in equity investments and an additional $448.7 million in non-recourse debt to support an aggregate deployment of approximately 106.8 megawatts of Energy Servers as of June 30, 2018. Equity Investors in our PPA Entities include banks and other large companiescertain conditions, such as Credit Suisse, Exelon Generation Company, Intel Corporationcompliance with applicable debt service coverage ratios and U.S. Bancorp. In the future, in addition to or in lieuachievement of arranging customer financing through PPA Entities, we may use debt, equity or other financing strategies to fund our operations.
We view our obligations under Bloom Electrons in four categories: first, our obligations to the relevant PPA Entity formed to own the Energy Servers and sell electricity generated by such Energy Servers to the end-customers; second, the Project Company’s obligations to the lendersa targeted internal rate of such Project Company, if any; third, our obligationsreturn to the Equity Investors, or otherwise.
For further information about our Portfolio Financings, see Note 11 - Portfolio Financingsin Part I, Item 1, Financial Statements.
Traditional Lease
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Under the applicable project;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 fourth,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 end-customers. We discuss these obligations in further detail below.
Obligationsfinancier 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, PPA Entities
In each Power Purchase Agreement Project, we and the applicable PPA Entity enter into two primary contracts: first, a contractcustomer. The customer must provide fuel for the purchase, sale, installation, operation and maintenance of theBloom Energy Servers to be employedoperate.
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The direct sales agreement in such PPA project (the O&M Agreement),a Traditional Lease arrangement typically provides for performance warranties and second, a contract whereby we are engaged to perform administrative functions for the PPA project during the termguaranties of the PPA project (the Administrative Services Agreement, or ASA). The O&M Agreement and the ASA each have a term coincident with the term of the applicable PPA project. The aggregate amount of extended warranty services payments we expect to receive under the O&M Agreement over the remaining term of the PPA projects was $447.2 million as of June 30, 2018. The aggregate amount of ASA payments we expect to receive over the remaining term of the PPA projects was $34.0 million as of June 30, 2018.
Our obligations to the PPA Entities pursuant to the O&M Agreement include: (i) designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the PPA Entity, (ii) obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Energy Servers, and maintaining such permits and approvals throughout the term of the O&M Agreement, (iii) operating and maintaining the Energy Servers in compliance with all applicable laws, permits and regulations, (iv) satisfyingboth the efficiency and output obligations set forth in such O&M Agreement (Performance Warranties), and (v) complying with any specific requirements contained in the offtake agreements with individual end-customers. The O&M Agreement obligates us to repurchase theof our Energy Servers, all of which are written in favor of the event the Energy Servers failcustomer. As of September 30, 2021, we had incurred no liabilities due to comply with the Performance Warranties and we fail to remedy such failure after a cure period, or in the event that an offtake agreement terminates as a result of any failure by us to comply with the requirements contained therein. In some cases, we have also agreed to pay liquidated damages to the PPA Entity in the event of delays in the manufacture and installation of Energy Servers. Both the upfront purchase price for the Energy Servers and the ongoing fees for our operations and maintenance are paid on a fixed dollar per kilowatt ($/kW) basis.

The O&M Agreements for each PPA Entity generally provide for the following Performance Warranties and indemnity obligations:
Efficiency Warranty and Efficiency Guaranty. We warrant to the applicable PPA Entity that the Energy Servers sold to such entity will operate at an average efficiency level specified in the O&M Agreement, calculated either cumulatively from the commercial operations date of each Energy Server or during each calendar month. We are obligated to repair or replace our Energy Servers that are unable to satisfy the Efficiency Warranty, or if a repair or replacement is not feasible, to repurchase such Energy Servers at a price specified in the applicable O&M Agreement. In the case of PPA II, if the aggregate average efficiency falls below the specified threshold, we are also obligated to make a payment to the PPA Entity equal to the increased expense resulting from such efficiency shortfall, subject to a cap on aggregate payments equivalent to the purchase price of all Energy Servers in the PPA II portfolio. During the period from September 2010 to June 30, 2018, no Energy Servers have been repurchased pursuant to any Efficiency Warranty and no payments have been made pursuant to the Efficiency Guarantees.
One-Month Output Warranty. In the case of PPA II, we also warrant that the PPA II portfolio of Energy Servers will generate a minimum amount of electricity in each calendar month, and we are obligated to repair or replace Energy Servers that fail to satisfy this warranty. If we determine that a repair or replacement is not feasible, we are obligated to repurchase such Energy Servers at the original purchase price. During the period from September 2010 to June 30, 2018, no Energy Servers have been repurchased and no payments have been made pursuant to a One-Month Output Warranty.
Quarterly Output Warranty. In the case of PPA IIIa, we also warrant that each of the applicable Energy Servers will generate a minimum amount of electricity in each calendar quarter, and we are obligated to repair or replace Energy Servers that fail to satisfy this warranty. If we determine that a repair or replacement is not feasible, we are obligated to repurchase such Energy Servers at the original purchase price, subject to adjustment for depreciation. In addition, we are obligated to make a payment to the PPA IIIa entity to make it whole for lost revenues resulting from the shortfall below the warranted level, subject to a cap on payments equal to ten percent (10%) of the purchase price of the Energy Servers in the PPA IIIa portfolio. If we fail to make any such warranty payments if and when due, then PPA IIIa may elect to require us to repurchase Energy Servers that fail such warranty at the original purchase price, subject to adjustment for depreciation. During the period from September 2010 to June 30, 2018, no Energy Servers have been repurchased pursuant to the Quarterly Output Warranty, and we have made payments in the aggregate amount of $0.2 million pursuant to the Quarterly Output Warranty.
Quarterly Output Guaranty. In the cases of PPA IIIb, PPA IV and PPA V, we also guarantee to the applicable PPA Entity that the applicable portfolio of Energy Servers will generate a minimum amount of electricity in each calendar quarter. In the event the applicable portfolio fails to satisfy this Output Guaranty, we are obligated to make a payment to the applicable PPA Entity to make it whole for lost revenues resulting from the shortfall below the guaranteed level, and such liability is uncapped. If we fail to make any such Output Guaranty payments if and when due, then the applicable PPA Entity may elect to require us to repurchase Energy Servers that fail such guaranty, at a price specified in the applicable
O&M Agreement and pursue other damages. During the period from September 2010 to June 30, 2018, no Energy Servers have been repurchased pursuant to a Quarterly Output Guaranty, and we have made no payments pursuant to any Quarterly Output Guaranty.
Annual Output Guaranty. We also guarantee to the applicable PPA Entity that the applicable portfolio of Energy Servers will generate a minimum amount of electricity in each calendar year. In the event that such portfolio fails to satisfy this Output Guaranty, we are obligated to make a payment to the applicable PPA Entity to make it whole for lost revenues resulting from the shortfall below the warranted level, subject to a liability cap equal to a portion of the purchase price of the applicable portfolio. During the period from September 2010 to June 30, 2018, we have made payments in the aggregate amount of $23.5 million pursuant to these Output Guarantees. These payments were primarily as a result of performance issues in our early generation systems deployed in our first three PPA Entities (PPA I, PPA II & PPA IIIa). Of the aggregate amount of $23.5 million paid, $0.9 million was paid in the six months ended June 30, 2018, $3.7 million was paid in 2017, $4.8 million was paid in 2016, and $14.1 million was paid prior to 2016.
Indemnification of Performance Warranty Expenses under Offtake Agreements. In the cases of PPA IIIa, PPA IIIb, PPA IV and PPA V, we also have agreed to indemnify the applicable PPA Entity for any expenses it incurs to any of its customers resulting from failures of the applicable portfolio of Energy Servers to satisfy any of the efficiency, output or other performance commitments in the applicable offtake agreements. In addition, in the event that an offtake agreement is terminated by a customer as to any Energy Servers as a result of a default by us under the O&M Agreement, we are obligated to repurchase such Energy Server from the applicable PPA Entity for a repurchase price specified in the applicable O&M Agreement. During the period from September 2010 to June 30, 2018, we have incurred no obligations for payments pursuant to these provisions under any of our Power Purchase Agreement Program arrangements.

Our obligations pursuant to the ASA include performing a variety of administrative and management services necessary to conduct the business of the Power Purchase Agreement Program project. These duties include: (i) invoicing and collecting amounts due from the end-customers, (ii) engaging, supervising and monitoring any third-party service providers required for the operation of the project, (iii) paying, on behalf of the PPA Entity and with the PPA Entity’s available funds, any amounts owed, including debt service payments on the debt incurred by the PPA Entity (Project Debt), if applicable, (iv) maintaining books and records and preparing financial statements, (v) representing the PPA Entity in any administrative or other public proceedings, (vi) preparing annual budgets and other reports and deliverables owed by the PPA Entity under the Project Debt agreements, if applicable, and (vii) generally performing all other administrative tasks required in relation to the project. We receive an annual administration fee for its services, calculated on a fixed dollar per kilowatt ($/kW) basis.
Obligations to Lenders
Each of the Power Purchase Agreement Program projects (other than the PPA I project) 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 Project Debt incurred by the applicable PPA Entity is secured by all of the assets comprising the project (primarily comprised of the Energy Servers owned by the PPA Entity and a collateral assignment of each of the contracts to which it is a party, including the O&M Agreement entered into with us and the offtake agreements entered into with PPA Entity’s customers), and is senior to all other debt obligations of the PPA Entity. As further collateral, the lenders receive a security interest in 100% of the membership interest of the PPA Entity. However, as is typical in structured finance transactions of this nature, although the Project Debt is secured by all of the PPA Entity’s assets, the lenders have no recourse to us or to any of the other Equity Investors in the project.
The applicable PPA Entity is obligated to make quarterly principal and interest payments according to an amortization schedule agreed between us, the Equity Investors and the lenders. The debt is either a “term loan”, where the final maturity date coincides with the expiration of the offtake agreements included in the project, or a “mini-perm loan,” where the final maturity date occurs at some point prior to such expiration; in the case of these “mini-perm loans”, we expect to be able to refinance these loans on or prior to their maturity date by procuring debt from other sources and using the proceeds of such new debt to repay the existing loans.
The Project Debt documentation also includes provisions that implement a customary “payment waterfall” that dictates the priority in which the PPA Entity will use its available funds to satisfy its payment obligations to us, the lenders, the Equity Investors and other third parties. These provisions generally provide that all revenues from the sale of electricity under the applicable offtake agreements and any other cash proceeds received by the PPA Entity are deposited into a “revenue account”, and those funds are then distributed in the following order: first, to pay for ongoing project expenses, including amounts due to us under the O&M Agreement and the ASA, taxes, insurance premiums, and any legal, accounting and other third party service provider costs; second, to pay any fees due to collateral agents and depositary agents, if any; third, to pay interest then due on the loans; fourth, to pay principal then due on the loans; fifth, to fund any reserve accounts to the extent not fully funded; and finally, any remaining cash (Distributable Cash) may be distributed to us and the Equity Investors in the project, subject to the satisfaction of any conditions to distributions agreed with the applicable lenders, such as a minimum debt service coverage ratios, absence of defaults, and similar requirements. Additional information regarding the Project Debt for each individual project is set forth in the Liquidity and Capital Resources section below. In addition, the “Distribution Conditions” are negotiated individually for each project, but in each case include (i) absence of defaults, and (ii) satisfaction of minimum debt service coverage ratios. In the event that there is Distributable Cash remaining after the payment of all higher-priority payment obligations but the applicable Distribution Conditions are not satisfied, the applicable funds are deposited into a “Distribution Suspense Account” and remain in such account until the Distribution Conditions are subsequently satisfied. In the event that any funds have been on deposit in the Distribution Suspense Account for four (4) consecutive calendar quarters, the applicable Project Company is obligated to use such “Trapped Cash” to prepay the Project Debt.
In connection with the PPA IIIb, PPA IV and PPA V projects, we procured a Fuel Cell Energy Production Insurance Policy on behalf of the applicable PPA Entity and the lenders (Production Insurance). The Production Insurance policies are intended to mitigate the risk of our failure or inability to operate and maintain the applicable portfolio of Energy Servers in accordance with the requirements of the O&M Agreement, and provides for debt service payment on the Project Debt in the event that the PPA Entity’s revenues are insufficient to make such payments due to a shortfall in the electricity generated by the Energy Servers. To date, no claims have been made under any of the Production Insurance policies.


Obligations to Investors
Each of our Power Purchase Agreement Projects has involved an investment by one or more Equity Investors, who contribute funds to the applicable PPA Entity in exchange for equity interests entitling such investors to distributions of the cash and any tax credits and other tax benefits generated by the project. In each of the projects, we (via a wholly-owned subsidiary) and one or more additional Equity Investors form a jointly-owned special purpose entity (each, a Holding Company), which entity in turn owns 100% of the membership interests of the applicable PPA Entity. Our obligations to the Equity Investors are set forth in the Holding Company limited liability company operating agreement (the Operating Agreement). We act as the managing member of each Holding Company, managing its day-to-day affairs subject to consent rights of the Equity Investors with respect to decisions agreed between us and the Equity Investors in the Operating Agreement.
As members of a Holding Company, we and the applicable Equity Investors are entitled to (i) allocations of items of income, loss, gain, deduction and credit (Tax Items) including, where applicable, the 30% investment tax credit under Section 48 of the Internal Revenue Code, and (ii) distributions of any cash held by such Holding Company in excess of amounts necessary for the ongoing operation of such Holding Company, including any Distributable Cash received from the applicable PPA Entity. The members’ respective allocations of Tax Items and cash distributions are negotiated on a project-by-project basis between us and the Equity Investors in each project. Distributions are made to Equity Investors (including us) on a quarterly basis in connection with PPA II, PPA IV and PPA V, and on a semi-annual basis in PPA IIIa and PPA IIIb.
In the event of a bankruptcy of a PPA Entity, the assets of such PPA Entity would be liquidated, likely at the direction of the bankruptcy trustee, if one was appointed, or according to the direction of the applicable lenders to such PPA Entity. In the event of a bankruptcy or liquidation, assets would first be liquidated to repay the applicable project’s debt. If any cash remained following the repayment of debt, such cash would be distributed among us and the Equity Investor(s) in the project in accordance with the applicable LLC agreement for the Investment Company. As a general matter, cash is first applied to the payment of owed but unpaid preferred distributions to the Equity Investor(s) other than us, if any, with any remaining assets split between us and such Equity Investor(s) in accordance with the sharing percentages of distributions as set forth in the applicable LLC agreement.
The Power Purchase Agreement Project agreements do not permit for voluntary early termination of the arrangements by us or the applicable Equity Investors. The Equity Investors in the projects may not withdraw from the applicable PPA Entity, except in connection with a permitted transfer or sale of such member’s assets in compliance with any restrictions on transfer set forth in the limited liability company agreement applicable to such project.
The following sets forth a project-by-project summary of obligations that are unique to individual projects:
PPA II. Diamond State Generation Partners, LLC (PPA Company II) is a wholly-owned subsidiary of Diamond State Generation Holdings, LLC (PPA II HoldCo), which is jointly-owned by us and an Equity Investor. As of June 30, 2018, we owned 100% of the Class A Membership Interests of PPA II HoldCo, and the Equity Investor owned 100% of the Class B Membership Interests of PPA II HoldCo. We (through our wholly-owned subsidiary Clean Technologies II, LLC), act as the managing member of PPA II HoldCo.
The economic benefits of the PPA II project are allocated between us and the Equity Investor as follows:
Other than Tax Items relating to the proceeds of any cash grant under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (Cash Grant), Tax Items are allocated (i) 99% to the Equity Investor and 1% to us until the last date of the calendar month in which the Equity Investor has achieved an internal rate of return equal to the “Target IRR” specified in the PPA II HoldCo operating agreement (Flip Date), and (ii) following the Flip Date, 5% to the Equity Investor and 95% to us.
All Tax Items relating to the Cash Grant are allocated 99% to the Equity Investor and 1% to us.
All cash proceeds of the Cash Grant are distributed 99% to the Equity Investor and 1% to us.
All other cash available for distribution is distributed (i) 99% to the Equity Investor and 1% to us until the Flip Date, and (ii) following the Flip Date, 5% to the Equity Investor and 95% to us.
Pursuant to the PPA II HoldCo LLC agreement, we have the option, exercisable at our sole discretion, to purchase all of the Equity Investor’s membership interests in PPA II HoldCo on the eleventh anniversary of the date of the initial equity investment of the PPA II project by the Equity Investor, which will occur in June, 2023. If we were to exercise this purchase option, we would thereafter be entitled to all subsequent cash, income (loss), tax and tax allocations generated by the PPA II Project (net of payments to the PPA II lenders under the PPA II Credit Agreement) and the purchase price for the Equity Investor’s membership interests would be equal to the greater of (i) the fair market value of such equity interests at such time, or (ii) the amount that would cause the Equity Investor to realize an internal rate of return stated in the PPA II HoldCo LLC agreement. The cash consideration required to generate the required internal rate of return for the Equity Investor pursuant to this purchase option will vary based on the distributions generated by the PPA II Project thru June, 2023, and may range

between approximately $73.4 million and $137.4 million. We have agreed to indemnify the Equity Investor in PPA II HoldCo from any liability related to recapture of the Cash Grant, except to the extent such recapture results from (i) a breach of applicable representations and covenants of the Equity Investor, or (ii) a prohibited transfer of the Equity Investor’s membership interests in PPA II HoldCo.
The PPA II project includes an annual Output Guaranty of 95% and a cumulative Efficiency Guaranty of 50%. In each case, underperformance obligates us to make a payment to PPA Company II. As of June 30, 2018, the PPA II project is operating at an average output of approximately 86% for calendar year 2018, and a lifetime average efficiency of approximately 51%.warranties. Our obligation to make payments for underperformance ofagainst the PPA II project isperformance 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 $13.9$6.0 million under the Output Guaranty(including payments both for low output and approximately $263.6 million under the Efficiency Guaranty. As of June 30, 2018, we have no remaining liability under the Output Guaranty,for low efficiency) and our remaining potential liability under the Efficiency Guaranty cap is approximately $263.6 million.
Obligations Under the PPA II Tariff Agreement
PPA Company II is required to declare a “Forced Outage Event” if permitted under the PPA II tariff agreement in the event that (i) the Company has reached its cap on performance warranty payments under the O&M Agreement, such that PPA Company II is not eligible for further warranty payments under such O&M Agreement, (ii) the project’s lifetime efficiency falls below the level warranted in the O&M Agreement and the Company has not reimbursed PPA Company II for the resulting excess costs of procuring natural gas resulting from such shortfall, (iii) the Energy Servers have failed to generate electricity at an average above a minimum threshold specified in the PPA II Credit Agreement (i.e., 85% of the project’s nameplate capacity during any calendar month) or (iv) the Company has suffered a bankruptcy event or the Company ceases to carry on its business. As of June 30, 2018, no “Forced Outage Event” had been declared. The PPA II project’s average output for June 2018 equaled 86.0% of the project’s nameplate capacity.
In addition, in the event that PPA Company II claims that a “Forced Outage Event” has occurred under the PPA II tariff, PPA Company II is obligated to purchase and deliver replacement RECs in an amount equal to the number of megawatt hours for which it receives compensation under the ‘forced outage’ provisions of the tariff, but only if such replacement RECs are available in sufficient quantities and can be purchased for less than $45 per REC. A “Forced Outage Event” is defined under the PPA II tariff agreement as the inability of PPA II to obtain a replacement component part or a service necessary for the operation of the Energy Servers at their nameplate capacity. The PPA II tariff agreement provides for payments to PPA Company II in the event of a Forced Outage Event lasting in excess of 90 days. For the first 90 days following the occurrence of a Forced Outage Event, no payments are made under this provision of the tariff. Thereafter, PPA Company II is entitled to payments equal to 70% of the payments that would have been made under the tariff but for the occurrence of the Forced Outage Event-that is, the “Forced Outage Event” provision of the PPA II tariff agreement provides for payments to PPA Company II under the tariff equal to the amount that would be paid were PPA Company II’s Energy Servers operating at 70% of their nameplate capacity, irrespective of actual output. The PPA II tariff agreement also provides that the “Forced Outage Event” protections afforded thereunder shall automatically terminate in the event that we obtain an investment grade rating. In addition, in the event we obtain an investment grade rating, we are required to offer to repurchase the Notes from each individual noteholder unless we provide a guarantee of the debt obligations of the PPA Company II.
The Equity Investor in PPA II HoldCo has the option, exercisable on March 16, 2022, to sell 100% of its equity interests in the project to us for a sale price equal to the then-applicable fair market value of such equity interests. We guarantee the obligations of Clean Technologies II to make the payment of such purchase price in the event the Equity Investor exercises such option.
PPA IIIa. 2012 ESA Project Company, LLC (PPA Company IIIa) is a wholly-owned subsidiary of 2012 V PPA Holdco, LLC (PPA IIIa HoldCo), which is jointly-owned by us and an Equity Investor. As of June 30, 2018, we owned 100% of the Class B Membership Interests of PPA IIIa HoldCo, and the Equity Investor owned 100% of the Class A Membership Interests of PPA IIIa HoldCo. We (through our wholly-owned subsidiary Clean Technologies III, LLC), act as the managing member of PPA IIIa HoldCo.
The economic benefits of the PPA IIIa project are allocated between us and the Equity Investor as follows:
Tax Items (including the ITC) are allocated (i) 99% to the Equity Investor and 1% to us.
Cash available for distribution is distributed (i) until January 1, 2020, first, to the Equity Investor, a payment equal to 2% of the investor’s investment on an annual basis, and next, all remaining amounts are distributed to us; and (ii) from and after January 1, 2020, first, to the Equity Investor, a payment equal to 2% of the Equity Investor’s investment on an annual basis, and next, all remaining amounts are distributed 95.05% to us and 4.95% to the Equity Investor.

Pursuant to the PPA IIIa HoldCo LLC agreement, we have the option, exercisable at our sole discretion, to purchase all of the Equity Investor’s membership interests in PPA IIIa HoldCo, exercisable within six months following either January 1, 2020 or January 1, 2025. If we were to exercise this purchase option, we would thereafter be entitled to all subsequent cash, income (loss), tax and tax allocations generated by the PPA IIIa Project (net of payments to the PPA IIIa lenders under the PPA IIIa Credit Agreement) and the purchase price for the Equity Investor’s membership interests would be equal to the greater of (i) the fair market value of such equity interests at such time, or (ii) the sum of (x) any unpaid amounts owed to the Equity Investor pursuant to its entitlement to cash distributions equal to 2% of its investment (as described above), plus (y) approximately $2.1 million. The PPA IIIa project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Warranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company IIIa regarding failure of the Energy Servers to perform in accordance with the applicable offtake agreements, which generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. In the case of underperformance with respect to the Output Warranty and/or the Output Guaranty, we are obligated to make a payment to PPA Company IIIa; additionally, in the case of underperformance against the Output Warranty, we are obligated to repair or replace the applicable Energy Servers. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company IIIa for any payments owed to the applicable customer(s). As of June 30, 2018, the PPA IIIa project is operating at an average output of approximately 85% for calendar year 2018, an average output of approximately 85% for the three months ended June 30, 2018 and a lifetime average efficiency of approximately 52%. Our obligation to make payments for underperformance of the PPA IIIa project is capped at an aggregate total of approximately $5.0 million under the annual Output Guaranty, approximately $10.0 million under the quarterly Output Warranty, and approximately $675,000 under the Efficiency Guarantees in the applicable offtake agreements. As of June 30, 2018, our aggregate remaining potential liability under these caps isthis cap was approximately $2.4 million under the annual Output Guaranty, approximately $9.8 million under the quarterly Output Warranty, and approximately $675,000 under the Efficiency Guarantees.million.
We have agreed to indemnify the Equity Investor in PPA IIIa HoldCo from any liability related to recaptureRemarketing at Termination of the ITC except to the extent such recapture results from (i) a transfer of the Equity Investor’s membership interest in the project, (ii) a change in the federal income tax classification of the Equity Investor or its owners, (iii) a change in federal income tax law or (iv) adverse findings regarding the tax classification of the project.Lease
The Equity Investor has the option, exercisable for a six month period commencing January 1, 2021, to withdraw from PPA IIIa HoldCo by notice to us. Notwithstanding the allocations of cash available for distribution set forth above, inIn the event that the Equity Investor exercises this withdrawal option, such investor shall receive 99% ofcustomer does not renew or purchase our Energy Servers upon the cash available for distribution until it has received the fair market valueexpiration of its Class A Membership Interests in PPA IIIa HoldCo atLease, we may remarket any such time, but in any event no more than approximately $2.0 million.
PPA IIIb. 2013B ESA Project Company, LLC (PPA Company IIIb) isEnergy Servers to a wholly-owned subsidiarythird party. Any proceeds of 2013B ESA Holdco, LLC (PPA IIIb HoldCo), which is jointly-owned by us and an Equity Investor. As of June 30, 2018, we owned 100% of the Class B Membership Interests of PPA IIIb HoldCo, and the Equity Investor owned 100% of the Class A Membership Interests of PPA IIIb HoldCo. We (through our wholly-owned subsidiary Clean Technologies 2013B, LLC), act as the managing member of PPA IIIb HoldCo.
The economic benefits of the PPA IIIb project aresuch sale would be allocated between us and the Equity Investorapplicable financing partner as follows:agreed between the parties at the time of such sale.
Tax Items (includingDelivery and Installation
The timing of delivery and installations of our products have a significant impact on the ITC) are allocated 99% to the Equity Investor and 1% to us.
Cash available for distribution is distributed (i) until January 1, 2021, first, to the Equity Investor, a payment equal to 2%timing of the investor’s investment on an annual basis,recognition of product and next, all remaining amounts are distributed to us;installation revenue. Many factors can cause a lag between the time that a customer signs a purchase order and (ii) from and after January 1, 2021, first, toour recognition of product revenue. These factors include the Equity Investor, a payment equal to 2% of the Equity Investor’s investment on an annual basis, and next, all remaining amounts are distributed 95.05% to us and 4.95% to the Equity Investor.
Pursuant to the PPA IIIb HoldCo LLC agreement, we have the option, exercisable at our sole discretion, to purchase all of the Equity Investor’s membership interests in PPA IIIb HoldCo, exercisable within six months following either January 1, 2021 or January 1, 2026. If we were to exercise this purchase option, we would thereafter be entitled to all subsequent cash, income (loss), tax and tax allocations generated by the PPA IIIb Project (net of payments to the PPA IIIb lenders under the PPA IIIb Credit Agreement) and the purchase price for the Equity Investor’s membership interests would be equal to the greater of (i) the fair market value of such equity interests at such time, or (ii) the sum of (x) any unpaid amounts owed to the Equity Investor pursuant to its entitlement to cash distributions equal to 2% of its investment (as described above), plus (y) approximately $0.7 million. The PPA IIIb project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Guaranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company IIIb regarding failure of the Energy Servers to perform in accordance with the applicable

offtake agreements, which generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. In the case of underperformance with respect to either Output Guaranty, we are obligated to make a payment to PPA Company IIIb. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company IIIb for any payments owed to the applicable customer(s). As of June 30, 2018, the PPA IIIb project is operating at an average output of approximately 89% for the period ending June 30, 2018, an average output of approximately 88% for the three months ended June 30, 2018, and a lifetime average efficiency of approximately 53%. Our obligation to make payments for underperformance of the PPA IIIb project is capped at an aggregate total of approximately $2.7 million under the annual Output Guaranty, is uncapped under the quarterly Output Guaranty, and is capped at an aggregate total of approximately $1.0 million under the Efficiency Guarantees in the applicable offtake agreements. As of June 30, 2018, our aggregate remaining potential liability under these caps is approximately $2.6 million under the annual Output Guaranty and is approximately $1.0 million under the Efficiency Guarantees.
We have agreed to indemnify the Equity Investor in PPA IIIa HoldCo from any liability related to recapture of the ITC except to the extent such recapture results from (i) a transfer of the Equity Investor’s membership interest in the project, (ii) a change in the federal income tax classification of the Equity Investor or its owners, (iii) a change in federal income tax law or (iv) adverse findings regarding the tax classification of the project.
The Equity Investor has the option, exercisable for a 6-month period commencing January 1, 2022, to withdraw from PPA IIIa HoldCo by notice to us. Notwithstanding the allocations of cash available for distribution set forth above, in the event that the Equity Investor exercises this withdrawal option, the Equity Investor shall receive 99% of the cash available for distribution until it has received the fair market value of its Class A Membership Interests in PPA IIIa HoldCo at such time, but in any event no more than approximately $1.2 million.
PPA IV. 2014 ESA Project Company, LLC (PPA Company IV) is a wholly-owned subsidiary of 2014 ESA Holdco, LLC (PPA IV HoldCo), which is jointly-owned by us and an Equity Investor. As of June 30, 2018, we owned 100% of the Class B Membership Interests of PPA IV HoldCo, and the Equity Investor owned 100% of the Class A Membership Interests of PPA IV HoldCo. We (through our wholly-owned subsidiary Clean Technologies 2014, LLC), act as the managing member of PPA IV HoldCo.
The economic benefits of the PPA IV project are allocated between us and the Equity Investor as follows:
•Tax Items (including the ITC) are allocated 90% to the Equity Investor and 10% to us.
•Cash available for distribution is distributed 90% to the Equity Investor and 10% to us.
The PPA IV project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Guaranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company IV regarding failure of the Energy Servers to perform in accordance with the applicable offtake agreements, which generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. In the case of underperformance with respect to either Output Guaranty, we are obligated to make a payment to PPA Company IV. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company IV for any payments owed to the applicable customer(s). The offtake agreements generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. As of June 30, 2018, the PPA IV project is operating at an average output of approximately 90% for calendar year 2018, and a lifetime average efficiency of approximately 55%. Our obligation to make payments for underperformance of the PPA IV project is capped at an aggregate total of approximately $7.2 million under the annual Output Guaranty, is uncapped under the quarterly Output Guaranty, and is capped at approximately $3.6 million under the Efficiency Guarantees in the applicable offtake agreements. As of June 30, 2018, our aggregate remaining potential liability under these caps is approximately $6.7 million under the annual Output Guaranty, and approximately $3.6 million under the Efficiency Guarantees.
We have agreed to indemnify the Equity Investor in PPA IV HoldCo from any liability related to recapture of the ITC that results from a breach of our representations, warranties and covenants to the Equity Investor set forth in the transaction documents associated with the PPA IV project.
PPA V. 2015 ESA Project Company, LLC (PPA Company V) is a wholly-owned subsidiary of 2015 ESA HoldCo, LLC (PPA V HoldCo). PPA V HoldCo is jointly-owned by us and 2015 ESA Investco, LLC (PPA V InvestCo), which is itself a jointly-owned subsidiary of two Equity Investors. As of June 30, 2018, we owned 100% of the Class B Membership Interests of PPA V HoldCo, and PPA V InvestCo owned 100% of the Class A Membership Interests of PPA V HoldCo. We (through our wholly-owned subsidiary Clean Technologies 2015, LLC), act as the managing member of PPA V HoldCo.
The economic benefits of the PPA V project are allocated between us and PPA V InvestCo as follows:
•Tax Items (including the ITC) are allocated 90% to PPA V InvestCo and 10% to us.

•Cash available for distribution is distributed 90% to PPA V InvestCo and 10% to us.
The PPA V project includes (i) an Output Guaranty of 95% measured annually, (ii) an Output Guaranty of 80% measured quarterly, (iii) an Efficiency Warranty of 45% measured monthly, and (iv) an indemnity of any payments made by PPA Company V regarding failure of the Energy Servers to perform in accordance with the applicable offtake agreements, which generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. In the case of underperformance with respect to either Output Guaranty, we are obligated to make a payment to PPA Company V. In the case of underperformance with respect to the Efficiency Warranty, we are obligated to repair or replace the applicable Energy Servers, and we are obligated to reimburse PPA Company V for any payments owed to the applicable customer(s). The offtake agreements generally provide for an Efficiency Guaranty of 52% measured cumulatively over the life of the project. As of June 30, 2018, the PPA V project is operating at an average output of approximately 92% for calendar year 2018, and a lifetime average efficiency of approximately 57%. Our obligation to make payments for underperformance of the PPA V project is capped at an aggregate total of approximately $13.9 million under the annual Output Guaranty, is uncapped under the quarterly Output Guaranty, and is capped at approximately $6.8 million under the Efficiency Guarantees in the applicable offtake agreements. As of June 30, 2018, our aggregate remaining potential liability under these caps is approximately $13.9 million under the annual Output Guaranty, and approximately $6.8 million under the Efficiency Guarantees.
We have agreed to indemnify the Equity Investor in PPA V HoldCo from any liability related to recapture of the ITC that results from a breach of our representations, warranties and covenants to the Equity Investor set forth in the transaction documents associated with the PPA V project.
We have also agreed to make certain payments to our Equity Investors in the event that the average time period between receipt of the deposit payment for an Energy Server and the date on which such Energy Server achieves commercial operations exceeds specified periods. During 2017, we issued a payment of $3.2 million for delay penalties to our Equity Investors that was recorded within general and administrative expenses in the consolidated statements of operations when the delay period occurred. We do not expect any delay penalties as of June 30, 2018. In addition, we have agreed to make certain partner related developer fee payments required to be made by us to the Equity Investor upon acceptancenumber of Energy Servers sold through PPA Company V. The final paymentinstalled 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 developer fee liabilities was made in 2017, and there are no liabilities recorded as of June 30, 2018.
Obligations to End-Customers
Our obligationsreasons unrelated to the end-customersforegoing, 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 Bloom Electrons projects are set forthinstallation meets the timing objectives. These unexpected delays and expenses can be exacerbated in the offtake agreementperiods 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 PPA Entityrevenue we expect to generate in a particular period and the end-customer. The offtake agreements share the following provisions:
Term; Early Termination: The offtake agreements provide for an initial term of 15 years, exceptrevenue that (i) the offtake agreements included in PPA I provide for an initial term of 10 years, and (ii) the offtake agreement for PPA II has a term of 21 years. The offtake agreements may be renewed by the mutual agreement of the end-customer and the applicable PPA Entity for additional periods at the expiration of the initial term. In the event that the end customer desires to terminate the offtake agreement before the end of the contract term, or in the event that the offtake agreement is terminated by the applicable PPA Entity due to customer default as defined in the offtake agreement, the end customer is required to pay a “termination value” payment as liquidated damages. This termination value payment is calculated to be sufficient to allow the PPA Entity to repay any debt associated with the affected Energy Servers, make distributions to the Equity Investor(s) in the project equal to their expected return on investment, pay for the removal of the Energy Servers from the project site, and cover any lost tax benefits incurred as a result of the termination (if any). In some cases, we may agree to reimburse the end-user for some or all of the termination value payments paid if we are able to successfully resell or redeployrecognize. For our installations, revenue and cost of revenue can fluctuate significantly on a periodic basis depending on the applicabletiming 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 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 were previously 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 sold Energy Servers following termination of the offtake agreement.
to Bloom Energy Server InstallationJapan and Operation: The applicable PPA Entity is responsible for the installation, operation and maintenance of the Energy Servers. In performing such services, the PPA Entity is required to comply with all applicable laws and regulations, with the requirements of any permits obtained forwe recognized revenue once the Energy Servers left the port in the United States. Bloom Energy Japan then entered into the contract with any requirementsthe end customer and performed all installation work as well as some of the interconnection agreementoperations and maintenance work. As of July 1, 2021, we acquired Softbank Corp.'s interest in Bloom Energy Japan for a cash payment and are now the sole owner of Bloom Energy Japan.
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 in November 2018 with SK ecoplant for the local electric utility regarding such Energy Servers,marketing and with any requirements agreed with the applicable end-customer in the offtake agreement (such as site access procedures, black-out periods regarding routine maintenance, etc.).
Take-Or-Pay Purchase Obligation: The end-customer is required to purchase allsale of the electricity generated by theBloom Energy Servers for the durationstationary utility and commercial and industrial South Korean power market.
As part of our expanded strategic partnership with SK ecoplant, the parties executed the PDA Restatement in October 2021, which incorporates previously amended terms and establishes: (i) SK ecoplant’s purchase commitments for the next three years (on a take or pay basis) for Bloom Energy Servers; (ii) rollover procedures; (iii) premium pricing for product and services; (iv) termination procedures for material breaches; and (v) procedures if there are material changes to the Republic of Korea Hydrogen Portfolio Standard. For additional information, see Note 18, Subsequent Events.
Under the terms of the offtake agreement. We perform an initial credit evaluation ofPDA Restatement, we (or our customer’s ability to pay undersubsidiary) contract directly with the PPA arrangements. Subsequently, on an at least annual basis, we re-evaluate and confirm the credit worthiness of our customers. Under our existing Power Purchase Agreement Programs, there are four customers that represent more than 10% of the total assets of our PPA Entities. The four customers include Delmarva, Home Depot, AT&T and Walmart. In the event that an end-customer is unwilling or unable to accept delivery of such electricity or fails to supply the necessary fuel to the

Energy Servers (if applicable), the end-customer is required to make a payment to the PPA Entity for the amount of electricity that would have been delivered had the Energy Servers continued to operate.
Fuel Supply Obligation: In PPA I, fuel supply obligations are either the obligation of the PPA Entity or the end-customer, on a case-by-case basis. In PPA II, the PPA entity is responsible for providing all required fuel to the Energy Servers and is reimbursed pursuant to the Delmarva Tariff so long as the Energy Servers maintain a specified operational efficiency. In the PPA IIIa, PPA IIIb, PPA IV and PPA V projects, the end-customers are requiredcustomer to provide all necessary fueloperations and maintenance services for the operation of the Energy Servers.
Ownership of Energy Servers: The applicable PPA Entity retains title to the Energy Servers at all times unless the end-customer elects to purchase the Energy Server(s).
Financial Incentives and Environmental Attributes: As the owner of the Energy Servers, the PPA Entity retains ownership of any tax benefits associated with the installation and operation of the Energy Servers. Additional financial incentives availableWe have established a subsidiary in connection with the offtake agreements (such as payments under state incentive programs or renewable portfolio standard programs)Republic of Korea, Bloom Energy Korea, LLC, to which we subcontract such operations and any environmental benefits associated with the Energy Servers (such as carbon emissions reductions credits) are allocated to either the PPA Entity or the end-customer on a case-by-case basis. In some circumstances, the PPA Entity has also agreed to purchase and deliver to the end-customer renewable energy credits in connection with the offtake agreement.
Efficiency Commitments: Where the end-customer is responsible for delivering fuel to the Energy Servers, the offtake agreement includes Energy Server efficiency commitments. Generally, these consist of (i) an “Efficiency Warranty”, where the PPA Entity is obligated to repair or replace Energy Servers that fail to operate at or above a specified level of efficiency during any calendar month, and/or (ii) an “Efficiency Guaranty”, where the PPA Entity is obligated to make payments to the end-customer to cover the cost of procuring excess fuel if the Energy Servers fail to operate at or above a specified level of efficiency on a cumulative basis during the termmaintenance services. The terms of the offtake agreement. Where an Efficiency Guaranty is provided, the PPA Entity’s aggregate liability for payments is capped. In certain circumstances, we may negotiate modifications to the efficiency commitments with the end-customer, including different efficiency thresholds or providing for monetary payments under the Efficiency Warranty in lieu of or in addition to our obligation to repair or replace underperforming Energy Servers.
Output Commitments: Although our standard Bloom Electrons offering does not include a minimum output commitment to the end-user, exceptions may be negotiated on a case-by-case basis if we believe the opportunity justifies such exception. These output commitmentsoperations and maintenance are at an output level lesser than or equal to the level warranted by us to the PPA Entity under the O&M Agreement, and provide either for a payment to the end-customer for the shortfall in electricity produced or for an end-customer termination right. In addition, where the end-user (as opposed to the PPA Entity) is entitled to the benefits of an incentive program that requires a minimum output level, the PPA Entity may agree to reimburse the end-customer for any decrease in incentive payments resulting from the Energy Servers’ failure to operate at such minimum output level.
Defaults; Remedies: Defaults under the offtake agreements are typically limited to (i) bankruptcy events, (ii) unexcused failure to perform material obligations, and (iii) breaches of representations and warranties. Additional defaults may be negotiated on a case-by-case basis with end-customers. The partieseach customer, but are generally afforded cure periods ofexpected to provide the customer with the option to receive services for at least 30 days10 years, and for up to cure any such defaults.the life of the Energy Servers.
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SK ecoplant Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK ecoplant to establish a light-assembly facility in the eventRepublic of an uncured defaultKorea 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 ecoplant. SK ecoplant, 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 PPA Entity,joint venture. In October 2021, as part of our expanded strategic partnership with SK ecoplant, the end-customer may terminateparties agreed to increase the offtake agreement eitherscope of the assembly work done in whole orthe joint venture facility. For additional information, see Note 18, Subsequent Events.
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 part asorder 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 other states have instituted similar programs and we expect that other states may do so as well 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, projects 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 Server(s) affected by such default, and may seek other remedies afforded at law or in equity. In the event of an uncured default by the end-customer, the PPA Entity may terminate the offtake agreement either in whole or in part asServers pursuant to the Energy Server(s) affected by such default,New York CDG program for a total of 441 systems. As of September 30, 2021, we have recognized revenue associated with 271 systems. We continue to believe that these types of subscriber-based programs could be a source of future revenue and may seek other remedies afforded at law or in equity; in addition,will continue to look to generate sales through these programs in the event an offtake agreement is terminated due to an end-customer default,future.

Comparison of the end-customer is obligated to make a termination value payment to the PPA Entity.
For further information about our PPA entities, see Note 12 - Power Purchase Agreement Programs, to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Three and Nine Months Ended September 30, 2021 and 2020
Key Operating Metrics
In addition to the measures presented in the condensed consolidated financial statements, we use the followingcertain key operating metrics below to evaluate business activity, to measure performance, to develop financial forecasts and to make strategic decisions:decisions.
Product accepted -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 numberterm of customer acceptancesthe contract instead of at the time of delivery or acceptance. Today, a very small portion of our Energy Servers in any period. 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 thisacceptances as a key operating metric to measure the volume of deployment activity. We measure eachour completed Energy Server manufactured,installation activity from period to period. Acceptance typically occurs upon transfer of control to our customers, which depending on the contract terms is when the system is shipped and accepteddelivered to our customer, when the system is shipped and delivered and is physically ready for startup and commissioning, or when the system is shipped and delivered and is turned on and producing power.
The product acceptances in terms of 100 kilowatt equivalents.the three and nine months ended September 30, 2021 and 2020 were as follows:
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20212020Amount %20212020Amount %
   
Product accepted during the period
(in 100 kilowatt systems)		353 314 39 12.4 %1,144 876 268 30.6 %
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Megawatts deployed -Product accepted for the aggregate megawatt capacity of operatingthree months ended September 30, 2021 compared to the same period in 2020 increased by 39 systems, or 12.4%, as demand increased for our Energy Servers in the field that have achieved acceptance. We use this metricRepublic of Korea and the United States.
Product accepted for the nine months ended September 30, 2021 compared to measure the total electricity-generating capacity of deployedsame period in 2020 increased by 268 systems, or 30.6%, as demand increased for our Energy Servers measured in megawatts.
the Republic of Korea and the utility sector where we accepted 146 systems as part of the CDG program.
Our customers have several purchase options for our Energy Servers. The portion of acceptances attributable to each purchase option in the three and nine months ended September 30, 2021 and 2020 was as follows:
Billings
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
   
Direct Purchase (including Third-Party PPAs and International Channels)99 %92 %99 %97 %
Managed Services1 %8 %1 %3 %
100 %100 %100 %100 %
The portion of total revenue attributable to each purchase option in the three and nine months ended September 30, 2021 and 2020 was as follows:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
   
Direct Purchase (including Third-Party PPAs and International Channels)86 %88 %88 %87 %
Traditional Lease1 %1 %1 %1 %
Managed Services8 %5 %6 %6 %
Portfolio Financings5 %6 %5 %6 %
100 %100 %100 %100 %
Costs Related to Our Products
Total product related costs for the three and nine months ended September 30, 2021 and 2020 was as follows:
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
20212020Amount%20212020Amount%
   
Product costs of product accepted in the period$2,398 /kW$2,292 /kW$106 /kW4.6 %$2,357/kW$2,398 /kW$(41)/kW(1.7)%
Period costs of manufacturing related expenses not included in product costs (in thousands)$6,206 $4,000 $2,206 55.2 %$14,044 $15,267 $(1,223)(8.0)%
Installation costs on product accepted in the period$705 /kW$926 /kW$(221) /kW(23.9)%$591/kW$980/kW$(389)/kW(39.7)%
Product costs of product accepted for the three months ended September 30, 2021 compared to the same period in the period - the total contracted dollar amount2020 increased by approximately $106 per kilowatt driven by increased freight charges and other global supply chain issues as a result of the COVID-19 pandemic.
Product costs of product componentaccepted for the nine months ended September 30, 2021 compared to the same period in 2020 decreased by approximately $41 per kilowatt driven generally by our ongoing cost reduction efforts to reduce material costs in
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conjunction with our suppliers and our reduction in labor and overhead costs through improved processes and automation at our manufacturing facilities.
Period costs of all Energy Servers that are acceptedmanufacturing related expenses for the three months ended September 30, 2021 compared to the same period in 2020 increased by approximately $2.2 million primarily driven by global supply chain issues as a period. We use this metric to gauge the dollar valueresult of the COVID-19 pandemic and investments in future capacity as we prepare to scale our manufacturing for future growth.
Period costs of manufacturing related expenses for the nine months ended September 30, 2021 compared to the same period in 2020 decreased by approximately $1.2 million primarily driven by higher absorption of fixed manufacturing costs into product acceptancescosts due to a larger volume of builds through our factory tied to our acceptance growth, which resulted in higher factory utilization and to evaluate the change in dollar amounthigher utilization of acceptances between periods.
inventory materials.
Billings for installationInstallation costs on product accepted infor the period - the total contracted dollar amount billable with respectthree months ended September 30, 2021 compared to the same period in 2020 decreased by approximately $221 per kilowatt. Each customer site is different and installation componentcosts can vary due to a number of allfactors, including site complexity, size, location of gas, personalized applications, the customer's option to complete the installation of our Energy Servers that are accepted. We use this metric to gaugethemselves, and the dollar value oftiming between the installations of our product acceptancesdelivery and to evaluate the change in dollar value associated with thefinal installation of our product acceptances between periods.
Billings for annual maintenance service agreements -under certain circumstances. As such, installation on a per kilowatt basis can vary significantly from period-to- period. For the dollar amount billable for one-year service contracts thatthree months ended September 30, 2021, the decrease in installation cost was driven by site mix as many of the acceptances did not have been initiated or renewed.
Product costs of product acceptedinstallation, either because the installation was done by our distribution channel partner in the period (per kilowatt) -Republic of Korea or the average unit product cost forfinal installation associated with a specific customer was scheduled to be completed later in the year although the Energy Servers that arewere delivered and accepted in a period. We use this metric to provide insight intoduring the trajectory of product costs and, in particular, the effectiveness of cost reduction activities.
quarter.
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.
InstallationInstallation costs on product accepted (per kilowatt) -for the average unitnine months ended September 30, 2021 compared to the same period in 2020 decreased by approximately $389 per kilowatt. For the nine months ended September 30, 2021, the decrease in install cost was driven by site mix as many of the acceptances did not have installation, cost foreither because the installation was done by our distribution channel partner in the Republic of Korea or the final installation associated with a specific customer was scheduled to be completed later in the year although the Energy Servers that arewere delivered and accepted in a givenduring the period. This metric
Results of Operations
A discussion regarding the comparison of our financial condition and results of operations for the three and nine months ended September 30, 2021 and 2020is used to provide insight into the trajectory of install costs and, in particular, evaluate whether our installation costs are in line with our installation billings.presented below.
Revenue
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20212020Amount%20212020Amount%
(dollars in thousands)(dollars in thousands)
Product$128,550 $131,076 $(2,526)(1.9)%$413,347$346,832$66,51519.2 %
Installation22,172 26,603 (4,431)(16.7)%53,71073,060(19,350)(26.5)%
Service39,251 26,141 13,110 50.2 %111,37577,49633,87943.7 %
Electricity17,255 16,485 770 4.7 %51,27347,4723,8018.0 %
Total revenue$207,228 $200,305 $6,923 3.5 %$629,705$544,860$84,84515.6 %
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Key Operating Metrics - Three Months Ended June 30Total Revenue
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
       
Product accepted during the period
(in 100 kilowatt systems)
 181
 162
 19
 11.7%
Megawatts deployed as of period end 328 MW 263 MW 65 MW 24.7%
Product acceptedTotal revenue increased approximately 19 systems,by $6.9 million, or 11.7%3.5%, for the three months ended JuneSeptember 30, 2018,2021 as compared to the threeprior year period. This increase was primarily driven by a $13.1 million increase in service revenue partially offset by a $4.4 million decrease in installation revenue and a $2.5 million decrease in product revenue.
Total revenue increased by $84.8 million, or 15.6%, for the nine months ended JuneSeptember 30, 2017. Acceptance volume increased2021 as we installed more systems from backlog.compared to the prior year period. This increase was primarily driven by a $66.5 million increase in product revenue and a $33.9 million increase in service revenue partially offset by a $19.4 million decrease in installation revenue.
Megawatts deployed increased approximately 65 megawatts,Product Revenue
Product revenue decreased by $2.5 million, or 24.7%(1.9)%, for the three months ended JuneSeptember 30, 2018,2021 as compared to the prior year period. The product revenue decrease was driven primarily by $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the three months ended JuneSeptember 30, 2017. Acceptances achieved from June 30, 2017 to June 30, 2018 were added to2020 and unfavorable site mix partially offset by 12.4% increase in product acceptances as a result of expansion in existing markets and in our installed base and thereforeCDG program.
Product revenue increased our megawatts deployed from 263 megawatts to 328 megawatts, respectively.
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
   
Billings for product accepted in the period $107,554 $64,475 $43,079 66.8%
Billings for installation on product accepted in the period $25,802 $25,803 
($1) —%
Billings for annual maintenance service agreements $19,160 $18,181 $979 5.4%
Billings for product accepted increased approximately $43.1by $66.5 million, or 66.8%19.2%, for the nine months ended September 30, 2021 as compared to the prior year period. The product revenue increase was driven primarily by a 30.6% increase in product acceptances as a result of expansion in existing markets and in our CDG program partially offset by a $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the nine months ended September 30, 2020 and unfavorable site mix.
Installation Revenue
Installation revenue decreased by $4.4 million, or (16.7)%, for the three months ended JuneSeptember 30, 2018,2021 as compared to the threeprior 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 distribution channel partner in the Republic of Korea or the final installation associated with a specific customer was scheduled to be completed later in the year although the Energy Servers were delivered and accepted during the quarter.
Installation revenue decreased by $19.4 million, or (26.5)%, for the nine months ended JuneSeptember 30, 2017. The increase2021 as compared to the prior year period. This decrease in installation revenue was primarily duedriven by site mix as many of the acceptances did not have installation, either because the installation was done by our distribution channel partner in the Republic of Korea or the final installation associated with a specific customer was scheduled to three factors.be completed later in the year although the Energy Servers were delivered and accepted during the period.
First, product acceptedService Revenue
Service revenue increased approximately 19 systems,by $13.1 million, or 11.7%50.2%, for the three months ended JuneSeptember 30, 2018,2021 as compared to the threeprior year period. This increase was primarily due to the continued growth of our installation base driven by both an increase in new acceptances and renewal of existing service contracts.
Service revenue increased by $33.9 million, or 43.7%, for the nine months ended JuneSeptember 30, 2017.

Second, ITC was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, so our billings for product accepted in 2017 did not include the benefit of ITC. Due to the reinstatement of ITC in 2018, billings for product accepted now includes the benefit of ITC. For the three months ended June 30, 2018, billings for product accepted included $26.4 million of benefit from ITC.
Third, the adoption of customer personalized applications such2021 as batteries and grid-independent solutions increased in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. Products that incorporate these personalized applications have, on average, a higher billings rate than our standard platform products that do not incorporate these personalized applications.
Billings for installation on product accepted remains relatively unchanged for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. Despite an 11.7%prior year period. This increase in product acceptances, billings for installation on product accepted remains unchangedwas primarily due to the mix incontinued growth of our installation billingsbase driven by site complexity, size and customer purchase option.
When we analyze changes between the three months ended June 30, 2018 and 2017, we take into account the impact of the ITC that was available in 2018 as a result of the reinstatement of the ITC. The effect of the reinstatement of ITC was higher billings in the periods eligible for ITC. ITC was extended through December 2021. For the three months ended June 30, 2018, the combined total billings for product and installation accepted was $133.3 million,both an increase in new acceptances and renewal of 47.7% from the billings for product and installation accepted combined of $90.3 million for the three months ended June 30, 2017. The increase was significantly greater than the 11.7% increase in associated acceptances during the same periods due to the reinstatement of the ITC in 2018.existing service contracts.
Billings for annual maintenance service agreementsElectricity Revenue
Electricity revenue increased approximately $1.0by $0.8 million, or 5.4%4.7%, for the three months ended JuneSeptember 30, 2018,2021 as compared to the threeprior year period due to the increase in the managed services asset base.
Electricity revenue increased by $3.8 million, or 8.0%, for the nine months ended JuneSeptember 30, 2017. This2021 as compared to the prior year period due to the increase was drivenin the managed services asset base.
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Cost of Revenue
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20212020Amount %20212020Amount %
 (dollars in thousands)(dollars in thousands)
Product$93,704 $72,037 $21,667 30.1 %$289,889 $227,653 $62,236 27.3 %
Installation25,616 27,872 (2,256)(8.1)%66,756 86,938 (20,182)(23.2)%
Service39,586 33,214 6,372 19.2 %111,269 92,836 18,433 19.9 %
Electricity11,439 11,195 244 2.2 %32,913 35,266 (2,353)(6.7)%
Total cost of revenue$170,345 $144,318 $26,027 18.0 %$500,827 $442,693 $58,134 13.1 %
Total Cost of Revenue
Total cost of revenue increased by the billing for new maintenance contract renewals for a greater number of megawatts deployed.
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
       
Product costs of product accepted in the period $3,485/kW $3,121/kW $364/kW 11.7 %
Period costs of manufacturing related expenses not included in product costs (in thousands) $3,018 $8,713 
($5,695) (65.4)%
Installation costs on product accepted in the period $1,967/kW $1,306/kW $661/kW 50.6 %
Product costs of product accepted increased approximately $364 per kilowatt,$26.0 million, or 11.7%18.0%, for the three months ended JuneSeptember 30, 2018, compared to the three months ended June 30, 2017. This increase in cost is primarily due to the increased adoption of customer personalized applications for the three months ended June 30, 2018. These customer personalized applications have a higher product cost on a per unit basis.
Period costs of manufacturing related expenses decreased approximately $5.7 million, or 65.4%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. Our period costs of manufacturing related expenses decreased primarily due to higher absorption of fixed manufacturing costs due to higher factory utilization.
Installation costs on product accepted increased approximately $661 per kilowatt, or 50.6%, for the three months ended June 30, 2018,2021 as compared to the three months ended June 30, 2017. Thisprior year period primarily driven by a $21.7 million increase in cost is primarily due to theof product revenue, $6.4 million increase in cost of service revenue, increased adoptionfreight charges and other supply chain-related pricing pressures partially offset by a $2.3 million decrease in cost of customer personalized applications for the three months ended June 30, 2018 as mentioned above. These customer personalized applications also have a higher installinstallation revenue.
Total cost on a per unit basis.

Key Operating Metrics - Six Months Ended June 30
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
       
Product accepted during the period
(in 100 kilowatt systems)
 347
 281
 66
 23.5%
Megawatts deployed as of period end 328 MW 263 MW 65 MW 24.7%
Product acceptedof revenue increased approximately 66 systems,by $58.1 million, or 23.5%13.1%, for the sixnine months ended JuneSeptember 30, 2018, compared to the six months ended June 30, 2017. Acceptance volume increased as we installed more systems from backlog.
Megawatts deployed increased approximately 65 megawatts, or 24.7%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. Acceptances achieved from June 30, 2017 to June 30, 2018 were added to our installed base and therefore increased our megawatts deployed from 263 megawatts to 328 megawatts, respectively.
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
   
Billings for product accepted in the period $228,697 $112,579 
$116,118
 103.1 %
Billings for installation on product accepted in the period $37,698 $48,830 
($11,132) (22.8)%
Billings for annual maintenance services agreements $33,282 $33,063 
$219
 0.7 %
Billings for product accepted increased approximately $116 million, or 103.1%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. The increase was primarily due to three factors.
First, product accepted increased approximately 66 systems, or 23.5%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.
Second, ITC was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, so our billings for product accepted in 2017 did not include the benefit of ITC. Due to the reinstatement of ITC in 2018, billings for product accepted now includes the benefit of ITC. For the six months ended June 30, 2018, billings for product accepted includes $86.0 million in benefits from ITC, of which $45.1 million was retroactive ITC for 2017 acceptances.
Third, the adoption of customer personalized applications such as batteries and grid-independent solutions increased in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Products that incorporate these personalized applications have, on average, a higher billings rate than our standard platform products that do not incorporate these personalized applications.
Billings for installation on product accepted decreased by $11.1 million for the six months ended June 30, 2018,2021 as compared to the six months ended June 30, 2017. Despite a 23.5% increase in product acceptances, billings for installation on product accepted decreased due to the mix in installation billingsprior year period primarily driven by site complexity, size, customer purchase option and one large customer in particular in the six months ended June 30, 2018 where the installation was performed by the customer, therefore, we did not have any installation billing for that customer.
When we analyze changes between the six months ended June 30, 2018 and 2017, we take into account the impact of ITC that was available in 2018 as a result of the reinstatement of the ITC. The effect of the reinstatement of ITC was higher billings in the periods eligible for ITC. ITC was extended through December 2021. For the six months ended June 30, 2018, the combined total for billings for product and installation accepted was $266.4$62.2 million an increase of 65.0% from the billings for product and installation accepted combined of $161.4 million for the six months ended June 30, 2017. The increase was significantly greater than the 23.5% increase in associated acceptances during the same periods due to the reinstatement of the ITC in 2018.
Billings for annual maintenance service agreements remained substantially the same for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.

  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
       
Product costs of product accepted in the period $3,662/kW $3,493/kW $169/kW 4.8%
Period costs of manufacturing related expenses not included in product costs (in thousands) $13,803 $16,110 ($2,307) (14.3)%
Installation costs on product accepted in the period $1,276/kW $1,589/kW $(313)/kW (19.7)%
Product costs of product accepted increased approximately $169 per kilowatt, or 4.8%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This increase in cost is primarily due to the increased adoption of customer personalized applications for the six months ended June 30, 2018. These customer personalized applications have a higher product cost on a per unit basis. A one-time impact of $271 per kilowatt was also included in the product cost of product accepted for the six months ended June 30, 2018 which was associated with supplier agreements that required us to forego previously negotiated discounts if ITC was renewed.
Period costs of manufacturing related expenses decreased approximately $2,307, or 14.3%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. Our period costs of manufacturing related expenses decreased primarily due to higher absorption of fixed manufacturing costs due to higher factory utilization.
Installation costs on product accepted decreased approximately $313 per kilowatt, or 19.7%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This decrease in cost is primarily due to the change in mix of site complexity, size, customer purchase option and one large customer in particular in the six months ended June 30, 2018 where the installation was performed by the customer, therefore, we did not have any installation cost for that customer. This decrease in cost was partially offset by higher installation cost driven by increased adoption of customer personalized applications for the six months ended June 30, 2018 as mentioned above. These customer personalized applications also have a higher install cost on a per unit basis.
Results of Operations
Revenue
We primarily recognize revenue from the sale and installation of Energy Servers, by providing services under maintenance contracts and electricity sales to our PPA Entities.
Product Revenue
All of our product revenue is generated from the sale of our Energy Servers to direct purchase, traditional lease and managed services customers. We generally recognize product revenue from contracts with customers for the sales of our Energy Servers once we achieve acceptance; that is, generally when the system has been installed and running at full power as defined in each contract.
The amount of product revenue we recognize in a given period is materially dependent on the volume and size of installations of our Energy Servers and on the type of financing used by the customer.
Installation Revenue
All of our installation revenue is generated from the installation of our Energy Servers to direct purchase, traditional lease and managed services customers. The amount of installation revenue we recognize in a given period is materially dependent on the volume and size of installations of our Energy Servers in a given period and on the type of financing used by the customer.
Service Revenue
Service revenue is generated from operations and maintenance services agreements that extend the standard one-year warranty service coverage beyond the initial one-year coverage for Energy Servers sold under direct purchase, traditional lease and managed services sales. Customers of our purchase and lease programs can renew their operating and maintenance services agreements on an annual basis for the life of the contract at prices predetermined at the time of purchase of the Energy Server. We anticipate that almost all of our customers will continue to renew their operations and maintenance services agreements each year.

Electricity Revenue
Our PPA Entities purchase Energy Servers from us and sell the electricity produced by these systems to customers through long-term PPAs. Customers are required to purchase all of the electricity produced by the Energy Servers at agreed-upon rates over the course of the PPA’s term. We generally recognize revenue from such PPA Entities as the electricity is provided over the term of the agreement.
Cost of Revenue
Our total cost of revenue consists of cost of product revenue, cost of installation revenue,$18.4 million increase in cost of service revenue, increased freight charges and other supply chain-related pricing pressures partially offset by a $20.2 million decrease in cost of electricityinstallation revenue. It includes personnel costs associated with our operations and global customer support organizations consisting of salaries, benefits, bonuses, stock-based compensation and allocated facilities costs.
Cost of Product Revenue
Cost of product revenue consists of costs of Energy Servers that we sellincreased by $21.7 million, or 30.1%, for the three months ended September 30, 2021 as compared to direct, traditional lease and managed services customers, including costs of materials, personnel costs, allocated costs, shipping costs, provisions for excess and obsolete inventory and the depreciation costs of our equipment. Because the sale of our Energy Servers includes a standard one-year warranty,prior year period. The cost of product revenue also includes estimated first-year warranty costs. Warrantyincrease was driven primarily by a 12.4% increase in product acceptances, increased freight charges and other supply chain-related pricing pressures including increased material, labor and overhead costs on a per unit basis by 6.4%.
Cost of product revenue increased by $62.2 million, or 27.3%, for customers that purchase under managed services or the Bloom Electrons program are recognizednine months ended September 30, 2021 as acompared to the prior year period. The cost of product revenue as they are incurred. We expect our cost of product revenue toincrease was driven primarily by a 30.6% increase in absolute dollars as we deliverproduct acceptances, increased freight charges and install more Energy Serversother supply chain-related pricing pressures partially offset by ongoing cost reduction efforts, which reduced material, labor and our product revenue increases.overhead costs on a per unit basis by 3.9%.
Cost of Installation Revenue
Cost of installation revenue consistsdecreased by $2.3 million, or (8.1)%, for the three months ended September 30, 2021 as compared to the prior year period. This decrease, similar to the $4.4 million decrease in installation revenue, was driven by site mix as many of the costs to installacceptances did not have installation in the Energy Servers that we sell to direct, traditional lease and managed services customers, including costs of materials and service providers, personnel costs, and allocated costs. We expect our costthree months ended September 30, 2021.
Cost of installation revenue decreased by $20.2 million, or (23.2)%, for the nine months ended September 30, 2021 as compared to increasethe prior year period. This decrease, similar to the $19.4 million decrease in absolute dollarsinstallation revenue, was driven by site mix as we deliver and install more Energy Servers, though it will be subject to variability as a resultmany of the foregoing.acceptances did not have installation in the nine months ended September 30, 2021.
Cost of Service Revenue
Cost of service revenue consistsincreased by $6.4 million, or 19.2%, for the three months ended September 30, 2021 as compared to the prior year period. This increase was primarily due to the 12.4% increase in acceptances plus the maintenance contract renewals associated with the increase in our fleet of costs incurred under maintenance service contracts for all customers including direct sales, traditional lease, managed servicesEnergy Servers, partially offset by the significant improvements in power module life, cost reductions and PPA customers. Such costs include personnel costs for our customer support organization, allocated costs and extended maintenance-related product repair and replacement costs. We expect our costactions to proactively manage fleet optimizations.
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Cost of service revenue increased by $18.4 million, or 19.9%, for the nine months ended September 30, 2021 as compared to the prior year period. This increase was primarily due to the 30.6% increase in absolute dollars asacceptances plus the maintenance contract renewals associated with the increase in our end-customer base of megawatts deployed grows, and we expect our cost of service revenue to fluctuate period by period depending on the timing of maintenancefleet of Energy Servers.Servers, partially offset by the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Cost of Electricity Revenue
Cost of electricity revenue increased by $0.2 million, or 2.2%, for the three months ended September 30, 2021 as compared to the prior year period, primarily consistsdue to the increase in the managed services asset base and a $0.6 million change in the fair value of the depreciation of the cost of the Energy Servers owned by our PPA Entitiesnatural gas fixed price forward contract and the cost of gas purchased in connection with PPAs entered into by our first PPA Entity. The cost of depreciation of the Energy Servers is reduced by the amortization of any U.S. Treasury grant payment in lieu of the energy investmentlower property tax credit associated with these systems. We expect our costexpenses.
Cost of electricity revenue decreased by $2.4 million, or (6.7)%, for the nine months ended September 30, 2021 as compared to the prior year period, primarily due to the $2.5 million change in the fair value of the natural gas fixed price forward contract and lower property tax expenses partially offset by the increase in absolute dollarsthe managed services asset base.
Gross Profit and Gross Margin
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 2021202020212020
 (dollars in thousands)
Gross profit:
Product$34,846$59,039$(24,193)$123,458$119,179$4,279
Installation(3,444)(1,269)(2,175)(13,046)(13,878)832
Service(335)(7,073)6,738 106(15,340)15,446
Electricity5,8165,290526 18,36012,2066,154
Total gross profit$36,883$55,987$(19,104)$128,878$102,167$26,711
Gross margin:
Product27 %45 %30 %34 %
Installation(16)%(5)%(24)%(19)%
Service(1)%(27)%0 %(20)%
Electricity34 %32 %36 %26 %
Total gross margin18 %28 %20 %19 %
Total Gross Profit
Gross profit decreased by $19.1 million in the three months ended September 30, 2021 as compared to the prior year period primarily driven by $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the three months ended September 30, 2020 without a corresponding increase in costs, increased freight charges and other supply chain-related pricing pressures.
Gross profit increased by $26.7 million in the nine months ended September 30, 2021 as compared to the prior year period primarily driven by both the improvement in our end-customer baseproduct revenue and product gross margin resulting from continued product cost reduction initiatives offset by $14.2 million of megawatts deployed grows.previously deferred revenue related to a specific contract that changed scope and was recognized in the nine months ended September 30, 2020 without a corresponding increase in costs, increased freight charges and other supply chain-related pricing pressures.
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Product Gross Profit
Product gross profit decreased by $24.2 million in the three months ended September 30, 2021 as compared to the prior year period. The decrease was primarily driven by $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the three months ended September 30, 2020 without a corresponding increase in costs, increased freight charges and other supply chain-related pricing pressures offset by a 12.4% increase in product acceptances.
Product gross profit increased by $4.3 million in the nine months ended September 30, 2021 as compared to the prior year period. The improvement is driven by a 30.6% increase in product acceptances partially offset by $14.2 million of previously deferred revenue related to a specific contract that changed scope and was recognized in the nine months ended September 30, 2020, increased freight charges and other supply chain-related pricing pressures.
Installation Gross Loss
Installation gross loss decreased by $2.2 million in the three months ended September 30, 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.
Installation gross loss decreased by $0.8 million in the nine months ended September 30, 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)
GrossService gross profit (loss) has been and will continue to be affectedimproved by a variety of factors, including the sales price of our products, manufacturing costs, the costs to maintain the systems$6.7 million in the field,three months ended September 30, 2021 as compared to the mix of financing options used,prior year period. This was primarily due to the significant improvements in power module life, cost reductions and the mix of revenue between product, service and electricity. We expect our actions to proactively manage fleet optimizations.
Service gross profit (loss) improved by $15.4 million in the nine months ended September 30, 2021 as compared to fluctuate over time depending on the factors described above.prior year period. This was primarily due to the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Electricity Gross Profit
Electricity gross profit increased by $0.5 million in the three months ended September 30, 2021 as compared to the prior year period mainly due to the increase in the managed service asset base offset by the $0.6 million change in the fair value of the natural gas fixed price forward contract.
Electricity gross profit increased by $6.2 million in the nine months ended September 30, 2021 as compared to the prior year period mainly due to the $2.5 million change in the fair value of the natural gas fixed price forward contract. This was primarily due to the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Operating Expenses
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20212020Amount %20212020Amount %
 (dollars in thousands)(dollars in thousands)
Research and development$27,634 $19,231 $8,403 43.7 %$76,602 $61,887 $14,715 23.8 %
Sales and marketing20,124 11,700 8,424 72.0 %62,803 37,076 25,727 69.4 %
General and administrative33,014 25,428 7,586 29.8 %90,470 79,471 10,999 13.8 %
Total operating expenses$80,772 $56,359 $24,413 43.3 %$229,875 $178,434 $51,441 28.8 %
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Total Operating Expenses
Total operating expenses increased by $24.4 million in the three months ended September 30, 2021 as compared to the prior year period. This increase was primarily attributable to our investment in demand origination 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.
Total operating expenses increased by $51.4 million in the nine months ended September 30, 2021 as compared to the prior year period. This increase was primarily attributable to our investment in business development and front-end sales 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 costs are expensedexpenses increased by $8.4 million in the three months ended September 30, 2021 as incurredcompared to the prior year period as we began shifting our investments from sustaining engineering projects for the current Energy Server platform to continued development of the next generation platform, and consist primarily of personnel costs. to support our technology roadmap, including our hydrogen, electrolyzer, carbon capture, marine and biogas solutions.
Research and development expense also includes prototype related expenses and allocated facilities costs. We expect research and development expenseincreased by $14.7 million in the nine months ended September 30, 2021 as compared to increase in absolute dollarsthe prior year period as we continuebegan shifting our investments from sustaining engineering projects for the current Energy Server platform, to invest incontinued development of the next generation platform and to support our future productstechnology roadmap, including our hydrogen, electrolyzer, carbon capture, marine and services, and we expect our research and development expense to fluctuate as a percentage of total revenue.

biogas solutions.
Sales and Marketing
Sales and marketing expense consistsexpenses increased by $8.4 million in the three months ended September 30, 2021 as compared to the prior year period. This increase was primarily of personnel costs, including commissions. We expense commission costsdriven by the efforts to expand our U.S. and international sales force, as earned. well as increased investment in brand and product management.
Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, travel costs, office equipment and software, depreciation, professional services and allocated facilities costs. We expect sales and marketing expenseexpenses increased by $25.7 million in the nine months ended September 30, 2021 as compared to continue tothe prior year period. This increase in absolute dollars as we increasewas primarily driven by the size of our sales and marketing organizations andefforts to expand our U.S. and international presence,sales force, as well as increased investment in brand and we expect our sales and marketing expense to fluctuate as a percentage of total revenue.product management.
General and Administrative
General and administrative expenses increased by $7.6 million in the three months ended September 30, 2021 as compared to the prior year period. This increase was primarily driven by increases in payroll expense, consists of personnel costs, feeslegal expense and facilities expense to ensure our infrastructure and control environment is ready to scale for professional services and allocated facilities costs. growth.

General and administrative personnel include our executive, finance, human resources, information technology,expenses increased by $11.0 million in the nine months ended September 30, 2021 as compared to the prior year period. This increase was primarily driven by increases in outside services and consulting expense, payroll expense and facilities business development and legal organizations. We expect general and administrative expense to increase in absolute dollars dueensure our infrastructure and control environment is ready to additionalscale for growth, partially offset by lower legal fees and costs associated with accounting, insurance, investor relations, SEC and stock exchange compliance and other costs associated with being a public company, and we expect our general and administrative expense to fluctuate as a percentage of total revenue.expense.
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Stock-Based Compensation
We typically record
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20212020Amount%20212020Amount %
 (dollars in thousands)(dollars in thousands)
Cost of revenue$2,945 $3,568 $(623)(17.5)%$9,749 $13,811 $(4,062)(29.4)%
Research and development5,678 4,103 1,575 38.4 %15,876 14,913 963 6.5 %
Sales and marketing4,391 2,234 2,157 96.6 %12,486 8,358 4,128 49.4 %
General and administrative7,952 5,830 2,122 36.4 %19,198 20,303 (1,105)(5.4)%
Total stock-based compensation$20,966 $15,735 $5,231 33.2 %$57,309 $57,385 $(76)(0.1)%
Total stock-based compensation expense underfor the straight-line attribution method overthree months ended September 30, 2021 compared to the prior year period increased by $5.2 million primarily driven by the efforts to expand our U.S. and international sales force, as well as investment to build our brand and product management teams.
Total stock-based compensation for the nine months ended September 30, 2021 compared to the prior year period decreased by $0.1 million primarily driven by the vesting term,of the one-time employee grants at the time of the initial public offering, which were completed in July 2020 partially offset by the efforts to expand our U.S. and international sales force, as well as investment to build our brand and product management teams.
Other Income and Expense
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 2021202020212020
 (in thousands)
Interest income$72 $254 $(182)$222 $1,405 $(1,183)
Interest expense(14,514)(19,902)5,388 (43,798)(55,030)11,232 
Interest expense - related parties— (353)353 — (2,513)2,513 
Other income (expense), net2,011 (221)2,232 1,948 (4,142)6,090 
Loss on extinguishment of debt— 1,220 (1,220)— (12,878)12,878 
Gain (loss) on revaluation of embedded derivatives(184)1,505 (1,689)(1,644)2,201 (3,845)
Total$(12,615)$(17,497)$4,882 $(43,272)$(70,957)$27,685 
Interest Income
Interest income is generally five years, and record stock-based compensation expensederived from investment earnings on our cash balances primarily from money market funds.
Interest income for performance based awards using the graded-vesting method. Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expectedthree months ended September 30, 2021 as compared to vest. Stock-based compensation expense is recordedthe prior year period decreased by $0.2 million primarily due to a decrease in the consolidated statementsrates of operations basedinterest earned on our cash balances.
Interest income for the employees’ respective function.nine months ended September 30, 2021 as compared to the prior year period decreased by $1.2 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 September 30, 2021 as compared to the prior year period decreased by $5.4 million as we paid off our 10% senior secured notes and converted our 10% promissory notes into equity, resulting in lower, less expensive debt.
59

Interest expense for the nine months ended September 30, 2021 as compared to the prior year period decreased by $11.2 million. This decrease was primarily consists ofdue to lower interest charges associated with our secured line of credit, long-term debt facilities, financing obligations and capital lease obligations. We expect interest charges to decreaseexpense as a result of pay-downsrefinancing our notes at a lower interest rate, and the elimination of the amortization of the debt obligations overdiscount associated with notes that have been converted to equity.
Interest Expense - Related Parties
Interest expense - related parties is from our debt held by related parties.
Interest expense - related parties for the coursethree months ended September 30, 2021 as compared to the prior year period decreased by $0.4 million due to the conversion of all of our notes held by related parties during 2020.
Interest expense - related parties for the debt arrangements.nine months ended September 30, 2021 as compared to the prior year period decreased by $2.5 million due to the conversion of all of our notes held by related parties during 2020.
Other Income (Expense), NetExpense, net
Other expense, net, is primarily consistsderived from investments in joint ventures, plus the impact of gains or losses associated with foreign currency fluctuations,translation.
Other expense, net, for the three months ended September 30, 2021 as compared to the prior year period decreased by $2.2 million primarily due to a $2.0 million gain recorded on remeasurement of our equity investment in the BEJ joint venture in connection with the acquisition thereof.
Other expense, net for the nine months ended September 30, 2021 as compared to the prior year period decreased by $6.1 million due to a $2.0 million gain recorded on fair value remeasurement of our equity investment in the Bloom Energy Japan joint venture in connection with the acquisition thereof plus the prior year's $3.9 million write-off of our investment in the Bloom Energy Japan joint venture.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the nine months ended September 30, 2021 as compared to the prior year period improved by $12.9 million resulting from our debt restructuring and of income earned on our cash and cash equivalents holdingsdebt extinguishment in interest-bearing accounts. We have historically invested our cashthe prior year period. There were no comparable debt restructuring activities in money-market funds.the current year's period.
Gain/LossGain (Loss) on Revaluation of Warrant LiabilitiesEmbedded Derivatives
Warrants issued to investors and lenders that allow them to acquire our convertible preferred stock have been classified as liability instrumentsGain (loss) on our balance sheet. We record any changesrevaluation of embedded derivatives is derived from the change in the fair value of these instruments between reporting datesour 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 September 30, 2021 as a separate line itemcompared to the prior year period worsened by $1.7 million due to the change in fair value of our embedded EPP derivatives in our statementsales contracts.
Gain (loss) on revaluation of operations. As some ofembedded derivatives for the warrants issued are mandatorily convertible to common stock subsequentnine months ended September 30, 2021 as compared to the completionprior year period worsened by $3.8 million due to the change in fair value of our IPO, they will no longer be recorded as a liability related to these mandatorily converted warrants.embedded EPP derivatives in our sales contracts.
Provision for Income Taxes
Provision for income taxes
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20212020Amount%20212020Amount %
 (dollars in thousands)
Income tax provision$158 $7 $151 2,157.1 %$595 $272 $323 118.8 %
Income tax provision consists primarily of federal and state income taxes in the United States and income taxes in foreign jurisdictions in which we conduct business. We have providedmaintain a full valuation allowance on ourfor domestic deferred tax assets, because we believe it is more likely than not that the deferred tax assets will not be realized. At December 31, 2017, we had federal and stateincluding net operating loss carryforwards of $1.7 billion and $1.5 billion, respectively, which will expire, if unused, beginningcertain tax credit carryforwards.
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Income tax provision increased for the three and nine months ended September 30, 2021 as compared to the prior year period was primarily due to fluctuations in 2022 and 2018, respectively.the effective tax rates on income earned by international entities.
Net Income (Loss)Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
We determine the net income (loss) attributable to common stockholders by deducting from net income (loss) in a period the net income (loss)
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20212020Amount%20212020Amount %
 (dollars in thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests$(4,292)$(5,922)$1,630 27.5 %$(13,742)$(17,081)$3,339 19.5 %
Net loss attributable to noncontrolling interests. We allocateinterests is the result of allocating profits and losses to the noncontrolling interests under the hypothetical liquidation at book value (HLBV)("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as our Investment Company structure.the flip structure of the PPA Entities.

Results of Operations - Three Months Ended June 30
Revenue
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Product $108,654
 $39,935
 $68,719
 172.1%
Installation 26,245
 14,354
 11,891
 82.8%
Service 19,975
 18,875
 1,100
 5.8%
Electricity 14,007
 13,619
 388
 2.8%
Total revenue $168,881
 $86,783
 $82,098
 94.6%
Total Revenue
Total revenue increased approximately $82.1 million, or 94.6%,Net loss attributable to noncontrolling interests and redeemable noncontrolling interests for the three months ended JuneSeptember 30, 20182021 as compared to the three months ended June 30, 2017. There were four principal drivers of this revenue increase.
First, product acceptances increasedprior year period improved by approximately 19 systems, or 11.7%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017.
Second, we achieved a significantly higher mix of orders to customers where revenue is recognized on acceptance, compared to revenue from the Bloom Electrons and managed services financing programs where revenue is recognized over the term of the agreement. In the three months ended June 30, 2018, we recognized 100.0% of our orders at acceptance, whereas only 69.0% of total acceptances in the three months ended June 30, 2017 were recognized at acceptance.
Third, the ITC was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, however our revenue in 2018 includes the benefit of the reinstatement. The total revenue for the three months ended June 30, 2018 included $28.8$1.6 million of benefit from ITC, whereas the total revenue for the three months ended June 30, 2017 included $2.4 million of benefit, thus an increase in benefit from ITC to revenue of $26.4 million compared to the same period in 2017.
Lastly, the adoption of customer personalized applications such as batteries and grid-independent solutions increased in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. Products that incorporate these personalized applications have, on average, higher revenue than our standard platform products that do not incorporate these personalized applications.
Product Revenue
Product revenue increased approximately $68.7 million, or 172.1%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. This increase was driven by the factors impacting total revenue as mentioned above.
Installation Revenue
Installation revenue increased approximately $11.9 million, or 82.8%, from $14.4 million for the three months ended June 30, 2017 to $26.2 million for the three months ended June 30, 2018. This increase was driven by the factors impacting total revenue as mentioned above.
Product and Installation Revenue Combined
Product and installation revenue combined increased approximately $80.6 million, or 148.5%, to $134.9 million for the three months ended June 30, 2018 from $54.3 million for the three months ended June 30, 2017. Depending on the customer purchase option elected by our customers, the product, installation and electricity revenue for that contract will either be recognized up front at acceptance or ratably over the life of the contract. The ratable portion of the product and install revenue increased approximately $0.6 million, to $6.9 million for the three months ended June 30, 2018 from $6.3 million for the three months ended June 30, 2017. This increase was primarily due to the increase in ratable acceptances through 2017.
The upfront portion of the product and install revenue increased approximately $80.0 million, to $128.0 million for the three months ended June 30, 2018 from $48.0 million for the three months ended June 30, 2017. This increase in upfront product and install revenue was primarily due to the increase in upfront acceptances to 181 in the three months ended June 30, 2018 from 111 in the three months ended June 30, 2017. The upfront product and install average selling price increased to

$7,093 per kilowatt for the three months ended June 30, 2018, from $4,317 per kilowatt for the three months ended June 30, 2017 primarily driven by higher ITC and the increased sale of customer personalized applications.
Service Revenue
Service revenue increased approximately $1.1 million, or 5.8%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. This was primarily due to the increase in the number of annual maintenance contract renewals driven by our increase in total megawatts deployed.
Electricity Revenue
Electricity revenue increased approximately $0.4 million, or 2.8%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017 due to normal fluctuations in system performance.
Cost of Revenue
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Cost of revenue:        
Product $70,802
 $47,545
 $23,257
 48.9 %
Installation 37,099
 14,855
 22,244
 149.7 %
Service 19,260
 21,308
 (2,048) (9.6)%
Electricity 8,949
 8,881
 68
 0.8 %
Total cost of revenue $136,110
 $92,589
 $43,521
 47.0 %
Total Cost of Revenue
Total cost of revenue increased approximately $43.5 million, or 47.0%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. This increase in cost of revenue was primarily attributable to higher product and install cost of revenue which was driven by an increase in the product acceptances and a higher mix of orders to customers in which cost of revenue is recognized on acceptance. Additionally there was an increase in the sale of customer personalized applications for the three months ended June 30, 2018, and thus an increase in cost of product and install revenue. This increase in product and install cost of revenue was partially offset by lower service cost of revenue.
Cost of Product Revenue
Cost of product revenue increased approximately $23.3 million, or 48.9%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. This increase was driven by the factors impacting total cost of revenue as mentioned above.
Cost of Installation Revenue
Cost of installation revenue increased approximately $22.2 million, or 149.7%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. This increase was driven by the factors impacting total cost of revenue as mentioned above.
Cost of Product Revenue and Cost of Installation Revenue Combined
Combined product and install cost of revenue increased approximately $45.5 million, or 72.9%, to $107.9 million for the three months ended June 30, 2018, from $62.4 million for the three months ended June 30, 2017. The ratable portion of the product and install cost of revenue increased approximately $0.6 million to $4.9 million for the three months ended June 30, 2018, from $4.3 million for the three months ended June 30, 2017. This increase was due to the increase in ratable acceptances through 2017. The product and install cost of revenue includes stock based compensation which remained fairly constant at $1.7 million for both the three months ended June 30, 2018 and the three months ended June 30, 2017. The remaining upfront portion of the product and install cost of revenue, excluding stock based compensation, increased approximately $44.8 million to $101.2 million for the three months ended June 30, 2018 from $56.4 million for the three months ended June 30, 2017. This increase in upfront product and install cost of revenue was primarily due to the increase in upfront acceptances to 181 in the three months ended June 30, 2018 from 111 in the three months ended June 30, 2017. The upfront product and install average cost of revenue on a per kilowatt basis, also described as total install system cost (TISC) increased to $5,607 per kilowatt for

the three months ended June 30, 2018 from $5,073 per kilowatt for the three months ended June 30, 2017. The increase was primarily driven by the increase in the sale of customer personalized applications which have a higher per unit cost.
Cost of Service Revenue
Cost of service revenue decreased approximately $2.0 million, or 9.6%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. This decrease was primarily due to a lower number of power module replacements driven by the maintenance cycle of our Energy Servers.
Cost of Electricity Revenue
Cost of electricity revenue increased approximately $0.1 million, or 0.8%, for the three months ended June 30, 2018, compared to the three months ended June 30, 2017.
Gross Profit (Loss)
  Three Months Ended
June 30,		 Change
  2018 2017 
  (dollars in thousands)
Gross Profit:      
Product $37,852
 $(7,610) $45,462
Installation (10,854) (501) (10,353)
Service 715
 (2,433) 3,148
Electricity 5,058
 4,738
 320
Total gross profit (loss) $32,771
 $(5,806) $38,577
       
Gross Profit percentage:      
Product 35 % (19)% 

Installation (41)% (3)% 

Service 4 % (13)% 

Electricity 36 % 35 % 

Total gross profit (loss) percentage 19 % (7)% 

Total Gross Profit
Gross profit improved $38.6 million in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This improvement was generally a result of higher product margins due to the increase in product acceptances, a higher mix of orders recognized at acceptance and the renewal of ITC.
Product Gross Profit
Product gross profit improved $45.5 million in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This improvement was due to the increase in product acceptances, a higher mix of orders recognized at acceptance and the renewal of ITC.
Installation Gross Profit
Installation gross profit decreased $10.4 million in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This reduction in profit was due to higher install cost from the initial installations with the new customer personalized applications. Our installation costs are driven by the complexity of each site at which we are installing an Energy Server as well as the size of each installation, which can cause variability in installation costs from quarter-to-quarter.
Service Gross Profit
Service gross profit improved $3.1 million in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This improvement was driven by lower service cost of revenue primarily due to a lower number of power module replacements driven by the maintenance cycle of our Energy Servers.

Electricity Gross Profit
Electricity gross profit improved $0.3 million in the three months ended June 30, 2018, compared to the three months ended June 30, 2017 due to fluctuations in system performance.
Operating Expenses
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Research and development $14,413
 $12,368
 $2,045
 16.5 %
Sales and marketing 8,254
 8,663
 (409) (4.7)%
General and administrative 15,359
 14,325
 1,034
 7.2 %
Total operating expenses $38,026
 $35,356
 $2,670
 7.6 %
Total Operating Expenses
Total operating expenses increased $2.7 million, or 7.6% in the three months ended June 30, 2018, compared to the three months ended June 30, 2017. This increase was primarily due to increase in research and development and general and administrative expenses.
Research and Development
Research and development expenses increased approximately $2.0 million, or 16.5%, in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This increase was primarily due to compensation related expenses related to hiring and investments for next generation technology development.
Sales and Marketing
Sales and marketing expenses decreased approximately $0.4 million, or 4.7%, in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This decrease was primarily due to improvement in managing pre-sales expenses by $0.9 million, partially offset by higher consulting expenses of $0.3 million for market and customer financing expansion and higher compensation related expenses of $0.2 million.
General and Administrative
General and administrative expenses increased approximately $1.0 million, or 7.2%, in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. The increase in general and administrative expenses was due to an increase in hiring, public company readiness, legal and information technology related expenses.
Stock-Based Compensation
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Cost of revenue $1,971
 $1,879
 $92
 4.9 %
Research and development 1,739
 1,377
 362
 26.3 %
Sales and marketing 1,214
 1,379
 (165) (12.0)%
General and administrative 2,894
 3,383
 (489) (14.5)%
Total stock-based compensation $7,818
 $8,018
 $(200) (2.5)%
Total stock-based compensation decreased $0.2 million, or 2.5% in the three months ended June 30, 2018, compared to the three months ended June 30, 2017.

Other Income and Expense
  Three Months Ended
June 30,		 Change
  2018 2017 
  (dollars in thousands)
Interest expense $(26,167) $(25,554) $(613)
Other income (expense), net 559
 14
 545
Loss on revaluation of warrant liabilities and embedded derivatives (19,197) (668) (18,529)
Total $(44,805) $(26,208) $(18,597)
Total Other Income and Expense
Total other income and expense increased $18.6 million, or 71.0% in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This increase was primarily due to the increase in loss on revaluation of warrant liabilities and embedded derivatives.
Interest Expense
Interest expense increased $0.6 million, or 2.4% in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This increase was primarily due to the increase in the outstanding unpaid principal of the 6% Notes.
Other Income (Expense)
Total other expense increased $0.5 million in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This increase was due to an increase in foreign currency translation expenses and other miscellaneous items.
Revaluation of Warrant Liabilities and Embedded Derivatives
For the three months ended June 30, 2018, the loss on revaluation of warrant liabilities and embedded derivative increased by $18.5 million compared to the three months ended June 30, 2017. This was due to an increaselosses in our derivative valuation adjustment of $23.0 million offset by a decrease in our warrant valuation of $4.5 million, both ofPPA Entities, which are driven by the Company's valuation at the end of the period. Changes in the valuation of the conversion feature derivative is dependent on changes in the value ofallocated to our common stock.
Provision for Income Taxes
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Income tax provision $128
 $228
 $(100) (43.9)%
Income tax provision decreased approximately $0.1 million, or 43.9%, in the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and was primarily due to fluctuations in tax on income earned by international entities due to the general growth of our business in international locations.noncontrolling interests.
Net Income (Loss) Attributable to Noncontrolling Interests
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $(4,512) $(4,123) $(389) 9.4%
Total loss attributable to noncontrolling interests increased $0.4 million, or 9.4%, inand redeemable noncontrolling interests for the threenine months ended JuneSeptember 30, 20182021 as compared to the three months ended June 30, 2017.

Net Loss Attributable to Common Shareholders
  Three Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Net loss attributable to common shareholders $(45,677) $(63,475) $17,798
 (28.0)%
Net loss attributable to common shareholders decreased $17.8prior year period improved by $3.3 million or 28.0%, in the three months ended June 30, 2018 compared to the three months ended June 30, 2017. This improvement was driven by the increase in gross profit by $38.6 million, partially offset by the increased loss on revaluation of warrant liabilities and embedded derivatives by $18.5 million.
Results of Operations - Six Months Ended June 30
Revenue
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Product $229,961
 $67,600
 $162,361
 240.2%
Installation 40,363
 26,647
 13,716
 51.5%
Service 39,882
 37,466
 2,416
 6.4%
Electricity 28,036
 27,267
 769
 2.8%
Total revenue $338,242
 $158,980
 $179,262
 112.8%
Total Revenue
Total revenue increased approximately $179.3 million, or 112.8%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. There were four principal drivers of this revenue increase.
First, product acceptances increased by approximately 66 systems, or 23.5%, for the six months ended June 30, 2018, compared to the three months ended June 30, 2017.
Second, we achieved a significantly higher mix of orders through direct sales to customers where revenue is recognized on acceptance, compared to revenue from the Bloom Electrons and managed services financing programs where revenue is recognized over the term of the agreement. In the six months ended June 30, 2018, we recognized 100.0% of our orders at acceptance, whereas only 63.0% of total acceptances in the six months ended June 30, 2017 were recognized at acceptance.
Third, the ITC was reinstated on February 9, 2018. ITC was not available to the fuel cell industry in 2017, however our revenue in 2018 includes the benefit of the reinstatement. The total revenue for the six months ended June 30, 2018 included $91.2 million of benefit from ITC, whereas the total revenue for the six months ended June 30, 2017 included $4.8 million of benefit, thus an increase in benefit to revenue from ITC of $86.4 million compared to the same period in 2017. The $91.2 million benefit of ITC in the six months ended June 30, 2018 included $45.5 million benefit of the retroactive ITC for 2017 acceptances.
Lastly, the adoption of customer personalized applications such as batteries and grid-independent solutions increased in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Products that incorporate these personalized applications have, on average, higher revenue than our standard platform products that do not incorporate these personalized applications.
Product Revenue
Product revenue increased approximately $162.4 million, or 240.2%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This increase was driven by the factors impacting total revenue as mentioned above.
Installation Revenue
Install revenue increased approximately $13.7 million, or 51.5%, from $26.6 million for the six months ended June 30, 2017 to $40.4 million for the six months ended June 30, 2018. This increase was driven by the factors impacting total revenue as mentioned above, partially offset by the lower installation revenue associated with one large customer in the six months

ended June 30, 2018 where the installation was performed by the customer, therefore, we did not have any installation revenue for that customer.
Service Revenue
Service revenue increased approximately $2.4 million, or 6.4% for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This was primarily due to the increase in the number of annual maintenance contract renewals driven by the increase in total megawatts deployed.
Electricity Revenue
Electricity revenue increased approximately $0.8 million, or 2.8%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017, due to normal fluctuations in system performance.
Cost of Revenue
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Cost of revenue:        
Product $151,157
 $86,400
 $64,757
 75.0 %
Installation 47,537
 28,301
 19,236
 68.0 %
Service 43,513
 39,526
 3,987
 10.1 %
Electricity 19,598
 19,757
 (159) (0.8)%
Total cost of revenue 261,805
 173,984
 87,821
 50.5 %
Gross profit (loss) $76,437
 $(15,004) $91,441
 (609.4)%
Total Cost of Revenue
Total cost of revenue increased approximately $87.8 million, or 50.5%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This increase in cost of revenue was primarily attributable to higher product and install cost of revenue which was driven by an increase in the product acceptances and a higher mix of orders to customers in which cost of revenue is recognized on acceptance. Additionally there was an increase in the sale of customer personalized applications for the six months ended June 30, 2018, and thus an increase in cost of revenue.
Cost of Product Revenue
Cost of product revenue increased approximately $64.8 million, or 75.0%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.This increase was driven by the factors impacting total cost of revenue as mentioned above. Additionally, a one-time impact of $9.4 million was included in the cost of product revenue for the six months ended June 30, 2018 which was associated with supplier agreements that required us to forego previously negotiated discounts if ITC was renewed.
Cost of Installation Revenue
Cost of installation revenue increased approximately $19.2 million, or 68.0%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.This increase was driven by the factors impacting total cost of revenue as mentioned above, partially offset by the lower cost of install associated with one large customer in the six months ended June 30, 2018 where the installation was performed by the customer, therefore, we did not have any installation cost for that customer.
Cost of Service Revenue
Cost of service revenue increased approximately $4.0 million, or 10.1%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.This increase was primarily due to a higher number of power module replacements driven by the maintenance cycle of our Energy Servers.
Cost of Electricity Revenue
Cost of electricity revenue decreased approximately $0.2 million, or 0.8%, for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.

Gross Profit (Loss)
  Six Months Ended
June 30,		 Change
  2018 2017 
  (dollars in thousands)
Gross Profit:      
Product $78,804
 $(18,800) $97,604
Installation (7,174) (1,654) (5,520)
Service (3,631) (2,060) (1,571)
Electricity 8,438
 7,510
 928
Total gross profit (loss) $76,437
 $(15,004) $91,441
       
Gross Profit percentage:      
Product 34 % (28)% 

Installation (18)% (6)% 

Service (9)% (5)% 

Electricity 30 % 28 % 

Total gross profit (loss) percentage 23 % (9)% 

Total Gross Profit
Gross profit improved $91.4 million, in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This improvement was generally a result of higher product margins due to the increase in product acceptances, a higher mix of orders recognized at acceptance and the renewal of ITC.
Product Gross Profit
Product gross profit improved $97.6 million in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This improvement was due to the increase in product acceptances, a higher mix of orders recognized at acceptance (versus ratable) and the renewal of ITC.
Installation Gross Profit
Installation gross profit decreased $5.5 million in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This reduction in profit was due to higher install cost from the initial installations with the new customer personalized applications. Our installation costs are driven by the complexity of each site at which we are installing an Energy Server as well as the size of each installation, which can cause variability in installation costs from quarter-to-quarter.
Service Gross Profit
Service gross profit (loss) worsened by $1.6 million in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This improvement was driven by higher service cost of revenue primarily due to a higher number of power module replacements driven by the maintenance cycle of our Energy Servers.
Electricity Gross Profit
Electricity gross profit improved $0.9 million, or 12.3% in the six months ended June 30, 2018, compared to the six months ended June 30, 2017 due to normal fluctuations in system performance.

Operating Expenses
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Research and development $29,144
 $23,591
 $5,553
 23.5%
Sales and marketing 16,516
 16,508
 8
 —%
General and administrative 30,347
 27,204
 3,143
 11.6%
Total operating expenses $76,007
 $67,303
 $8,704
 12.9%
Total Operating Expenses
Total operating expenses increased $8.7 million, or 12.9% in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This increase was primarily due to an increase in research and development and general and administrative expenses.
Research and Development
Research and development expenses increased approximately $5.6 million, or 23.5%, in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This increase was primarily due to compensation related expenses related to hiring and investments for next generation technology development.
Sales and Marketing
Sales and marketing expenses remained largely unchanged in the six months ended June 30, 2018, compared to the six months ended June 30, 2017.
General and Administrative
General and administrative expenses increased approximately $3.1 million, or 11.6%, in the six months ended June 30, 2018, compared to the six months ended June 30, 2017. The increase in general and administrative expenses was due to an increase in hiring, public company readiness, legal and information technology related expenses.
Stock-Based Compensation
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (in thousands)
Cost of revenue $3,869
 $3,637
 $232
 6.4 %
Research and development 3,376
 2,706
 670
 25 %
Sales and marketing 2,166
 2,620
 (454) (17)%
General and administrative 6,362
 5,700
 662
 12 %
Total share-based compensation $15,773
 $14,663
 $1,110
 7.6 %
Total stock-based compensation increased $1.1 million, or 7.6% in the six months ended June 30, 2018, compared to the six months ended June 30, 2017.

Other Income and Expense
  Six Months Ended
June 30,		 Change
  2018 2017 
  (dollars in thousands)
Interest expense $(49,204) $(49,917) $713
Other income (expense), net (70) 133
 (203)
Loss on revaluation of warrant liabilities and embedded derivatives (23,231) (453) (22,778)
Total $(72,505) $(50,237) $(22,268)
Total Other Expense
Total other expense increased by $22.3 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This increase was primarily due to the increase in loss on revaluation of warrant liabilities and embedded derivatives.
Interest Expense
Interest expense decreased $0.7 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This decrease was primarily due to lower amortization expense of our debt derivatives.
Other Income (Expense)
Total other income (expense) was reduced by $0.2 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This change was due to an increase in foreign currency translation expenses and other miscellaneous items.
Revaluation of Warrant Liabilities
For the six months ended June 30, 2018, the loss on revaluation of warrant liabilities and embedded derivative increased by $22.8 million when compared to the six months ended June 30, 2017. This was due to an increaselosses in our derivative valuation adjustment of $30.6 million, offset by a decrease in our warrant valuation of $7.8 million, both ofPPA Entities, which are driven by the Company's valuation at the end of the period. Changes in the valuation of the conversion feature derivative is dependent on changes in the value ofallocated to our common stock.noncontrolling interests.
Provision for Income Taxes
61
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Income tax provision $461
 $442
 $19
 4.3%
Income tax provision remained largely unchanged in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 and was primarily due to fluctuations in tax on income earned by international entities due to the general growth of our business in international locations.
Net Income (Loss) Attributable to Noncontrolling Interests

  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $(9,143) $(9,979) $836
 (8.4)%
Total loss attributable to noncontrolling interests decreased $0.8 million, or 8.4%, in the six months ended June 30, 2018 compared to the six months ended June 30, 2017.

Net Loss Attributable to Common Shareholders
  Six Months Ended
June 30,		 Change
  2018 2017 Amount   %
  (dollars in thousands)
Net loss attributable to common shareholders $(63,393) $(123,007) $59,614
 (48.5)%
Net loss attributable to common shareholders decreased $59.6 million, or 48.5%, in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This improvement was driven by the increase in gross profit by $91.4 million, partially offset by the increased loss on revaluation of warrant liabilities and embedded derivatives by $22.8 million and increase in operating expenses by $8.7 million.
Liquidity and Capital Resources
As of JuneSeptember 30, 2018,2021, we had an accumulated deficit of approximately $2.4 billion. We finance our operations, including the costs of acquisition and installation of Energy Servers, mainly through a variety of financing arrangements and PPA Entities, credit facilities from banks, sales of our preferred stock, debt financingscash and cash generated fromequivalents of $121.9 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 operations. investments in order to minimize our credit risk.
As of JuneSeptember 30, 2018,2021, we had $1.0 billion$291.3 million of total outstanding recourse debt, $212.9 million of non-recourse debt and long term$26.8 million of other long-term liabilities. See Note 6 - Outstanding Loans and Security Agreements forFor a complete description of our outstanding debt. Asdebt, please see Note 7 - Outstanding Loans and Security Agreements in Part I, Item 1, Financial Statements.
The combination of June 30, 2018 and December 31, 2017, we had cash and cash equivalents and short-term investments of $107.3 million and $130.6 million, respectively.
We believe that our existing cash and cash equivalents and short-term investments willis expected to be sufficient to meet our operating cash flow, capital requirements and otheranticipated cash flow needs for at least the next 12 months. 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, including entering into the transaction with SK ecoplant as described above for the sale of RCPS that is scheduled to close in the fourth quarter of 2021. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.
Our future capital requirements 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 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 receipt by us of distributions from our PPA Entitiesinstallations, and overall economic conditions. We do not expectconditions including the impact of COVID-19 on our ongoing and future operations. In order to receive significant cash distributions from our PPA Entities. To the extent that currentsupport and anticipated future sources of liquidity are insufficient to fundachieve our future business activities and requirements,growth plans, we may be requiredneed or seek advantageously to seekobtain additional funding through an equity or debt financing. As of September 30, 2021, we were still working to secure a minimal amount of financing for the planned installations of our Energy Servers in 2021. Failure to obtain this financing or equity financing.financing in future quarters will affect our results of operations, including revenue and cash flows.
In July 2018, and subsequent toAs of September 30, 2021, the datecurrent portion of our total debt is $13.8 million, all of which is outstanding non-recourse debt. We expect a certain portion of the financial statements included in this Quarterly Report on Form 10-Q, we successfully completed an initial public stock offering withnon-recourse debt would be refinanced by the sale of 20,700,000 shares of our Class A common stock at a price of $15.00 per share, resulting in cash proceeds of $284.3 million net of underwriting discounts, commissions and estimated offering costs. We intendapplicable PPA Entity prior to use the net proceeds from this offering for general corporate purposes including research and development and sales and marketing activities, general and administrative matters and capital expenditures. 
Cash Flows - Six Months Ended June 30
Cash Usedmaturity.
A summary of theour condensed consolidated sources and uses of cash, cash equivalents and restricted cash for the Company for the six months ended June 30, 2018 and 2017 iswas as follows (in thousands):
 Nine Months Ended
September 30,
 20212020
 
Net cash provided by (used in):
Operating activities$(107,907)$(79,989)
Investing activities(41,511)(33,066)
Financing activities53,130 240,037 
62

  Six Months Ended
June 30,		 Change
  2018 2017 
     
Net cash provided by (used in):     

Operating activities $(18,585) $(79,575) $60,990
Investing activities 9,673
 (2,265) 11,938
Financing activities (21,828) 77,156
 (98,984)
Net cash used $(30,740) $(4,684) $(26,056)
Our use of cash (net) was $30.7 million and $4.7 million for the six months ended June 30, 2018 and 2017, respectively. In the six months ended June 30, 2018, cash used by operating activities decreased (improved) by $61.0

million to cash used of $18.6 million from cash used of $79.6 million in the six months ended June 30, 2017. The improvement in cash used by operating activities for the six months ended June 30, 2018 was due to a $15.9 million positive operating cash flow for the three months ended June 30, 2018. In the six months ended June 30, 2018,Net cash provided by investing activities increased by $11.9 million to cash provided of $9.7 million from cash used of $2.3 million in the same period in 2017. In the six months ended June 30, 2018, cash used by financing activities decreased by $99.0 million to cash used of $21.8 million from cash provided of $77.2 million in the same period in 2017.
Net cash used by(used in) our variable interest entities (the PPA Entities)Entities, which are incorporated into the condensed consolidated statementstatements of cash flows, for the six months ended June 30, 2018 and 2017 iswas as follows (in thousands):
 Nine Months Ended
September 30,
 20212020
PPA Entities ¹
Net cash provided by PPA operating activities$15,751 $15,676 
Net cash used in PPA financing activities(17,641)(17,217)
  Six Months Ended
June 30,		 Change
  2018 2017 
       
PPA Entities*    
Net cash used in purchase of PPA property, plant and equipment in investing activities $—
 $—
 $—
Net cash provided by (used in) PPA operating activities $21,470
 $12,791
 $8,679
Net cash provided by (used in) PPA financing activities $(23,706) $(13,791) $(9,915)
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 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 condensed consolidated cash flows of the PPA Entities in which we have only a minority interest.
*The PPA Entities' operating cash flows, which is a subset of our consolidated cash flows and represents the stand-alone cash flows prepared in accordance with US GAAP, consists 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. 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
In the six months ended June 30, 2018, we used approximately $18.6 million of cash in operating activities. This use of cash resulted primarily from a net operating loss of $63.4 million, which included net non-cash charges of $73.5 million and a non-cash loss attributable to non-controlling interests of $9.1 million. Non-cash items include depreciation of approximately $21.6 million, a revaluation of derivative contracts of $28.6 million, stock-based compensation of $15.8 million and amortization of debt discount of $12.0 million, partially offset by a revaluation of preferred stock warrants of $7.5 million. Cash used inOur operating activities have consisted primarily of annet loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. The increase in inventory of $46.2 million, and increase in accounts receivable of $6.5 million, a decrease in deferred revenue and customer deposits of approximately $31.8 million relating to upfront milestone payments received from customers, an increase in other current liabilities of $12.8 million, partially offset by a decrease in deferred cost of revenue of $48.8 million and an increase in other long-term liabilities of $18.7 million.
In the six months ended June 30, 2017, we used approximately $79.6 million in operating activities. This use of cash resulted primarily from a net operating loss of $123.0 million, which included net non-cash charges of $59.8 million and a non-cash loss attributable to non-controlling interests of $10.0 million. Non-cash items include depreciation of approximately $23.6 million, stock-based compensation of $14.7 million and amortization of debt discount of $20.6 million. Cash used in operating activities consisted primarily of an increase in inventory of $17.6 million, an increase in accounts receivable of $5.3 million and an increase in deferred cost of revenue of $34.9 million and a decrease in accounts payable of $13.3 million, partially offset by an increase in other long term liabilities of $24.9 million, and an increase in deferred revenue and customer deposits of approximately $35.9 million relating to upfront milestone payments received from customers.
Net cash used in operating activities improved by $61.0 million forduring the sixnine months ended JuneSeptember 30, 2018 when2021 as compared to the six months ended June 30, 2017. This increaseprior year period was primarily the result of an improvementincrease in our net lossworking capital of $59.6 million. The non-cash charges of depreciation and stock-based compensation were similar in both periods, as was the loss attributable to noncontrolling interests. We had an increase$68.9 million in the non-cash revaluationnine months ended September 30, 2021 due to the timing of derivative contracts of $29.9 million as a result ofrevenue transactions and corresponding collections and the changes in our stock price. Significant changes in cash used includes an increase in inventory of $28.6 million duelevels to an increase in the production volume when compared to 2017's increase in inventory, a substantial increase in the payment of other current liabilities as compared to a decrease of payments in the previous year's six months, and a significant decrease in deferred revenue and customer deposits compared to an increase in the six month period in 2017. Cash provided by operating activities was most affected by

this year's decrease in deferred revenue and customer deposits when compared to last year's increase, this year's accounts payable increase when compared to the six month period in 2017's decrease, both of which were partially offset by a lesser increase in long term liabilities for the six months ended June 30, 2018 when compared to the six months ended June 30, 2017.support future demand.
Investing Activities
Our investing activities consist primarilyhave consisted of capital expenditures whichthat include increasing our production capacity. We expect to continue such activities as our business grows. Cash used in investing activities of $41.5 million during the nine months ended September 30, 2021 was primarily the result of expenditures on tenant improvements for a newly leased engineering building in Fremont, California. We expect to maintain or increase the scope of our manufacturing operations. Thesecontinue to make capital expenditures also include leasehold improvementsover the next few quarters to prepare our office space, purchases of office equipment, IT infrastructure equipment and furniture and fixtures.
In the six months ended June 30, 2018, we generated approximately $9.7 millionnew manufacturing facility in cash from investing activities. This cash inflow is primarily from cash provided by investment activities of $11.3 million (net), partially offset by $1.6 million usedFremont, California for production, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital assets.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.
InFinancing 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 six months ended June 30, 2017, we used approximately $2.3 million in investing activities forproceeds from the purchaseissuance of capital assets.
our common stock. Net cash provided by investingfinancing activities improved by $11.9 million forduring the sixnine months ended JuneSeptember 30, 2018 when2021 was $53.1 million, a decrease of $186.9 million compared to the six months ended June 30, 2017. Our use of cash in the six months ended June 30, 2018 for the purchase of property, plant and equipment did not change significantly when compared to the sameprior year period, in 2017. The change is primarily due to significant investment activity in the six months ended June 30, 2018 as a result of the maturation of marketable securities and subsequent reinvestment, whereas we had none in the same period in 2017.
Financing Activities
In the six months ended June 30, 2018, we used approximately $21.8 million of net cash for financing activities. This cash outflow resulted primarily from distributions paid to our PPA Equity Investors of approximately $11.6 million and repayments of $9.8 million of long-term debt and a revolving line of credit.
In the six months ended June 30, 2017, we generated approximately $77.2 million from financing activities. We had net proceeds of approximately $93.9 million from the issuance of debt and proceeds from noncontrolling interests of $13.7 million,in 2020, partially offset by distributions paid to our PPA Equity Investors of approximately $17.7 million.
Net cashhigher proceeds in 2021 from financing activities decreased by $99.0 million for the six months ended June 30, 2018 when compared to the six months ended June 30, 2017, primarily the result of $100.0 million borrowedstock option exercises and the receiptsale of $13.7 million in proceeds from noncontrolling interests in the six months ended June 30, 2017 whereas the amounts were noneshares under our 2018 Employee Stock Purchase Plan.

Critical Accounting Policies and none, respectively, in the same period in 2018.Estimates
Off-Balance Sheet Arrangements
We include in ourThe condensed consolidated financial statements allhave been prepared in accordance with generally accepted accounting principles as applied in the United States ("U.S. GAAP") The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations above are based on our audited results of operations, which we have prepared in accordance with U.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 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
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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 PPA Entities that we have entered intoAnnual Report on Form 10-K for our fiscal year ended December 31, 2020 provides a more complete discussion of our critical accounting policies and have substantial control. estimates. During the nine months ended September 30, 2021, there were no significant changes to our critical accounting policies and estimates, except as noted below:

We have not entered into any other transactions that have generated relationshipsadopted ASU 2020-06, Debt—Debt with unconsolidated entities or financial partnerships or special purpose entities. Accordingly,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 of June 30, 2018,January 1, 2021 in our condensed consolidated financial statements. Upon adoption of ASU 2020-06, we do not have any off-balance sheet arrangements.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 our 2.50% Green Convertible Senior Notes due August 2025 (the "Green Notes") to be a critical accounting policy and estimate.


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposedThere were no significant changes to our quantitative and qualitative disclosures about market risk during nine months ended September 30, 2021. Please refer to Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2020 for a more complete discussion of the market risks as part of our ongoing business operations, primarily by exposure to changes in interest rates, in commodity fuel prices and in foreign currency.we consider.
Interest Rates
Our cash and cash equivalents are invested in money market funds and our short-term investments are invested in U.S. Treasury bills. Due to the short-term nature of our cash equivalents and short-term investments, we believe that we do not have any material revenue exposure to changes in fair value as a result of changes in interest rates. Additionally, given the low levels of interest earned on money market funds and U.S. Treasury bills, any exposure to market rate interest fluctuations would not have a material effect on our operating results or financial condition.
We are exposed to interest rate risk related to our indebtedness that bears interest based on a floating LIBOR rate. We generally hedge such interest rate risks with the use of hedging instruments. Changes in interest rates which may affect our indebtedness are generally offset by interest rate swaps. For our fixed-rate debt, interest rate changes do not affect our earnings or cash flows. We do not believe that an increase or decrease in interest rates by a hypothetical 10% would have a material effect on our operating results or financial condition.

Commodity Price Risk
We are subject to commodity price risk arising from price movements for natural gas that we supply to customers to operate our Energy Servers under certain power purchase agreements. We manage this risk by entering into forward commodity contracts associated with the cost of natural gas as economic hedges. As a result, we do not believe that a hypothetical 10% change in commodity prices would have a material effect on our operating results or financial condition.
Foreign Currency Risk
Our sales contracts are primarily denominated in U.S. dollars and, therefore, substantially all of our revenue is not subject to foreign currency market risk. As a result, we do not believe that a hypothetical 10% change in foreign currency exchange rates would have a material effect on our operating results or financial condition.
However, an increasing portion of our operating expenses is incurred outside the United States, is denominated in foreign currencies and is subject to such risk. Although not yet material, if we are not able to successfully hedge against the risks associated with currency fluctuations in our future activities, our financial condition and operating results could be adversely affected.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
our reports made as defined in Rules 13-a-15(e) and 15d-15(e)that we file or submit under the Securities Exchange Act, of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial
Officer (our principal financial officer) as appropriate, to allow for timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as amended (the Exchange Act), as of JuneSeptember 30, 2018.2021. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of JuneSeptember 30, 20182021, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required, and that such information is accumulated and communicated to oureffective.
Inherent Limitations on Effectiveness of Internal Controls
Our management, including our the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding its required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer,, does not expect that our disclosure controls and procedures or our internal controlcontrols over financial reporting will prevent or detect all errors and all fraud. A controlscontrol system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives of the controls system arewill be met. Further, theThe design of a controlscontrol system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. BecauseFurther, because of the inherent limitations in all controlscontrol systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all controlscontrol issues and instances of fraud, if any, within our company have been detected. Accordingly,The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in business conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2021, there were no changes in our disclosureinternal controls over financial reporting, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and procedures provide reasonable assurance of achieving their objectives.15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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Part II - Other Information
ITEM 1 - LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 13 - Commitments and Contingencies, in the notes to our condensed consolidated financial statements. 
We are, and from time to time we may become, involved in legal proceedings or be subject to claims arising in the ordinary course of our business. For a discussion of legal proceedings, see Note 13 - Commitments and Contingencies in Part I, Item 1, Financial Statements. We are not presently a party to any other legal proceedings that in the opinion of our

management and if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.


ITEM 1A - RISK FACTORS
A descriptionInvesting in our securities involves a high degree of the risks and uncertainties associated with our business is set forth below.risk. You should carefully consider the material risks and uncertainties described below that make an investment in us speculative or risky, as well as the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Operations” before you decide to purchase our securities. The occurrence of anyone or more of the events or developments described below, or of additionalthese risks and uncertainties not presently known to us or that we currently deem immaterial, could materially and adversely affect our business, financial condition, operating results and prospects. In such an event,may cause the market price of our Class A common stock couldto decline, and you could lose all or part of your investment. It is not possible to predict or identify all such risks and uncertainties, as our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. Therefore, you should not consider the following risks to be a complete statement of all the potential risks or uncertainties that we face.
Risk Factor Summary
The following summarizes the more complete risk factors that follow. It should be read in conjunction with the complete Risk Factors section and should not be relied upon as an exhaustive summary of all the material risks facing our business.
Risks RelatingRelated to Our Business, Industry and IndustrySales
Our limited operating history•The distributed generation industry is an emerging market and our nascent industrydistributed generation may not receive widespread market acceptance, which may make evaluating our business and future prospects difficult.
From•Our products involve a lengthy sales and installation cycle, and if we fail to close sales on a regular and timely basis, our inceptionbusiness could be harmed.
•Our Energy Servers have significant upfront costs, and we will need to attract investors to help customers finance purchases.
•The economic benefits of our Energy Servers to our customers depend on the cost of electricity available from alternative sources, including local electric utility companies, and such cost structure is subject to change.
•If we are not able to continue to reduce our cost structure in 2001 through 2008,the future, our ability to become profitable may be impaired.
•We rely on interconnection requirements and net metering arrangements that are subject to change.
•We currently face and will continue to face significant competition.
•We derive a substantial portion of our revenue and backlog from a limited number of customers, and the loss of or a significant reduction in orders from a large customer could have a material adverse effect on our operating results and other key metrics.
•Our ability to develop new products and enter into new markets could be negatively impacted if we were focused principallyare unable to identify partners to assist in such development or expansion, and our products may not be successful if we are unable to maintain alignment with evolving industry standards and requirements.
Risks Related to Our Products and Manufacturing
•Our business has been and continues to be adversely affected by the COVID-19 pandemic.
•Our future success depends in part on researchour ability to increase our production capacity, and development activities relatingwe may not be able to do so in a cost-effective manner.
•If our Energy Servers contain manufacturing defects, our business and financial results could be harmed.
•The performance of our Energy Servers may be affected by factors outside of our control, which could result in harm to our business and financial results.
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•If our estimates of the useful life for our Energy Servers are inaccurate or we do not meet our performance warranties and performance guaranties, or if we fail to accrue adequate warranty and guaranty reserves, our business and financial results could be harmed.
•Our business is subject to risks associated with construction, utility interconnection, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
•Any significant disruption in the operations at our headquarters or manufacturing facilities could delay the production of our Energy Servers, which would harm our business and results of operations.
•The failure of our suppliers to continue to deliver necessary raw materials or other components of our Energy Servers in a timely manner and to specification could prevent us from delivering our products within required time frames and could cause installation delays, cancellations, penalty payments and damage to our reputation.
•We have, in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations.
•We face supply chain competition, including competition from businesses in other industries, which could result in insufficient inventory and negatively affect our results of operations.
•We, and some of our suppliers, obtain capital equipment used in our manufacturing process from sole suppliers and, if this equipment is damaged or otherwise unavailable, our ability to deliver our Energy Servers on time will suffer.
•Possible new trade tariffs could have a material adverse effect on our business.
Risks Related to Government Incentive Programs
•Our business currently benefits from the availability of rebates, tax credits and other financial programs and incentives, and the reduction, modification, or elimination of such benefits could cause our revenue to decline and harm our financial results.
•We rely on tax equity financing arrangements to realize the benefits provided by ITCs and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed.
Risks Related to Legal Matters and Regulations
•We are subject to various national, state and local laws and regulations that could impose substantial costs upon us and cause delays in the delivery and installation of our Energy Servers.
•The installation and operation of our Energy Servers are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our Energy Server technology. Servers, especially as these regulations evolve over time.
•As a technology that runs, in part, on fossil fuel, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in our customers’ energy procurement policies.
Risks Related to Our Intellectual Property
•Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.
•Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection, either of which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
Risks Related to Our Financial Condition and Operating Results
•We didhave incurred significant losses in the past and we may not deploybe profitable for the foreseeable future.
•Our financial condition and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause our firstresults for a particular period to fall below expectations, resulting in a severe decline in the price of our Class A common stock.
•If we fail to manage our growth effectively, our business and operating results may suffer.
•If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.
•Our ability to use our deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.
Risks Related to Our Liquidity
•We must maintain the confidence of our customers in our liquidity, including in our ability to timely service our debt obligations and in our ability to grow our business over the long-term.
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•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.
•We may not be able to generate sufficient cash to meet our debt service obligations.
Risks Related to Our Operations
•We may have conflicts of interest with our PPA Entities.
•Expanding operations internationally could expose us to additional risks.
•If we are unable to attract and retain key employees and hire qualified management, technical, engineering, finance and sales personnel, our ability to compete and successfully grow our business could be harmed.
•A breach or failure of our networks or computer or data management systems could damage our operations and our reputation.
Risks Related to Ownership of Our Common Stock
•The stock price of our Class A common stock has been and may continue to be volatile.
•We may issue additional shares of our Class A common stock in connection with any future conversion of the Green Notes and thereby dilute our existing stockholders and potentially adversely affect the market price of our Class A common stock.
•The dual class structure of our common stock and the voting agreements among certain stockholders have the effect of concentrating voting control of our Company with KR Sridhar, our Chairman and Chief Executive Officer, and also with those stockholders who held our capital stock prior to the completion of our initial public offering, which limits or precludes your ability to influence corporate matters and may adversely affect the trading price of our Class A common stock.

Risks Related to Our Business, Industry and Sales
The distributed generation industry is an emerging market and distributed generation may not receive widespread market acceptance, which maymake evaluating our business and future prospects difficult.
The distributed generation industry is still relatively nascent in an otherwise mature and heavily regulated industry, and we cannot be sure that potential customers will accept distributed generation broadly, or our Energy Server products specifically. Enterprises may be unwilling to adopt our solution over traditional or competing power sources for any number of reasons, including the perception that our technology or our company is unproven, lack of confidence in our business model, the perceived unavailability of back-up service providers to operate and didmaintain the Energy Servers, and lack of awareness of our product or their perception of regulatory or political headwinds. Because distributed generation is an emerging industry, broad acceptance of our products and services is subject to a high level of uncertainty and risk. If the market for our products and services does not recognize any revenue until 2008.develop as we anticipate, our business will be harmed. As a result, we have a limited history operating our business at its current scale, and therefore a limited history upon which you can base an investment decision.
Our Energy Server is a new type of product in the nascent distributed energy industry. Predictingpredicting our future revenue and appropriately budgeting for our expenses is difficult, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates or if we adjust our estimates in future periods, our operating results and financial position could be materially and adversely affected. You should consider our prospects in light of the risks
Our products involve a lengthy sales and uncertainties that emerging companies encounter when introducinginstallation cycle, and if we fail to close sales on a new product into a nascent industry.
The distributed generation industry is an emerging marketregular and distributed generation may not receive widespread market acceptance.
The distributed generation industry is still relatively nascent, and we cannot be sure that potential customers will accept distributed generation more broadly, or our Energy Server products more specifically. Enterprises may be unwilling to adopt our solution over traditional or competing power sources for any number of reasons including the perception that our technology is unproven, lack of confidence intimely basis, our business model, unavailabilitycould be harmed.
Our sales cycle is typically 12 to 18 months but can vary considerably. In order to make a sale, we must typically provide a significant level of back-up service providerseducation to operateprospective customers regarding the use and maintain the Energy Servers, and lack of awarenessbenefits of our product. Because this is an emerging industry, broad acceptanceproduct and our technology. The period between initial discussions with a potential customer and the eventual sale of our products and services are subject toeven a high level of uncertainty and risk. If the market develops more slowly than we anticipate, our business will be harmed.
We have incurred significant losses in the past and we do not expect to be profitable for the foreseeable future.
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of June 30, 2018, we had an accumulated deficit of $2.4 billion. We expect to continue to expand our operations, including by investing in manufacturing, sales and marketing, research and development, staffing systems and infrastructure to support our growth. We anticipate that we will incur net losses on a US GAAP basis for the foreseeable future. Our ability to achieve profitability in the future will dependsingle product typically depends on a number of factors, including:
growingincluding the potential customer’s budget and decision as to the type of financing it chooses to use, as well as the arrangement of such financing. Prospective customers often undertake a significant evaluation process that may further extend the sales cycle. Once a customer makes a formal decision to purchase our product, the fulfillment of the sales volume;
increasingorder by us requires a substantial amount of time. Generally, the time between the entry into a sales to existing customerscontract with a customer and attracting new customers;
attracting and retaining financing partners who are willing to provide financing for sales on a timely basis and with attractive terms;
continuing to improve the useful lifeinstallation of our fuel cell technology and reducing our warranty servicing costs;
reducing the cost of producing our Energy Servers;
improving the efficiency and predictability of our installation process;
improving the effectiveness of ourServers can range from nine to twelve months or more. This lengthy sales and marketing activities;installation cycle is subject to a number of significant risks over which we have little or no control. Because of both the long sales and long installation cycles, we may expend significant resources without having certainty of generating a sale.
attracting
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These lengthy sales and retaining key talent ininstallation cycles increase the risk that an installation may be delayed and/or may not be completed. In some instances, a competitive marketplace.
Even if we do achieve profitability,customer can cancel an order for a particular site prior to installation, and we may be unable to sustainrecover some or increaseall of our profitabilitycosts in connection with design, permitting, installation and site preparations incurred prior to cancellation. Cancellation rates can be between 10% and 20% in any given period due to factors outside of our control, including an inability to install an Energy Server at the customer’s chosen location because of permitting or other regulatory issues, delays or unanticipated costs in securing interconnection approvals or necessary utility infrastructure, unanticipated changes in the future.cost, or other reasons unique to each customer. Our operating expenses are based on anticipated sales levels, and many of our expenses are fixed. If we are unsuccessful in closing sales after expending significant resources or if we experience delays or cancellations, our business could be materially and adversely affected. Since, in general, we do not recognize revenue on the sales of our products until installation and acceptance, a small fluctuation in the timing of the completion of our sales transactions could cause our operating results to vary materially from period to period.
Our Energy Servers have significant upfront costs, and we will need to attract investors to help customers finance purchases.
Our Energy Servers have significant upfront costs. In order to assistexpand our offerings to customers in obtaining financingwho lack the financial capability to purchase our Energy Servers directly and/or who prefer to lease the product or contract for our products, we have leasing programs with two leasing partners who have prequalified our product and provide financing for customers through various leasing arrangements. In addition to the leasingservices on a pay-as-you-go model, we also offer power purchase agreements (PPAs) in which the costsubsequently developed various financing options that enabled customers use of the Energy Server is provided byServers without a subsidiary operating company ("Operating Company")direct purchase through third-party ownership financing arrangements. For an overview of these different financing arrangements, please see Part I, Item 2, Management’s Discussion and funded byAnalysis of Financial Condition and Results of Operations – Purchase and Financing Options. If in any given quarter we are not able to secure funding in a subsidiary investment entity ("Investment Company", together the "PPA Entities") which is financed by us and/or

in combination with third-party investors ("Equity Investors"). In recent periods, the substantial majoritytimely fashion, our results of operations and financial condition will be negatively impacted. We continue to innovate our endcustomer contracts to attempt to attract new customers and these may have elected to finance their purchases, typically through PPA Entities.different terms and financing conditions from prior transactions.
We willrely on and need to grow committed financing capacity with existing partners or attract additional partners to support our growth. Generallygrowth, finance new projects and new types of product offerings, including fuel cells for the hydrogen market. In addition, at any point in time, the deployment of a portion ofour ability to deploy our backlog is contingent on securing available financing. Our ability to attract third-party financing depends on many factors that are outside of our control, including the investors’an investors ability to utilize tax credits and other government incentives, interest rate and/or currency exchange fluctuations, our perceived creditworthiness and the condition of credit markets generally. Our financing of customer purchases of our Energy Servers is subject to conditions such as the customer’s credit quality and the expected minimum internal rate of return on the customer engagement, and if these conditions are not satisfied, we may be unable to finance purchases of our Energy Servers, which would have an adverse effect on our revenue in a particular period. If we are unable to help our customers arrange financing for our Energy Servers generally, our business will be harmed. Additionally, the Traditional Lease option and the Managed Services Financing option, 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. To the extent we are unable to arrange future financings for any of our current projects, our business would be negatively impacted.
Further, our sales process for transactions that require financing require that we make certain assumptions regarding the cost of financing capital. Actual financing costs may vary from our estimates due to factors outside of our control, including changes in customer creditworthiness, macroeconomic factors, the returns offered by other investment opportunities available to our financing partners, and other factors. If the cost of financing ultimately exceeds our estimates, we may be unable to proceed with some or all of the impacted projects or our revenue from such projects may be less than our estimates.
The economic benefits of our Energy Servers to our customers depend on the cost of electricity available from alternative sources, including local electric utility companies, and such cost structure is subject to change.
We believe that a customer’s decision to purchase our Energy Servers is significantly influenced by its price, the price predictability of electricity generated by our Energy Servers in comparison to the retail price, and the future price outlook of electricity from the local utility grid and other energy sources. These prices are subject to change and may affect the relative benefits of our Energy Servers. Several factors that could influence these prices and are beyond our control, include the impact of energy conservation initiatives that reduce electricity consumption; construction of additional power generation plants (including nuclear, coal or natural gas); technological developments by others in the electric power industry; the imposition of “departing load,” “standby,” power factor charges, greenhouse gas emissions charges, or other charges by local electric utility or regulatory authorities; and changes in the rates offered by local electric utilities and/or in the applicability or amounts of charges and other fees imposed or incentives granted by such utilities on customers. In addition, even with available subsidies for our products, the current low cost of grid electricity in some states and countries does not render our product economically attractive.
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Furthermore, an increase in the price of natural gas or curtailment of availability (e.g., as a consequence of physical limitations or adverse regulatory conditions for the delivery of production of natural gas) or the inability to obtain natural gas service could make our Energy Servers less economically attractive to potential customers and reduce demand.
If we are not able to continue to reduce our cost structure in the future, our ability to become profitable may be impaired.
We must continue to reduce the manufacturing costs for our Energy Servers to expand our market. Additionally, certain of our existing service contracts were entered into based on projections regarding service costs reductions that assume continued advances in our manufacturing and services processes that we may be unable to realize. Future increases to the cost of components and raw materials would offset our efforts to reduce our manufacturing and services costs. For example, in the past two quarters, we have been working with financing sourcesexperienced price increases in raw materials, which are used in our components and subassemblies for our Energy Servers. Any continued increases in the costs of raw materials and components could slow our growth and cause our financial results and operational metrics to arrange for additional third-party Power Purchase Agreement Program entities, onesuffer.
In addition, we may face increases in our other expenses including increases in wages or other labor costs as well as installation, marketing, sales or related costs. In order to expand into new electricity markets (in which the price of whichelectricity from the grid is lower) while still maintaining our current margins, we will need to be finalizedcontinue to reduce our costs. Increases in order forany of these costs or our customersfailure to arrange financing so that we can completeachieve projected cost reductions could adversely affect our planned installations in the first quarterresults of 2019.
We do not currently have a committed financing partner willing to finance deployments with poor credit-quality customers.operations and financial condition and harm our business and prospects. If we are unable to procure financing partners willingreduce our cost structure in the future, we may not be able to financeachieve profitability, which could have a material adverse effect on our business and our prospects.
We rely on interconnection requirements and net metering arrangements that are subject to change.
Because our Energy Servers are designed to operate at a constant output 24x7, and our customers’ demand for electricity typically fluctuates over the course of the day or week, there are often periods when our Energy Servers are producing more electricity than a customer may require, and such deployments,excess electricity must generally be exported to the local electric utility. Many, but not all, local electric utilities provide compensation to our customers for such electricity under “net metering” programs. Utility tariffs and fees, interconnection agreements and net metering requirements are subject to changes in availability and terms and some jurisdictions do not allow interconnections or export at all. At times in the past, such changes have had the effect of significantly reducing or eliminating the benefits of such programs. Changes in the availability of, or benefits offered by, utility tariffs, the net metering requirements or interconnection agreements in place in the jurisdictions in which we operate or in which we anticipate expanding into in the future could adversely affect the demand for our Energy Servers. For example, in California, the net metering tariff applicable to fuel cells currently expires in 2023. We cannot predict the outcome of regulatory proceedings addressing successor tariffs that would include fuel cells, in which we remain an active participant. If there is not an economical tariff for fuel cells in California it may limit or end our ability to growsell and install our Energy Servers in California.
We currently face and will continue to face significant competition.
We compete for customers, financing partners and incentive dollars with other electric power providers. Many providers of electricity, such as traditional utilities and other companies offering distributed generation products, have longer operating histories, customer incumbency advantages. access to and influence with local and state governments, and access to more capital resources than us. Significant developments in alternative technologies, such as energy storage, wind, solar, or hydro power generation, or improvements in the efficiency or cost of traditional energy sources, including coal, oil, natural gas used in combustion, or nuclear power, may materially and adversely affect our business and prospects in ways we cannot anticipate. We may also face new competitors who are not currently in the market. If we fail to adapt to changing market conditions and to compete successfully with grid electricity or new competitors, our growth will be limited, which would adversely affect our business results.
We derive a substantial portion of our revenue and backlog from a limited number of customers, and the loss of or a significant reduction in orders from a large customer could have a material adverse effect on our operating results and other key metrics.
In any particular period, a substantial amount of our total revenue has and could continue to come from a relatively small number of customers. As an example, in the year ended December 31, 2020, two customers accounted for approximately 34% and 28% of our total revenue. The loss of any large customer order or any delays in installations of new Energy Servers with any large customer would materially and adversely affect our business results.
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Our ability to develop new products and enter into new markets could be negatively impacted if we are unable to identify partners to assist in such development or expansion, and our products may not be successful if we are unable to maintain alignment with evolving industry standards and requirements.
We continue to develop new products for new markets and, as we move into those markets, we may need to identify new business partners and suppliers in order to facilitate such development and expansion, such as our entry into the hydrogen market. Identifying such partners and suppliers is a lengthy process and is subject to significant risks and uncertainties, such as an inability to negotiate mutually-acceptable terms for the partnership. In addition, there could be delays in the design, manufacture and installation of such new products and we may not be timely in the development of new products, limiting our ability to expand our business and harming our financial condition and results of operations.
In addition, as we continue to invest in research and development to sustain or enhance our existing products, the introduction of new technologies and the emergence of new industry standards or requirements could render our products obsolete. Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and standards-setting organizations. If market acceptance of our products is reduced or delayed or the standards-setting organizations fail to develop timely commercially viable standards our business would be harmed.

Risks Related to Our Products and Manufacturing
Our business has been and continues to be adversely affected by the COVID-19 pandemic.
We continue to monitor and adjust as appropriate our operations in response to the COVID-19 pandemic. The precautions that we have implemented in our operations may not be sufficient to prevent exposure to COVID-19. While we do maintain protocols to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning, temperature screenings upon entry and masking if required by the local authorities, there is no guarantee that these measures will prevent an outbreak.
If a significant number of employees are exposed and sent home, particularly in our manufacturing facilities, our production could be significantly impacted. Furthermore, since our manufacturing process involves tasks performed at both our California and Delaware facilities, an outbreak at either facility would have a substantial impact on our overall production, and in such case, our cash flow and results of operations including revenue will be adversely affected.
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. Alternative or replacement suppliers, may not be available and ongoing delays could affect our business and growth. For example, particular suppliers on which we rely were shut down in 2020, and we were not able to obtain all the needed parts. In addition, new and potentially more contagious variants of the COVID-19 virus are developing in several countries, which can lead to future disruptions in the availability or price of these or other parts, and we cannot guarantee that we will succeed in finding alternate suppliers that are able to meet our needs. In addition, international air and sea logistics systems have been heavily impacted by the COVID-19 pandemic. Air carriers have significantly reduced their passenger and air freight capacity, and many ports are either temporarily closed or have reduced their hours of operation. Actions by government agencies may further restrict the operations of freight carriers, which would negatively impact our ability to receive the parts and supplies we need to manufacture our Energy Servers or to deliver them to our customers.
As discussed elsewhere, we also rely on third party financing for our customers’ purchases of our Energy Server and the current environment may cause third party financiers to experience liquidity problems, difficulty obtaining tax partners or elect to suspend or cancel investments in our projects. If we are delayed in obtaining financing for the purchase of our Energy Servers on behalf of our customers, our cash flow and results of operations, including revenue will be adversely affected. For example, in the three months ended March 31, 2021, we were delayed in obtaining financing for our 2021 installations and cash flow was impacted as we did not receive deposits from financiers in advance of purchase of our Energy Servers. Any delays in financing would adversely impact our cash flows, results of operations and revenue.
Our installation and maintenance operations have also been impacted by the COVID-19 pandemic. For example, our installation projects have experienced delays relating to, among other things, shortages in available 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
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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.
We are not the only business impacted by these shortages and delays, which means that we are subject to risk of increased competition for scarce resources, which may result in delays or increases in the cost of obtaining such services, including increased labor costs and/or fees. An inability to install our Energy Servers would negatively impact our acceptances, and thereby impact our cash flows and results of operations, including revenue.
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.
We continue to remain in close communication with our manufacturing facilities, employees, customers, suppliers and partners, but there is no guarantee we will be able to mitigate the impact of this dynamic and fluid situation.
Our future success depends in part on our ability to increase our production capacity, and we may not be able to do so in a cost-effective manner.
To the extent we are successful in growing our business, we may need to increase our production capacity. Our ability to plan, construct and equip additional manufacturing facilities is subject to significant risks and uncertainties, including the following:
•The risks inherent in the development and construction of new facilities, including risks of delays and cost overruns as a result of factors outside our control, which may include delays in government approvals, burdensome permitting conditions, and delays in the delivery of manufacturing equipment and subsystems that we manufacture or obtain from suppliers.
•Adding manufacturing capacity in any international location will subject us to new laws and regulations including those pertaining to labor and employment, environmental and export / import. In addition, it brings with it the risk of managing larger scale foreign operations.
•We may be unable to achieve the production throughput necessary to achieve our target annualized production run rate at our current and future manufacturing facilities.
•Manufacturing equipment may take longer and cost more to engineer and build than expected, and may not operate as required to meet our production plans.
•We may depend on third-party relationships in the development and operation of additional production capacity, which may subject us to the risk that such third parties do not fulfill their obligations to us under our arrangements with them.
•We may be unable to attract or retain qualified personnel. For example, currently the market for manufacturing labor has been constrained, which could pose a risk to our ability to increase production.
If we are unable to expand our manufacturing facilities or develop our existing facilities in a timely manner to meet increased demand, we may be unable to further scale our business, which would negatively impacted.affect our results of operations and financial condition. Conversely, if the demand for our Energy Servers or our production output decreases or does not rise as expected, we may not be able to spread a significant amount of our fixed costs over the production volume, resulting in a greater than expected per unit fixed cost, which would have a negative impact on our financial condition and our results of operations.
If our Energy Servers contain manufacturing defects, our business and financial results could be harmed.
Our Energy Servers are complex products and they may contain undetected or latent errors or defects. In the past, we have experienced latent defects only discovered once the Energy Server is deployed in the field. Changes in our supply chain or the failure of our suppliers to otherwise provide us with components or materials that meet our specifications could also introduce defects into our products. In addition, asAs we grow our manufacturing volume, the chance of manufacturing defects could increase. In addition, new product introductions or design changes made for the purpose of cost reduction, performance improvement, fulfilling new customer requirements or improved reliability could introduce new design defects that may impact Energy Server
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performance and life. Any design or manufacturing defects or other failures of our Energy Servers to perform as expected could cause us to incur significant service and re-engineering costs, divert the attention of our engineering personnel from product development efforts, and significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
Furthermore, we may be unable to correct manufacturing defects or other failures of our Energy Servers in a manner satisfactory to our customers, which could adversely affect customer satisfaction, market acceptance, and our business reputation.
The performance of our Energy Servers may be affected by factors outside of our control, which could result in harm to our business and financial results.
Field conditions, such as the quality of the natural gas supply and utility processes, which vary by region and may be subject to seasonal fluctuations or environmental factors such as smoke from wild fires, have affected the performance of our Energy Servers and are not always possible to predict until the Energy Server is in operation. Although we believe we have designed new generations of Energy Servers to better withstand the variety of field conditions we have encountered, asAs we move into new geographies and deploy new service configurations, we may encounter new and unanticipated field conditions. Adverse impacts on performance may require us to incur significant service and re-engineering costs or divert the attention of our engineering personnel from product development efforts and significantly and adversely affect customer satisfaction, market acceptance and our business reputation.efforts. Furthermore, we may be unable to adequately address the impacts of factors outside of our control in a manner satisfactory to our customers, whichcustomers. Any of these circumstances could significantly and adversely affect customer satisfaction, market acceptance, and our business reputation.
If our estimates of the useful life for our Energy Servers are inaccurate or we do not meet service andour performance warranties and guarantees,performance guaranties, or if we fail to accrue adequate warranty and guaranty reserves, our business and financial results could be harmed.
We offer certain customers the opportunity to renew their operations and maintenance service agreementsO&M Agreements (defined herein) on an annual basis, for up to 2030 years, at prices predetermined at the time of purchase of the Energy Server. We also provide performance warranties and performance guaranties covering the efficiency and output performance of our Energy Servers. Our pricing of these contracts and our reserves for warranty and replacement are based upon our estimates of the useful life of our Energy Servers and their components, including assumptions regarding improvements in usefulpower module life that may fail to materialize. We also provide performance warranties and guarantees covering the efficiency and output performance of our Energy Servers. We do not have a long history with a large number of field deployments, especially for new product introductions, and our estimates may prove to be incorrect. Failure to meet these warranty and performance warranties and guaranteeguaranty levels may require us to replace the Energy Servers at our expense or refund their cost to the customer, or require us to make cash payments to the customer based on actual performance, as compared to expected performance, capped at a percentage of the relevant equipment purchase prices. Early generations of our Energy Server did not have the useful life and did not perform at an output and efficiency level that we expected. We implemented a fleet decommissioning program for our early generation Energy Servers in our PPA I program, which resulted in a significant adjustment to revenue in the quarter ended December 31, 2015, as we would otherwise have failed to meet efficiency and

output warranties. As of June 30, 2018, we had a total of 58 megawatts in total deployed early generation servers, including our first and second generation servers, out of our total installed base of 328 megawatts. We accrue for product warranty costs and recognize losses on service or performance warranties when required by U.S. GAAP based on our estimates of costs that may be incurred and based on historical experience; however, actualexperience. However, as we expect our customers to renew their O&M agreements each year, the total liability over time may be more than the accrual. Actual warranty expenses have in the past been and may in the future be greater than we have assumed in our estimates, the accuracy of which may be hindered due to our limited operating history operating at our current scale. Therefore, if our estimates of the useful life for our Energy Servers are inaccurate or we do not meet our performance warranties and performance guaranties, or if we fail to accrue adequate warranty and guaranty reserves, our business and financial results could be harmed.
Our business is subject to risks associated with construction, utility interconnection, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
Because we generally do not recognize revenue on the sales of our Energy Servers until installation and acceptance except where a third party is responsible for installation (such as in our sales in the Republic of Korea and certain cases in the United States), our financial results depend to a large extent on the timeliness of the installation of our Energy Servers. Furthermore, in some cases, the installation of our Energy Servers may be on a fixed price basis, which subjects us to the risk of cost overruns or other unforeseen expenses in the installation process.
The construction, installation, and operation of our Energy Servers at a particular site is also generally subject to oversight and regulation in accordance with national, state, and local laws and ordinances relating to building codes, safety, environmental protection, and related matters, and typically require various local and other governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal. For more information regarding these restrictions, please see the risk factors in the section entitled "Risks Related to Legal Matters and Regulations." As a result, unforeseen delays in the review and permitting process could
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delay the timing of the construction and installation of our Energy Servers and could therefore adversely affect the timing of the recognition of revenue related to the installation, which could harm our operating results in a particular period.
In addition, the completion of many of our installations depends on the availability of and timely connection to the natural gas grid and the local electric grid. In some jurisdictions, local utility companies or the municipality have denied our request for connection or have required us to reduce the size of certain projects. In addition, some municipalities have recently adopted restrictions that prohibit any new construction that allows for the use of natural gas. For more information regarding these restrictions, please see the risk factor entitled "As a technology that runs, in part, on fossil fuel, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in our customers’ energy procurement policies." Any delays in our ability to connect with utilities, delays in the performance of installation-related services, or poor performance of installation-related services by our general contractors or sub-contractors will have a material adverse effect on our results and could cause operating results to vary materially from period to period.
Furthermore, we rely on the ability of our third-party general contractors to install Energy Servers at our customers’ sites and to meet our installation requirements. We accruecurrently work with a limited number of general contractors, which has impacted and may continue to impact our ability to make installations as planned. Our work with contractors or their sub-contractors may have the effect of our being required to comply with additional rules (including rules unique to our customers), working conditions, site remediation, and other union requirements, which can add costs and complexity to an installation project. The timeliness, thoroughness, and quality of the installation-related services performed by some of our general contractors and their sub-contractors in the past have not always met our expectations or standards and may not meet our expectations and standards in the future.
Any significant disruption in the operations at our headquarters or manufacturing facilities could delay the production of our Energy Servers, which would harm our business and results of operations.
We manufacture our Energy Servers in a limited number of manufacturing facilities, any of which could become unavailable either temporarily or permanently for any number of reasons, including equipment failure, material supply, public health emergencies or catastrophic weather or geologic events. For example, our headquarters and several of our manufacturing facilities are located in the San Francisco bay area, an area that is susceptible to earthquakes, floods and other natural disasters. The occurrence of a natural disaster such as an earthquake, drought, extreme heat, flood, fire, localized extended warrantyoutages of critical utilities (such as California's public safety power shut-offs) or transportation systems, or any critical resource shortages could cause a significant interruption in our business, damage or destroy our facilities, our manufacturing equipment, or our inventory, and cause us to incur significant costs, any of which could harm our business, our financial condition and our results of operations. The insurance we maintain against fires, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.
The failure of our suppliers to continue to deliver necessary raw materials or other components of our Energy Servers in a timely manner and to specification could prevent us from delivering our products within required time frames and could cause installation delays, cancellations, penalty payments and damage to our reputation.
We rely on a limited number of third-party suppliers, and in some cases sole suppliers, for some of the raw materials and components for our Energy Servers, including certain rare earth materials and other materials that may be of limited supply. If our suppliers provide insufficient inventory at the level of quality required to meet our standards and customer demand or if our suppliers are unable or unwilling to provide us with the contracted quantities (as we have limited or in some case no alternatives for supply), our results of operations could be materially and negatively impacted. If we fail to develop or maintain our relationships with our suppliers, or if there is otherwise a shortage or lack of availability of any required raw materials or components, we may be unable to manufacture our Energy Servers or our Energy Servers may be available only at a higher cost or after a long delay. There have been a number of supply chain disruptions throughout the global supply chain as countries are in various stages of opening up and demand for certain components increases associated with the COVID-19 pandemic. For example, we expect component shortages especially for semiconductors and specialty metals to incur underpersist at least through the maintenance service agreements thatfirst half of 2022. Significant delays and shortages could prevent us from delivering our Energy Servers to our customers renewwithin required time frames and cause order cancellations, which would adversely impact our cash flows and results of operations.
In some cases, we have had to create our own supply chain for some of the components and materials utilized in our fuel cells. We have made significant expenditures in the past to develop our supply chain. In many cases, we entered into contractual relationships with suppliers to jointly develop the components we needed. These activities are time and capital intensive. In addition, some of our suppliers use proprietary processes to manufacture components. We may be unable to obtain comparable components from alternative suppliers without considerable delay, expense, or at all, as replacing these suppliers could require
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us either to make significant investments to bring the capability in-house or to invest in a termnew supply chain partner. Some of typically one year.our suppliers are smaller, private companies, heavily dependent on us as a customer. If our suppliers face difficulties obtaining the credit or capital necessary to expand their operations when needed, they could be unable to supply necessary raw materials and components needed to support our planned sales and services operations, which would negatively impact our sales volumes and cash flows.
The failure by us to obtain raw materials or components in a timely manner or to obtain raw materials or components that meet our quantity and cost requirements could impair our ability to manufacture our Energy Servers or increase their costs or service costs of our existing portfolio of Energy Servers under maintenance services agreements. If we cannot obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our Energy Servers to our customers within required time frames, which could result in sales and installation delays, cancellations, penalty payments, or damage to our reputation, any of which could have a material adverse effect on our business and results of operations. In addition, we expectrely on our suppliers to meet quality standards, and the failure of our suppliers to meet or exceed those quality standards could cause delays in the delivery of our products, cause unanticipated servicing costs, and cause damage to our reputation.
We have, in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations.
We have entered into long-term supply agreements with certain suppliers. Some of these supply agreements provide for fixed or inflation-adjusted pricing, substantial prepayment obligations and in a few cases, supplier purchase commitments. These arrangements could mean that we end up paying for inventory that we did not need or that was at a higher price than the market. Further, we face significant specific counterparty risk under long-term supply agreements when dealing with suppliers without a long, stable production and financial history. Given the uniqueness of our product, many of our suppliers do not have a long operating history and are private companies that may not have substantial capital resources. In the event any such supplier experiences financial difficulties, it may be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers or whether we may secure new long-term supply agreements. Additionally, many of our parts and materials are procured from foreign suppliers, which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes in applicable international trade regulations such as taxes, tariffs, or quotas. Any of the foregoing could materially harm our financial condition and our results of operations.
We face supply chain competition, including competition from businesses in other industries, which could result in insufficient inventory and negatively affect our results of operations.
Certain of our suppliers also supply parts and materials to other businesses including businesses engaged in the production of consumer electronics and other industries unrelated to fuel cells. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply of the items in the event that our deployed early generationsuppliers fail to produce sufficient quantities to satisfy the demands of all of their customers, which could materially harm our financial condition and our results of operations.
We, and some of our suppliers, obtain capital equipment used in our manufacturing process from sole suppliers and, if this equipment is damaged or otherwise unavailable, our ability to deliver our Energy Servers may continueon time will suffer.
Some of the capital equipment used to perform atmanufacture our products and some of the capital equipment used by our suppliers have been developed and made specifically for us, are not readily available from multiple vendors, and would be difficult to repair or replace if they did not function properly. If any of these suppliers were to experience financial difficulties or go out of business or if there were any damage to or a lower outputbreakdown of our manufacturing equipment and efficiency levelwe could not obtain replacement equipment in a timely manner, our business would suffer. In addition, a supplier’s failure to supply this equipment in a timely manner with adequate quality and ason terms acceptable to us could disrupt our production schedule or increase our costs of production and service.
Possible new trade tariffs could have a result,material adverse effect on our business.
Our business is dependent on the maintenanceavailability of raw materials and components for our Energy Servers, particularly electrical components common in the semiconductor industry, specialty steel products / processing and raw materials. For example, prior tariffs imposed on steel and aluminum imports increased the cost of raw materials for our Energy Servers and decreased the available supply. Additional new trade tariffs or other trade protection measures that are proposed or threatened and the potential escalation of a trade war and retaliation measures could have a material adverse effect on our business, results
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of operations and financial condition. Consequently, the imposition of tariffs on items imported by us from China or other countries could increase our costs may exceedand could have a material adverse effect on our business and our results of operations.
A failure to properly comply (or to comply properly) with foreign trade zone laws and regulations could increase the contracted prices thatcost of our duties and tariffs.
We have established two foreign trade zones, one in California and one in Delaware, through qualification with U.S. Customs and Border Protection, and are approved for "zone to zone" transfers between our California and Delaware facilities. Materials received in a foreign trade zone are not subject to certain U.S. duties or tariffs until the material enters U.S. commerce. We benefit from the adoption of foreign trade zones by reduced duties, deferral of certain duties and tariffs, and reduced processing fees, which help us realize a reduction in duty and tariff costs. However, the operation of our foreign trade zones requires compliance with applicable regulations and continued support of U.S. Customs and Border Protection with respect to the foreign trade zone program. If we expectare unable to generatemaintain the qualification of our foreign trade zones, or if foreign trade zones are limited or unavailable to us in respectthe future, our duty and tariff costs would increase, which could have an adverse effect on our business and results of those servers if our customers continueoperations.

Risks Related to renew their maintenance service agreements in respect of those servers.Government Incentive Programs
Our business currently depends onbenefits from the availability of rebates, tax credits and other financial programs and incentives,. The and the reduction, modification, or elimination of government economic incentivessuch benefits could cause our revenue to decline and harm our financial results.
The U.S. federal government and some state and local governments provide incentives to end users and purchasers of our Energy Servers in the form of rebates, tax credits, and other financial incentives, such as system performance payments and payments for renewable energy credits associated with renewable energy generation. We rely on these governmental rebates, tax credits and other financial incentives to significantly lower the effective price of the Energy Servers to our customers inIn addition, some countries outside the United States including by lowering the cost of capitalalso provide incentives to our customers, as our financing partnersend users and PPA Equity Investors may take advantage of these financial incentives. However, these incentives may expire on a particular date, end when the allocated funding is exhausted or be reduced or terminated as a matter of regulatory or legislative policy. For example, the federal ITC benefit expired on December 31, 2016 and without the availability of the ITC benefit incentive, we lowered the pricepurchasers of our Energy Servers. We currently have operations and sell our Energy Servers in Japan, India, and the Republic of Korea (collectively, our "Asia Pacific region"), where in some locations such as the Republic of Korea, Renewable Portfolio Standards ("RPS") are in place to ensurepromote the economics to our customers remain the same as it was prior to losing the ITC benefit, adversely affecting our gross profit. While the ITC was reinstated by the U.S Congress on February 9, 2018 and made retroactive to January 1, 2017, it is possibleadoption of renewable power generation, including, in the future that this incentive could be repealed.
some circumstances, fuel cells. Our Energy Servers have qualified for tax exemptions, incentives, or other customer incentives in many states including the states of California, Connecticut, Massachusetts, New Jersey and New York. Some states have utility procurement programs and/or renewable portfolio standards for which our technology is eligible. Our Energy Servers are currently installed in eleven U.S. states, each of which may have its own enabling policy framework. There is no guarantee thatWe utilize these policies will continuegovernmental rebates, tax credits, and other financial incentives to exist in their current form, or at all. Such state programs may face increased opposition onlower the U.S. federal, state and local levelseffective price of the Energy Servers to our customers in the U. S. and the Asia Pacific region. Financiers and Equity Investors in our PPA Programs may also take advantage of these financial incentives, lowering the cost of capital and energy to our customers. However, these incentives or RPS's may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.
For example, the Korean RPS is scheduled to be replaced in 2022 with the Hydrogen Portfolio Standard (“HPS”). This may impact the demand for our Energy Servers in the Republic of Korea. Initially, we do not expect the HPS to require 100% hydrogen as a feedstock for fuel cell projects. The Ministry of Trade, Industry, and Economy is running a stakeholder process in 2021, which will determine the specifics of the HPS incentive mechanism. For the nine months ended September 30, 2021 and for the year ended December 31, 2020, our revenue in the Republic of Korea accounted for 38% and 34% of our total revenue, respectively. Therefore, if sales of our Energy Servers to this market decline in the future, this may have a material adverse effect on our financial condition and results of operations.
As another example, in the United States, commercial purchasers of fuel cells are eligible to claim the federal ITC. While legislation under active consideration would extend the ITC for up to five years, as part of a national infrastructure plan, under current law the ITC will end on December 31, 2023.
The ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five-year recapture period is fulfilled, it could result in a partial reduction in incentives. In the case of a Portfolio Financing, the owner of the portfolio bears the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future.
As another example, many of our installations in California interconnect with investor-owned utilities on Fuel Cell Net Energy Metering (“FC NEM”) tariffs. FC NEM tariffs will be available for new installations until December 31, 2023.
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However, to remain eligible for the FC NEM tariffs, at least some installations currently on those tariffs are likely to be required to meet greenhouse gas emissions standards. As noted above, we are working through the appropriate regulatory channels to establish alternative tariffs to FC NEM, which is currently set to expire in 2023. If our customers are unable to interconnect under the FC NEM tariffs or a suitable alternative, interconnection and tariff costs may increase and such an increase may negatively impact demand for our products. Additionally, the uncertainty regarding requirements for service under any of these tariffs could negatively impact the perceived value of or risks associated with our products, which could also negatively impact demand.
Changes in federal or statethe availability of rebates, tax credits, and other financial programs and incentives could reduce demand for our Energy Servers, impair sales financing, and adversely impact our business results.
For example, the California Self Generation Incentive Program (SGIP) is a program administered by the California Public Utilities Commission (CPUC) The continuation of these programs and incentives depends upon political support which provides incentives to investor-owned utility customers that install eligible distributed energy resources. In July 2016, the CPUC modified the SGIP to provide a smaller allocation of the incentives available to generating technologies such as our Energy Serversdate has been bipartisan and a larger allocation to storage technologies. As modified, the SGIP will require all eligible power generation sources consuming natural gas to use a minimum of 10% biogas to receive SGIP funds beginning in 2017, with this minimum biogas requirement increasing to 25% in 2018, 50% in 2019 and 100% in 2020. In addition, the CPUC provided a further limitation on the available allocation of funds that any one participant may claim under the SGIP. The SGIP will expire on January 21, 2021 absent extension. Our billings for product accepted derived from customers benefiting from the SGIP represented approximately 5% and 12% of total billings for product accepted for the six months ended June 30, 2018 and the year ended December 2017, respectively.durable.
We rely on tax equity financing arrangements to realize the benefits provided by investment tax creditsITCs and accelerated tax depreciation and in the event these programs are terminated, our financial results could be harmed.
We expect that any Energy Server deployments through certain of our financed transactions (including our Bloom Electrons programs, our leasing programs, and any third-party Power Purchase Agreement Programs) will receive capital from financing partiesEquity Investors who derive a significant portion of their economic returns through tax benefits (Equity Investor).benefits. Equity Investors are generally entitled to substantially all of the project’s tax benefits, such as those provided by the ITC and MACRSModified Accelerated Cost Recovery System ("MACRS") or bonus depreciation, until the Equity Investors achieve their respective agreed rates of return. The number of and available capital from potential Equity Investors is limited, we compete with other energy companies eligible for these tax benefits to access such investors, and the availability of capital from Equity Investors is subject to fluctuations based on factors outside of our control such as macroeconomic trends and changes in applicable taxation regimes. Concerns regarding our limited operating history, and lack of profitability and that we are the only party who can perform operations and maintenance on our Energy Servers have made it difficult to attract investors in the past. Our ability to obtain additional financing in the future depends on the continued confidence of banks and other financing sources in our business model, the market for our Energy Servers, and the continued availability of tax benefits applicable to our Energy Servers. In addition, conditions in the general economy and financial and credit

markets generally may result in the contraction of available tax equity financing. If we are unable to enter into tax equity financing agreements with attractive pricing terms, or at all, we may not be able to attractobtain the capital needed to fund our financing programs or use the tax benefits provided by the ITC and MACRS depreciation, which could make it more difficult for customers to finance the purchase of our Energy Servers orServers. Such circumstances could also require us to reduce the price at which we are able to sell our Energy Servers and therefore harm our business, our financial condition, and our results of operations.

Risks Related to Legal Matters and Regulations
We derive aare subject to various national, state and local laws and regulations that could impose substantial portion of our revenuecosts upon us and backlog from a limited number of customers, and the loss of or a significant reduction in orders from a large customer could have a material adverse effect on our operating results and other key metrics.
In any particular period, a substantial amount of our total revenue could come from a relatively small number of customers. As an example, for the year ended December 31, 2016, two customers accounted for approximately 29% of our total revenue. In 2017, two customers accounted for approximately 53% of our total revenue. Since we recognize the product revenue for customer-financed purchases at the time that the Energy Server is accepted, the loss of any large customer order or anycause delays in installations of new Energy Servers with any large customer could materiallythe delivery and adversely affect our business results.
Our products involve a lengthy sales and installation cycle and, if we fail to close sales on a regular and timely basis, our business could be harmed.
Our sales cycle is typically 12 to 18 months but can vary considerably. In order to make a sale, we must typically provide a significant level of education to prospective customers regarding the use and benefits of our product and its technology. The period between initial discussions with a potential customer and the eventual sale of even a single product typically depends on a number of factors, including the potential customer’s budget and decision as to the type of financing it chooses to use as well as the arrangement of such financing. Prospective customers often undertake a significant evaluation process which may further extend the sales cycle. Once a customer makes a formal decision to purchase our product, the fulfillment of the sales order by us requires a substantial amount of time. Currently, we believe the time between the entry into a sales contract with a customer and the installation of our Energy Servers can range from nine to twelve months or more. This lengthy sales and installation cycle is subject to a number of significant risks over which we have little or no control. Because of both the long sales and installation cycles, we may expend significant resources without having certainty of generating a sale.
These lengthy sales and installation cycles increase the risk that our customers will fail to satisfy their payment obligations or will cancel orders before the completion of the transaction or delay the planned date for installation. Generally, a customer can cancel an order prior to installation and we may be unable to recover some or all of our costs in connection with design, permitting, installation and site preparations incurred prior to cancellation. Cancellation rates can be between 10% and 20% in any given period due to factors outside of our control including an inability to install an Energy Server at the customer’s chosen location because of permitting or other regulatory issues, unanticipated changes in the cost, the availability of alternative sources of electricity available to the customer or other reasons unique to each customer. Our operating expenses are based on anticipated sales levels, and many of our expenses are fixed. If we are unsuccessful in closing sales after expending significant resources or if we experience delays or cancellations, our business could be materially and adversely affected. Since we do not recognize revenue on the sales of our products until installation and acceptance, a small fluctuation in the timing of the completion of our sales transactions could cause operating results to vary materially from period to period.
We rely on net metering arrangements that are subject to change.
Because our Energy Servers are designed to operate at a constant output twenty-four hours a day, seven days a week and our customers’ demand for electricity typically fluctuates over the course of the day or week, there are often periods when our Energy Servers are producing more electricity than a customer may require, and such excess electricity must be exported to the local electric utility. Many, but not all, local electric utilities provide compensation to our customers for such electricity under “net metering” programs. Net metering programs are subject to changes in availability and terms. At times in the past, such changes have had the effect of significantly reducing or eliminating the benefits of such programs. Changes in the availability of, or benefits offered by, the net metering programs in place in the jurisdictions in which we operate could adversely affect the demand for our Energy Servers.
The economic benefits of our Energy Servers to our customers depends on the cost of electricity available from alternative sources including local electric utility companies, which cost structure is subject to change.
The economic benefit of our Energy Servers to our customers includes, among other things, the benefit of reducing such customer’s payments to the local utility company. The rates at which electricity is available from a customer’s local electric utility company is subject to change and any changes in such rates may affect the relative benefits of our Energy Servers. Further, the local electric utility may impose “departing load,” “standby” or other charges on our customers in connection with

their acquisition of our Energy Servers, the amounts of which are outside of our control and which may have a material impact on the economic benefit of our Energy Servers to our customers. Changes in the rates offered by local electric utilities and/or in the applicability or amounts of charges and other fees imposed by such utilities on customers acquiring our Energy Servers could adversely affect the demand for our Energy Servers.
Additionally, the electricity produced by our Energy Servers is currently not cost competitive in many geographic markets, and we may be unable to reduce our costs to a level at which our Energy Servers would be competitive in such markets. As such, unless the cost of electricity in these markets rises or we are able to generate demand for our Energy Servers based on benefits other than electricity cost savings, our potential for growth may be limited.
Our business is subject to risks associated with construction, utility interconnection, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
Because we do not recognize revenue on the sales of our Energy Servers until installation and acceptance, our financial results are dependent, to a large extent, on the timeliness of the installation of our Energy Servers. Furthermore, in some cases, the installation of our Energy Servers may be on a fixed price basis, which subjects us to the risk of cost overruns or other unforeseen expenses in the installation process.
Although we generally are not regulated as a utility, federal, state and local government statutes and regulations concerning electricity heavily influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation and the rules surrounding the interconnection of customer-owned electricity generation for specific technologies. In the United States, governments frequently modify these statutes and regulations. Governments, often acting through state utility or public service commissions, change and adopt different requirements for utilities and rates for commercial customers on a regular basis. Changes, or in some cases a lack of change, in any of the laws, regulations, ordinances or other rules that apply to our installations and new technology could make it more costly for us or our customers to install and operate our Energy Servers on particular sites and, in turn, could negatively affect our ability to deliver cost savings to customers for the purchase of electricity.
The construction, installation, and operation of our Energy Servers at a particular site is also generally subject to oversight and regulation in accordance with national, state, and local laws and ordinances relating to building codes, safety, environmental protection, and related matters, and typically requiresrequire various local and other governmental approvals and permits, including environmental approvals and permits, that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines, and penalties. Capital and operating expenses needed to comply with the various laws and regulations can be significant, and violations may result in substantial fines and penalties or third-party damages.
It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations, to design our Energy Servers to comply with these varying standards, and to obtain all applicable approvals and permits. We cannot predict whether or when all permits required for a given project will be granted or whether the conditions associated with the permits will be achievable. The denial of a permit or utility connection essential to a project or the imposition of impractical conditions would impair our ability to develop the project. In addition, we cannot predict whether the permitting process will be lengthened due to complexities and appeals. Delay in the review and permitting process for a project can impair or delay our and our customers’ abilities to develop that project or may increase the cost so substantially that the project is no longer attractive to us or our customers. Furthermore, unforeseen delays in the review and permitting process could delay the timing of the installation of our Energy Servers and could therefore adversely affect the timing of the recognition of revenue related to the installation, which could harm our operating results in a particular period.
In addition, the completion of many of our installations is dependent upon the availability of and timely connection to the natural gas grid and the local electric grid. In some jurisdictions, the local utility company(ies) or the municipality has denied our request for connection or required us to reduce the size of certain projects. Any delays Additionally, in our ability to connect with utilities, delays in the performance of installation-related services or poor performance of installation-related services by our general contractors or sub-contractors will have a material adverse effect on our results and could cause operating results to vary materially from period to period.
Furthermore, we rely on third party general contractors to install Energy Servers at our customers’ sites. We currently work with a limited number of general contractors, which has impacted and may continue to impact our ability to make installations as planned. Our work with contractors or their sub-contractors may have the effect of us being required to comply with additional rules (including rules unique to our customers), working conditions, site remediation and other union requirements, which can add costs and complexity to an installation project. The timeliness, thoroughness and quality of the installation-related services performed by our general contractors and their sub-contractors in the past have not always met our expectations or standards and in the future may not meet our expectations and standards.

The failure of our suppliers to continue to deliver necessary raw materials or other components of our Energy Servers in a timely manner could prevent us from delivering our products within required time frames, and could cause installation delays, cancellations, penalty payments and damage to our reputation.
We rely on a limited number of third-party suppliers for some of the raw materials and components for our Energy Servers, including certain rare earth materials and other materials that may be of limited supply. If we fail to develop or maintain our relationships with our suppliers, or if there is otherwise a shortage or lack of availability of any required raw materials or components, we may be unable to manufacture our Energy Servers or our Energy Servers may be available only at a higher cost or after a long delay. Such delays could prevent us from delivering our Energy Servers to our customers within required timeframes and cause order cancellations. We have had to create our own supply chain for some of the components and materials utilized in our fuel cells. We have made significant expenditures in the past to develop our supply chain. In many cases we entered into contractual relationships contractually commit to performing all necessary installation work on a fixed-price basis, and unanticipated costs associated
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with suppliersenvironmental remediation and/or compliance expenses may cause the cost of performing such work to jointly developexceed our revenue. The costs of complying with all the components we needed. These activities were timevarious laws, regulations and capital intensive. Accordingly, the number of suppliers we have for some of our componentscustomer requirements, and materials is limited and in some cases sole sourced. Some of our suppliers use proprietary processesany claims concerning noncompliance or liability with respect to manufacture components. We may be unable to obtain comparable components from alternative suppliers without considerable delay, expense or at all, as replacing these suppliers could require us either to make significant investments to bring the capability in house or to invest in a new supplier partner. Some of our suppliers are smaller, private companies, heavily dependent on us as a customer. If our suppliers face difficulties obtaining the credit or capital necessary to expand their operations when needed, they could be unable to supply necessary raw materials and components needed to support our planned sales and services operations, which would negatively impact our sales volumes and cash flows.
Moreover, we may experience unanticipated disruptions to operations or other difficulties with our supply chain or internalized supply processes due to exchange rate fluctuations, volatility in regional markets from where materials are obtained, particularly China and Taiwan, changescontamination in the general macroeconomic outlook, political instability, expropriation or nationalization of property, civil strife, strikes, insurrections, acts of terrorism, acts of war or natural disasters. The failure by us to obtain raw materials or components in a timely manner or to obtain raw materials or components that meet our quantity and cost requirements could impair our ability to manufacture our Energy Servers or increase their costs or service costs of our existing portfolio of Energy Servers under maintenance services agreements. If we cannot obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our Energy Servers to our customers within required timeframes, which could result in sales and installation delays, cancellations, penalty payments or damage to our reputation, any of whichfuture, could have a material adverse effect on our business and results of operations. In addition, we rely on our suppliers to meet quality standards, and the failure of our suppliers to meet or exceed those quality standards could cause delays in the delivery of our products, cause unanticipated servicing costs and cause damage to our reputation.
Our financial condition or our operating results.
The installation and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our Class A common stock.
Our financial condition and results of operations and other key metrics have fluctuated significantly in the past and may continue to fluctuate in the future due to a variety of factors, many of which are beyond our control. For example, the amount of product revenue we recognize in a given period is materially dependent on the volume of installationsoperation of our Energy Servers are subject to environmental laws and regulations in that periodvarious jurisdictions, and the type of financing used by the customer.
In additionthere is uncertainty with respect to the other risks described herein, the following factors could also causeinterpretation of certain environmental laws and regulations to our financial conditionEnergy Servers, especially as these regulations evolve over time.
We are committed to compliance with applicable environmental laws and results of operations to fluctuate on a quarterly basis:
the timing of installations, which may depend on many factors such as availability of inventory, product quality or performance issues, or local permitting requirements, utility requirements, environmental,regulations including health and safety requirements, weatherstandards, and customer facility construction schedules;
sizewe continually review the operation of particular installations and number of sites involved in any particular quarter;
the mix in the type of purchase or financing options used by customers in a period, and the rates of return required by financing parties in such period;
whether we are able to structure our sales agreements in a manner that would allow for the product and installation revenue to be recognized up front at acceptance;
delays or cancellations of Energy Server installations;
fluctuations in our service costs, particularly due to unaccrued costs of servicing and maintaining Energy Servers;
weaker than anticipated demand for our Energy Servers duefor health, safety, and environmental compliance. Our Energy Servers, like other fuel cell technology-based products of which we are aware, produce small amounts of hazardous wastes and air pollutants, and we seek to changesaddress these in government incentivesaccordance with applicable regulatory standards. In addition, environmental laws and policies;
fluctuationsregulations such as the Comprehensive Environmental Response, Compensation and Liability Act in the United States impose liability on several grounds including for the investigation and cleanup of contaminated soil and ground water, for building contamination, for impacts to human health and for damages to natural resources. If contamination is discovered in the future at properties formerly owned or operated by us or currently owned or operated by us, or properties to which hazardous substances were sent by us, it could result in our researchliability under environmental laws and development expense, including periodic increases associated with the pre-production qualification of additional tools as we expand our production capacity;

interruptions in our supply chain;
the length of the sales and installation cycle for a particular customer;
the timing and level of additional purchases by existing customers;
unanticipated expenses or installation delays associated with changes in governmental regulations, permitting requirements by local authorities at particular sites, utility requirements and environmental, health and safety requirements; and
disruptions in our sales, production, service or other business activities resulting from disagreements with our labor force or our inability to attract and retain qualified personnel.
Fluctuations in our operating results and cash flow could, among other things, give rise to short-term liquidity issues. In addition, our revenue, key operating metrics and other operating results in future quarters may fall short of the expectations of investors and financial analysts, which could have an adverse effect on the priceregulations. Many of our Class A common stock.
We must maintain customer confidence in our liquidity and long-term business prospects in order to grow our business.
Currently, we are the only provider able to fully support and maintain our Energy Servers. If potential customers believe we do not have sufficient capital or liquidity to operate our business over the long-term or that we will be unable to maintain their Energy Servers and provide satisfactory support, customers may be less likely to purchase or lease our products, particularly in light of the significant financial commitment required. In addition, financing sources may be unwilling to provide financing on reasonable terms. Similarly, suppliers, financing partners and other third parties may be less likely to invest time and resources in developing business relationships with us if they have concerns about the success of our business.
Accordingly, in order to grow our business, we must maintain confidence in our liquidity and long-term business prospects among customers, suppliers, financing partners and other parties. This may be particularly complicated by factors such as:
our limited operating history at a large scale;
our lack of profitability;
unfamiliarity with or uncertainty about our Energy Servers and the overall perception of the distributed generation market;
prices for electricity or natural gas in particular markets;
competition from alternate sources of energy;
warranty or unanticipated service issues we may experience;
the environmental consciousness and perceived value of environmental programs to our customers;
the size of our expansion plans in comparison to our existing capital base and the scope and history of operations;
the availability and amount of tax incentives, credits, subsidies or other programs; and
the other factors set forth in this section.
Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects, even if unfounded, would likely harm our business.
A material decrease in the retail price of utility-generated electricity or an increase in the price of natural gas would affect demand for our Energy Servers.
We believe that a customer’s decision towho purchase our Energy Servers have high sustainability standards, and any environmental noncompliance by us could harm our reputation and impact a current or potential customer’s buying decision.
Maintaining compliance with laws and regulations can be challenging given the changing patchwork of environmental laws and regulations that prevail at the federal, state, regional, and local level. Most existing environmental laws and regulations preceded the introduction of our innovative fuel cell technology and were adopted to apply to technologies existing at the time (i.e., large coal, oil, or gas-fired power plants). Guidance from these agencies on how certain environmental laws and regulations may or may not be applied to our technology can be inconsistent.
For example, natural gas, which is significantly influenced by the price, the price predictability of electricity generated byprimary fuel used in our Energy Servers, contains benzene, which is classified as a hazardous waste if it exceeds 0.5 milligrams per liter. A small amount of benzene found in comparisonthe public natural gas supply (equivalent to what is present in one gallon of gasoline in an automobile fuel tank, which are exempt from federal regulation) is collected by the gas cleaning units contained in our Energy Servers; these gas cleaning units are typically replaced at customers' sites once every 15 to 36 months. From 2010 to late 2016 and in the regular course of maintenance of the Energy Servers, we periodically replaced the units in our servers relying upon a federal environmental exemption that permitted the handling of such units without manifesting the contents as containing a hazardous waste. Although over the years and with the approval of two states, we believed that we operated appropriately under the exemption, the U.S. Environmental Protection Agency ("EPA") issued guidance for the first time in late 2016 that differed from our belief and conflicted with the state approvals we had obtained. We have complied with the new guidance and, given the comparatively small quantities of benzene produced, we do not anticipate significant additional costs or risks from our compliance with the revised 2016 guidance. In order to put this matter behind us and with no admission of law or fact, we agreed to a consent agreement that was ratified and incorporated by reference into a final order that was entered by an Environmental Appeals Judge for EPA’s Environmental Appeals Board in May of 2020. Consistent with the consent agreement and final order, a final payment of approximately $1.2 million was made in the fourth quarter of 2020 and EPA has confirmed the matter is formally resolved. Additionally, a nominal penalty was paid to a state agency under that state’s environmental laws relating to the retail pricesame issue.
Some states in which we operate, including New York, New Jersey and North Carolina, have specific permitting or environmental exemptions for fuel cells. Other states in which we currently operate, including California, have emissions-based requirements, most of which require permits or other notifications for quantities of emissions that are higher than those observed from our Energy Servers. For example, the future price outlookBay Area Air Quality Management District in California has an air permit and risk assessment exemption for emissions of electricitychromium in the hexavalent form (“CR+6”) that are less than 0.00051 lbs/year. Emissions above this level may trigger the need for a permit. Also, California's Proposition 65 requires notification of the presence of CR+6 unless public exposure is below 0.001 µg/day, the level determined to represent no significant health risk. Since the California standards are more stringent than those in any other state or foreign location in which we have installed Energy Servers to date, we are focused on California's standards. If stricter standards are adopted in other states or jurisdictions or our servers can’t meet applicable standards, it could impact our ability to obtain regulatory approval and/or could result in our not being able to operate in a particular local jurisdiction.
These examples illustrate that our technology is moving faster than the regulatory process in many instances and that there are inconsistencies between how we are regulated in different jurisdictions. It is possible that regulators could delay or
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prevent us from conducting our business in some way pending agreement on, and compliance with, shifting regulatory requirements. Such actions could delay the local utility gridinstallation of Energy Servers, could result in penalties, could require modification or replacement or could trigger claims of performance warranties and other renewabledefaults under customer contracts that could require us to repurchase their Energy Servers, any of which could adversely affect our business, our financial performance, and our reputation. In addition, new laws or regulations or new interpretations of existing laws or regulations could present marketing, political or regulatory challenges and could require us to upgrade or retrofit existing equipment, which could result in materially increased capital and operating expenses.
As a technology that runs, in part, on fossil fuel, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives, and to changes in our customers’ energy sources. In some statesprocurement policies.
The current generation of our Energy Servers running on natural gas produce nearly 23% fewer carbon emissions than the average U.S. marginal power generation sources that our projects displace. However, the operation of our Energy Servers does produce carbon dioxide ("CO2"), which contributes to global climate change. As such, we may be negatively impacted by CO2-related changes in applicable laws, regulations, ordinances, rules, or the requirements of the incentive programs on which we and countries,our customers currently rely. Changes (or a lack of change to comprehensively recognize the current costrisks of grid electricity, even togetherclimate change and recognize the benefit of our technology as one means to maintain reliable and resilient electric service with available subsidies, does not rendera lower greenhouse gas emission profile) in any of the laws, regulations, ordinances, or rules that apply to our product economically attractive. Furthermore, if the retail price of grid electricity does not increase over time at the rate that weinstallations and new technology could make it more difficult or more costly for us or our customers expect, itto install and operate our Energy Servers on particular sites, thereby negatively affecting our ability to deliver cost savings to customers. Certain municipalities in California have already banned the use of distributed generation products that utilize fossil fuel. Additionally, our customers’ and potential customers’ energy procurement policies may prohibit or limit their willingness to procure our natural gas-fueled Energy Servers. Our business prospects may be negatively impacted if we are prevented from completing new installations or our installations become more costly as a result of laws, regulations, ordinances, or rules applicable to our Energy Servers, or by our customers’ and potential customers’ energy procurement policies.
Existing regulations and changes to such regulations impacting the electric power industry may create technical, regulatory, and economic barriers, which could significantly reduce demand for our Energy Servers or affect the financial performance of current sites.
The market for electricity generation products is heavily influenced by U.S. federal, state, local, and harm our business. Several factorsforeign government regulations and policies as well as by internal policies and regulations of electric utility providers. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. These regulations and policies are often modified and could leadcontinue to a reduction in the price or future price outlook for grid electricity, including the impact of energy conservation initiatives that reduce electricity consumption, construction of additional power generation plants (including nuclear, coal or natural gas) and technological developments by others in the electric power industrychange, which could result in electricity being available at costs lower than those that can be achieved froma significant reduction in demand for our Energy Servers. For example, utility companies commonly charge fees to larger industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could change, thereby increasing the cost to our customers of using our Energy Servers and making them less economically attractive.
Furthermore,In addition, our project with Delmarva Power & Light Company (the "Delaware Project") is subject to laws and regulations relating to electricity generation, transmission, and sale in Delaware and at the regional and federal level.
A law governing the sale of electricity from the Delaware Project was necessary to implement part of several incentives that Delaware offered to us to build our major manufacturing facility ("Manufacturing Center") in Delaware. Those incentives have proven controversial in Delaware, in part because our Manufacturing Center, while a significant source of continuing manufacturing employment, has not expanded as quickly as projected. The opposition to the Delaware Project is an increase inexample of potentially material risks associated with electric power regulation.
At the pricefederal level, FERC has authority to regulate under various federal energy regulatory laws, wholesale sales of electric energy, capacity, and ancillary services, and the delivery of natural gas in interstate commerce. Also, several of the tax equity partnerships in which we have an interest are subject to regulation under FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with FERC, which increases our costs and subjects us to additional regulatory oversight.
Although we generally are not regulated as a utility, federal, state and local government statutes and regulations, as well as organized market rules such as the PJM tariffs affecting the Delaware Project, concerning electricity heavily influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, and the rules surrounding the interconnection of customer-owned electricity generation for specific technologies. In the United States, governments and market operators frequently modify these statutes, regulations and market rules.
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Governments, often acting through state utility or curtailmentpublic service commissions, as well as market operators, change and adopt different requirements for utilities and rates for commercial customers on a regular basis. Changes, or in some cases a lack of availabilitychange, in any of the laws, regulations, ordinances, or other rules that apply to our installations and new technology could make it more costly for us or our customers to install and operate our Energy Servers less economically attractive to potential customerson particular sites and, reduce demand.
We currently face and will continue to face significant competition.
We compete for customers, financing partners and incentive dollars with other electric power providers. Many providers of electricity, such as traditional utilities and other companies offering distributed generation products, have longer operating

histories, have customer incumbency advantages, have access to and influence with local and state governments and well as having access to more capital resources than do we. Significant developments in alternative technologies, such as energy storage, wind, solar or hydro power generation, or improvements in the efficiency or cost of traditional energy sources including coal, oil, natural gas used in combustion or nuclear power, may materially and adverselyturn, could negatively affect our business and prospects in ways we cannot anticipate. We may also face new competitors who are not currently in the market. If we fail to adapt to changing market conditions and to compete successfully with grid electricity or new competitors, our growth will be limited which would adversely affect our business results.
Our future success depends in part on our ability to increase our production capacity and we may not be abledeliver cost savings to do so in a cost-effective manner.
Tocustomers for the extent we are successful in growing our business, we may need to increase our production capacity. Our ability to plan, construct and equip additional manufacturing facilities is subject to significant risks and uncertainties, including the following:
The expansion or constructionpurchase of any manufacturing facilities will be subject to the risks inherent in the development and construction of new facilities, including risks of delays and cost overruns as a result of factors outside our control such as delays in government approvals, burdensome permitting conditions and delays in the delivery of manufacturing equipment and subsystems that we manufacture or obtain from suppliers.
It may be difficult to expand our business internationally without additional manufacturing facilities located outside the United States. Adding manufacturing capacity in any international location will subject us to new laws and regulations including those pertaining to labor and employment, environmental and export import. In addition, it brings with it the risk of managing larger scale foreign operations.electricity.
We may be unablebecome subject to achieve the production throughput necessaryproduct liability claims, which could harm our financial condition and liquidity if we are not able to achieve our target annualized production run rate at our current and future manufacturing facilities.
Manufacturing equipment may take longer and cost more to engineer and build than expected, and may not operate as required to meet our production plans.successfully defend or insure against such claims.
We may depend on third-party relationships in the developmentfuture become subject to product liability claims. Our Energy Servers are considered high energy systems because they use flammable fuels and operation of additional production capacity, which may subjectoperate at 480 volts. High-voltage electricity poses potential shock hazards, and natural gas and hydrogen are flammable gases and therefore a potentially dangerous fuel. Although our Energy Servers are certified to meet ANSI, IEEE, ASME, and NFPA design and safety standards, if an Energy Server is not properly handled in accordance with our servicing and handling standards and protocols, there could be a system failure and resulting liability. These claims could require us to the risk that such third parties do not fulfill their obligationsincur significant costs to defend. Furthermore, any successful product liability claim could require us under our arrangements with them.
We may be unable to attract or retain qualified personnel.
If we are unable to expand our manufacturing facilities, we may be unable to further scale our business. If thepay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about us and could materially impede widespread market acceptance and demand for our Energy Servers, orwhich could harm our production output decreases or does not rise as expected, webrand, our business prospects, and our operating results. Our product liability insurance may not be ablesufficient to spread acover all potential product liability claims. Any lawsuit seeking significant amountmonetary damages either in excess of our fixed costs over the production volume, thereby increasing our per unit fixed cost, which would have a negative impact on our financial condition and our results of operations.
We have in some instances, entered into long-term supply agreements that could result in insufficient inventory and negatively affect our results of operations.
We have entered into long-term supply agreements with certain suppliers. Some of these supply agreements provide for fixedcoverage or inflation-adjusted pricing and substantial prepayment obligations. If our suppliers provide insufficient inventory at the level of quality required to meet customer demand or if our suppliers are unable or unwilling to provide us with the contracted quantities, as we have limited or in some case no alternatives for supply, our results of operations could be materially and negatively impacted. Further, we face significant specific counterparty risk under long-term supply agreements when dealing with suppliers without a long, stable production and financial history. Given the uniquenessoutside of our product, many of our suppliers do not have a long operating history and are private companies thatcoverage may not have substantial capital resources. In the event any such supplier experiences financial difficulties, it may be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers or whether we may secure new long-term supply agreements. Additionally, many of our parts and materials are procured from foreign suppliers which exposes us to risks including unforeseen increases in costs or interruptions in supply arising from changes in applicable international trade regulations such as taxes, tariffs or quotas. Any of the foregoing could materially harm our financial condition and our results of operations.
We face supply chain competition, including competition from businesses in other industries, which could result in insufficient inventory and negatively affect our results of operations.
Certain of our suppliers also supply parts and materials to other businesses including businesses engaged in the production of consumer electronics and other industries unrelated to fuel cells. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply of the items in the event that our suppliers fail to

produce sufficient quantities to satisfy the demands of all of their customers, which could materially harm our financial condition and our results of operations.
We, and some of our suppliers, obtain capital equipment used in our manufacturing process from sole suppliers and, if this equipment is damaged or otherwise unavailable, our ability to deliver our Energy Servers on time will suffer.
Some of the capital equipment used to manufacture our products and some of the capital equipment used by our suppliers have been developed and made specifically for us, are not readily available from multiple vendors, and would be difficult to repair or replace if they did not function properly. If any of these suppliers were to experience financial difficulties or go out of business or if there were any damage to or a breakdown of our manufacturing equipment and we could not obtain replacement equipment in a timely manner, our business would suffer. In addition, a supplier’s failure to supply this equipment in a timely manner with adequate quality and on terms acceptable to us could disrupt our production schedule or increase our costs of production and service.
If we are not able to continue to reduce our cost structure in the future, our ability to become profitable may be impaired.
We must continue to reduce the manufacturing costs for our Energy Servers to expand our market. Additionally, certain of our existing service contracts were entered into based on projections regarding service costs reductions that assume continued advances in our manufacturing and services processes which we may be unable to realize. While we have been successful in reducing our manufacturing and services costs to date, the cost of components and raw materials, for example, could increase in the future. Any such increases could slow our growth and cause our financial results and operational metrics to suffer. In addition, we may face increases in our other expenses including increases in wages or other labor costs as well as installation, marketing, sales or related costs. We may continue to make significant investments to drive growth in the future. In order to expand into electricity markets in which the price of electricity from the grid is lower while still maintaining our current margins, we will need to continue to reduce our costs. Increases in any of these costs or our failure to achieve projected cost reductions could adversely affect our results of operations and financial condition and harm our business and prospects. If we are unable to reduce our cost structure in the future, we may not be able to achieve profitability, which could have a material adverse effect on our business and our prospects.financial condition.
If we fail to manage our growth effectively,Current or future litigation or administrative proceedings could have a material adverse effect on our business, our financial condition and operatingour results of operations.
We have been and continue to be involved in legal proceedings, administrative proceedings, claims, and other litigation that arise in the ordinary course of business. Purchases of our products have also been the subject of litigation. For information regarding pending legal proceedings, please see Part II, Item 1, Legal Proceedings and Note 13 - Commitments and Contingencies in Part I, Item 1, Financial Statements. In addition, since our Energy Server is a new type of product in a nascent market, we have in the past needed and may suffer.
Our current growth andin the future growth plans may make it difficult for usneed to efficientlyseek the amendment of existing regulations, or in some cases the development of new regulations, in order to operate our business challengingin some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could expose us to effectively managesubsequent litigation.
Unfavorable outcomes or developments relating to proceedings to which we are a party or transactions involving our capital expendituresproducts such as judgments for monetary damages, injunctions, or denial or revocation of permits, could have a material adverse effect on our business, our financial condition, and control our costs while we expand our operations to increase our revenue. If we experience significant growth in orders without improvements in automation and efficiency, we may need additional manufacturing capacity and we and someresults of our suppliers may need additional and capital intensive equipment. Any growth in manufacturing must include a scaling of quality control as the increase in production increases the possible impact of manufacturing defects.operations. In addition, any growth in the volumesettlement of sales of our Energy Servers may outpace our ability to engage sufficient and experienced personnel to manage the higher number of installations and to engage contractors to complete installations on a timely basis and in accordance with our expectations and standards. Any failure to manage our growth effectivelyclaims could materially and adversely affect our business, our prospects, our operating resultsfinancial condition and our financial condition.results of operations.

Risks Related to Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully.Intellectual Property
Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.
Although we have taken many protective measures to protect our trade secrets including agreements, limited access, segregation of knowledge, password protections and other measures, policingPolicing unauthorized use of proprietary technology can be difficult and expensive.expensive, and the protective measures we have taken to protect our trade secrets may not be sufficient to prevent such use. For example, many of our engineers reside in California where it is not legally permissible to prevent them from working for a competitor if and when one should exist.competitor. Also, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation may result in our intellectual property rights being challenged, limited in scope, or declared invalid or unenforceable. We cannot be certain that the outcome of any litigation will be in our favor, and an adverse determination in any such litigation could impair our intellectual property rights, and may harm our business, our prospects, and our reputation.
We rely primarily on patent, trade secret, and trademark laws and non-disclosure, confidentiality, and other types of contractual restrictions to establish, maintain, and enforce our intellectual property and proprietary rights. However, our rights under these laws and agreements afford us only limited protection and the actions we take to establish, maintain, and enforce our intellectual property rights may not be adequate. For example, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed, or misappropriated or our intellectual property rights may not be sufficient to provide us

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with a competitive advantage, any of which could have a material adverse effect on our business, financial condition, or operating results. In addition, the laws of some countries do not protect proprietary rights as fully as do the laws of the United States. As a result, we may not be able to protect our proprietary rights adequately abroad.
In connection with our expansion into new markets, we may need to develop relationships with new partners,
including project developers and/or financiers who may require access to certain of our intellectual property in order to mitigate perceived risks regarding our ability to service their projects over the contracted project duration. If we are unable to come to agreement regarding the terms of such access or find alternative means to address this perceived risk, such failure may negatively impact our ability to expand into new markets. Alternatively, we may be required to develop new strategies for the protection of our intellectual property, which may be less protective than our current strategies and could therefore erode our competitive position.
Our patent applications may not result in issued patents, and our issued patents may not provide adequate protection, either of which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. The status of patents involves complex legal and factual questions, and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued or that our patents and any patents that may be issued to us in the future will afford protection against competitors with similar technology. In addition, patent applications filed in foreign countries are subject to laws, rules, and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued in other regions. Furthermore, even if these patent applications are accepted and the associated patents issued, some foreign countries provide significantly less effective patent enforcement than in the United States.
In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, our prospects, and our operating results.
We may need to defend ourselves against claims that we infringe, haveinfringed, misappropriated, or otherwise violateviolated the intellectual property rights of others, which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations, or individuals, including our competitors, may hold or obtain patents, trademarks, or other proprietary rights that they may in the future believe are infringed by our products or services. Although we are not currently subject to any claims related to intellectual property, theseThese companies holding patents or other intellectual property rights allegedly relating to our technologies could, in the future, make claims or bring suits alleging infringement, misappropriation, or other violations of such rights, or otherwise assert their rights and by seeking licenses or injunctions. Several of the proprietary components used in our Energy Servers have been subjected to infringement challenges in the past. We also generally indemnify our customers against claims that the products we supply don't infringe, misappropriate, or otherwise violate third party intellectual property rights, and we therefore may therefore be required to defend our customers against such claims. If a claim is successfully brought in the future and we or our products are determined to have infringed, misappropriated, or otherwise violated a third party’s intellectual property rights, we may be required to do one or more of the following:
•cease selling or using our products that incorporate the challenged intellectual property;
•pay substantial damages (including treble damages and attorneys’ fees if our infringement is determined to be willful);
•obtain a license from the holder of the intellectual property right, which may not be available on reasonable terms or at all; or
•redesign our products or means of production, which may not be possible or cost-effective.
Any of the foregoing could adversely affect our business, prospects, operating results, and financial condition. In addition, any litigation or claims, whether or not valid, could harm our reputation, result in substantial costs and divert resources and management attention.
We also license technology from third parties and incorporate components supplied by third parties into our products. We may face claims that our use of such technology or components infringes or otherwise violates the rights of others, which would subject us to the risks described above. We may seek indemnification from our licensors or suppliers under our contracts
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with them, but our rights to indemnification or our suppliers’ resources may be unavailable or insufficient to cover our costs and losses.
If
Risks Related to Our Financial Condition and Operating Results
We have incurred significant losses in the past and we may not be profitable for the foreseeable future.
Since our inception in 2001, we have incurred significant net losses and have used significant cash in our business. As of September 30, 2021, we had an accumulated deficit of $3.2 billion. We expect to continue to expand our operations, including by investing in manufacturing, sales and marketing, research and development, staffing systems, and infrastructure to support our growth, as well as internationally. We may continue to incur net losses for the foreseeable future. Our ability to achieve profitability in the future will depend on a number of factors, including:
•growing our sales volume;
•increasing sales to existing customers and attracting new customers;
•expanding into new geographical markets and industry market sectors;
•attracting and retaining financing partners who are willing to provide financing for sales on a timely basis and with attractive terms;
•continuing to improve the useful life of our fuel cell technology and reducing our warranty servicing costs;
•reducing the cost of producing our Energy Servers;
•improving the efficiency and predictability of our installation process;
•improving the effectiveness of our sales and marketing activities; and
•attracting and retaining key talent in a competitive marketplace.
Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.
Our financial condition and results of operations and other key metrics are likely to fluctuate on a quarterly basis in future periods, which could cause our results for a particular period to fall below expectations, resulting in a severe decline in the price of our Class A common stock.
Our financial condition and results of operations and other key metrics have fluctuated significantly in the past and may continue to fluctuate in the future due to a variety of factors, many of which are beyond our control. For example, the amount of product revenue we recognize in a given period is materially dependent on the volume of installations of our Energy Servers in that period and the type of financing used by the customer.
In addition to the other risks described herein, the following factors could also cause our financial condition and results of operations to fluctuate on a quarterly basis:
•the timing of installations, which may depend on many factors such as availability of inventory, product quality or performance issues, or local permitting requirements, utility requirements, environmental, health, and safety requirements, weather, the COVID-19 pandemic or such other health emergency, and customer facility construction schedules;
•size of particular installations and number of sites involved in any particular quarter;
•the mix in the type of purchase or financing options used by customers in a period, the geographical mix of customer sales, and the rates of return required by financing parties in such period;
•interruptions in our supply chain;
•whether we are unableable to structure our sales agreements in a manner that would allow for the product and installation revenue to be recognized upfront;
•delays or cancellations of Energy Server installations;
•fluctuations in our service costs, particularly due to unexpected costs of servicing and maintaining Energy Servers;
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•fluctuations in our research and development expense, including periodic increases associated with the pre-production qualification of additional tools as we expand our production capacity;
•the length of the sales and installation cycle for a particular customer;
•the timing and level of additional purchases by existing customers;
•the timing of the development of the market for hydrogen fuel cell products;
•unanticipated expenses or installation delays associated with changes in governmental regulations, permitting requirements by local authorities at particular sites, utility requirements and environmental, health and safety requirements;
•disruptions in our sales, production, service or other business activities resulting from disagreements with our labor force or our inability to attract and retain qualified personnel; and
•unanticipated changes in federal, state, local, or foreign government incentive programs available for us, our customers, and tax equity financing parties.
Fluctuations in our operating results and cash flow could, among other things, give rise to short-term liquidity issues. In addition, our revenue, key employeesoperating metrics, and hire qualified management, technical, engineeringother operating results in future quarters may fall short of our projections or the expectations of investors and financial analysts, which could have an adverse effect on the price of our Class A common stock.
If we fail to manage our growth effectively, our business and operating results may suffer.
Our current growth and future growth plans may make it difficult for us to efficiently operate our business, challenging us to effectively manage our capital expenditures and control our costs while we expand our operations to increase our revenue. If we experience a significant growth in orders without improvements in automation and efficiency, we may need additional manufacturing capacity and we and some of our suppliers may need additional and capital intensive equipment. Any growth in manufacturing must include a scaling of quality control as the increase in production increases the possible impact of manufacturing defects. In addition, any growth in the volume of sales personnel,of our Energy Servers may outpace our ability to competeengage sufficient and successfully growexperienced personnel to manage the higher number of installations and to engage contractors to complete installations on a timely basis and in accordance with our business could be harmed.
We believe that our successexpectations and our ability to reach our strategic objectives are highly dependent on the contributions of our key management, technical, engineering and sales personnel. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our products and services and negatively impact our business, prospects and operating results. In particular, we are highly dependent on the services of Dr. Sridhar, our President and Chief Executive Officer, and other key employees. None of our key employees is bound by an employment agreement for any specific term. We cannot assure you that we will be able to successfully attract and retain senior leadership necessary to grow our business. Furthermore, there is increasing competition for talented individuals in our field, and competition for qualified

personnel is especially intense in the San Francisco Bay Area where our principal offices are located. Ourstandards. Any failure to attractmanage our growth effectively could materially and retain our executive officers and other key technology, sales, marketing and support personnel could adversely impactaffect our business, our prospects, our financial condition and our operating results. In addition, we do not have “key person” life insurance policies covering any of our officers or other key employees.
We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in building our manufacturing facilities.
We are subject to national, state and local environmental laws and regulations as well as environmental laws in those foreign jurisdictions in which we operate. Environmental laws and regulations can be complex and may often change. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties or third-party damages. In addition, ensuring we are in compliance with applicable environmental laws could require significant time and management resources and could cause delays in our ability to build out, equip and operate our facilities as well as service our fleet, which would adversely impact our business, our prospects, our financial condition and our operating results. In addition, environmental laws and regulations such as the Comprehensive Environmental Response, Compensation and Liability Act in the United States impose liability on several grounds including for the investigation and cleanup of contaminated soil and ground water, for building contamination, for impacts to human health and for damages to natural resources. If contamination is discovered in the future at properties formerly owned or operated by us or currently owned or operated by us, or properties to which hazardous substances were sent by us, it could result in our liability under environmental laws and regulations. Many of our customers who purchase our Energy Servers have high sustainability standards, and any environmental noncompliance by us could harm our reputation and impact a current or potential customer’s buying decision. The costs of complying with environmental laws, regulations and customer requirements, and any claims concerning noncompliance or liability with respect to contamination in the future, could have a material adverse effect on our financial condition or our operating results.
The installation and operation of our Energy Servers are subject to environmental laws and regulations in various jurisdictions, and there is uncertainty with respect to the interpretation of certain environmental laws and regulations to our Energy Servers, especially as these regulations evolve over time.
Bloom is committed to compliance with applicable environmental laws and regulations including health and safety standards, and we continually review the operation of our Energy Servers for health, safety and compliance. Our Energy Servers, like other fuel cell technology-based products of which we are aware, produce small amounts of hazardous wastes and air pollutants, and we seek to ensure that they are handled in accordance with applicable regulatory standards.
Maintaining compliance with laws and regulations can be challenging given the changing patchwork of environmental laws and regulations that prevail at the federal, state, regional and local level. Most existing environmental laws and regulations preceded the introduction of our innovative fuel cell technology and were adopted to apply to technologies existing at the time, namely large, coal, oil or gas-fired power plants. Currently, there is generally little guidance from these agencies on how certain environmental laws and regulations may or may not be applied to our technology.
For example, natural gas, which is the primary fuel used in our Energy Servers, contains benzene which is classified as a hazardous waste if it exceeds 0.5 milligrams (mg) per liter. A small amount of benzene found in the public natural gas pipeline (equivalent to what is present in one gallon of gasoline in an automobile fuel tank which is exempt from federal regulation) is collected by the gas cleaning units contained in our Energy Servers which is typically replaced once every 18 to 24 months by us from customers’ sites. From 2010 to late 2016 and in the regular course of maintenance of the Energy Servers, we periodically replaced the units in our servers under a federal environmental exemption that permitted the handling of such units without manifesting the contents as containing a hazardous waste. Although at the time we believed that we operated under the exemption with the approval of two states that had adopted the federal exemption, the federal Environmental Protection Agency issued guidance for the first time in late 2016 that differed from our belief and conflicted with the state approvals we had obtained even though we had operated under the exemption since 2010. We have complied with the new guidance and, given the comparatively small quantities of benzene produced, we do not anticipate significant additional costs or risks from our compliance with the revised guidance. However, the EPA is seeking to collect approximately $1.0 million in fines from us for the prior period, which we are contesting. Additionally, we paid a nominal fine to an agency in a different state under the state’s environmental laws relating to the operation of our Energy Server in that state under the exemption prior to the issuance of the revised EPA guidance.
Another example relates to the very small amounts of chromium in hexavalent form, or CR+6, which our Energy Servers emit. This occurs any time a steel super alloy is exposed to high temperatures. CR+6 is found in small samples in the air generally. However, exposure to high or significant concentrations over prolonged periods of time can be carcinogenic. While

the small amount of chromium emitted by our Energy Servers is initially in the hexavalent form, it converts to a non-toxic trivalent form, or CR+3 rapidly after it leaves the Energy Server. In tests we have conducted, air measurements taken 10 meters from an Energy Server show that the CR+6 is largely converted.
Our Energy Servers do not present any significant health hazard based on our modeling, testing methodology and measurements. There are several supporting elements to this position including that the emissions from our Energy Servers are in very low concentrations, are emitted as nano-particles that convert to the non-hazardous form CR+3 rapidly, are quickly dispersed into the air and are not emitted in close proximity to locations where people would be expected to have a prolonged exposure.
Several states in which we currently operate, including California, require permits for emissions of hazardous air pollutants based on the quantity of emissions, most of which require permits only for quantities of emissions that are higher than those observed from our Energy Servers. Other states in which we operate, including New York, New Jersey and North Carolina, have specific exemptions for fuel cells. Some states in which we operate have CR+6 limits which are an order of magnitude over our operating range. Within California, the Bay Area Air Quality Management District ("BAAQMD"), requires a permit for emissions that are more than .00051 lbs/year. Other California regulations require that levels of CR+6 be below .00005 µg/m³ (the level required by Proposition 65) and which requires notification of the presence of CR+6 unless it can be shown to be at levels that do not pose a significant health risk. We have determined that the standards applicable in California in this regard are more stringent than those in any other state or foreign location in which we have installed Energy Servers to date.
There are generally no relevant environmental testing methodology guidelines for a technology such as ours. The standard test method for analyzing emissions cannot be readily applied to our Energy Servers because it would require inserting a probe into an emission stack. Our servers do not have emission stacks; therefore, we have to construct an artificial stack on top of our server in order to conduct a test. If we used the testing methodology similar to what the air districts have used in other large scale industrial products, it would show that we would need to reduce the emissions of CR+6 from our Energy Servers to meet the most stringent requirements. However, we employed a modified test method that is designed to capture the actual operating conditions of our Energy Servers and its distinctly different design from legacy power plants and industrial equipment. Based on our modeling, measured results, and analysis, we believe we are in compliance with State of California air regulations.
We will work with the California Air Districts and seek to obtain their agreement that we are in compliance. Should the regulators disagree, we have engineered a technology solution that provides an alternate route to compliance. We are already deploying this technology solution in new Energy Servers in California and we are ready to deploy it in existing Energy Servers. It will cost less than 0.1% of our product cost. However, it is possible that the California Air Districts will require us to abate or shut down the operations of certain of our existing Energy Servers on a temporary basis or will seek the imposition of monetary fines.
While we seek to comply with air quality and emission standards in every region in which we operate, it is possible that certain customers in other regions may request that we provide the new technology solution for their Energy Servers to comply with the stricter standards imposed by California even though they are not applicable and even though we are under no contractual obligation to do so. We will comply with these requests. Failure or delay in attaining regulatory approval could result in our not being able to operate in a particular local jurisdiction.
These examples illustrate that our technology is moving faster than the regulatory process in many instances. It is possible that regulators could delay or prevent us from conducting our business in some way pending agreement on, and compliance with, shifting regulatory requirements. Such actions could delay the installation of Energy Servers, could result in fines, could require modification or replacement or could trigger claims of performance warranties and defaults under customer contracts that could require us to repurchase their Energy Servers, any of which could adversely affect our business, our financial performance and our reputation. In addition, new laws or regulations or new interpretations of existing laws or regulations could require us to upgrade or retrofit existing equipment, which could result in materially increased capital and operating expenses.
Furthermore, we have not yet determined whether our Energy Servers will satisfy regulatory requirements in the other states in the U.S. and in international locations in which we do not currently sell Energy Servers but may pursue in the future.
As a fossil fuel-based technology, we may be subject to a heightened risk of regulation, to a potential for the loss of certain incentives and to changes in our customers’ energy procurement policies.
Although the current generation of Bloom Energy Servers running on natural gas produce nearly 60% less carbon emissions compared to the average of U.S. combustion power generation, the operation of our Energy Servers does produce

carbon dioxide ("CO2"), which has been shown to be a contributing factor to global climate change. As such, we may be negatively impacted by CO2-related changes in applicable laws, regulations, ordinances or other rules, or the requirements of the incentive programs on which we currently rely. Changes, or in some cases a lack of change, in any of the laws, regulations, ordinances or other rules that apply to our installations and new technology could make it illegal or more costly for us or our customers to install and operate our Energy Servers on particular sites thereby negatively affecting our ability to deliver cost savings to customers, or we could be prohibited from completing new installations or continuing to operate existing projects. Certain municipalities have already banned the use of distributed generation products that utilize fossil fuel. Additionally, our customers’ and potential customers’ energy procurement policies may prohibit or limit their willingness to procure our Energy Servers. Our business prospects may be negatively impacted if we are prevented from completing new installations or our installations become more costly as a result of laws, regulations, ordinances or other rules applicable to our Energy Servers, or by our customers’ and potential customers’ energy procurement policies.
Existing regulations and changes to such regulations impacting the electric power industry may create technical, regulatory and economic barriers which could significantly reduce demand for our Energy Servers.
The market for electricity generation products is heavily influenced by U.S. federal, state, local and foreign government regulations and policies as well as by internal policies and regulations of electric utility providers. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. These regulations and policies are often modified and could continue to change, which could result in a significant reduction in demand for our Energy Servers. For example, utility companies commonly charge fees to larger industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could change, thereby increasing the cost to our customers of using our Energy Servers and making them less economically attractive. In addition, our project with Delmarva Power & Light Company (Delmarva) is subject to laws and regulations relating to electricity generation, transmission and sale such as Federal Energy Regulatory Commission (FERC) regulation under various federal energy regulatory laws, which requires FERC authorization to make wholesale sales of electric energy, capacity and ancillary services. Also, several of our PPA Entities are subject to regulation under FERC with respect to market-based sales of electricity, which requires us to file notices and make other periodic filings with FERC, which increases our costs and subjects us to additional regulatory oversight.
Possible new tariffs could have a material adverse effect on our business.
Our business is dependent on the availability of raw materials and components for our Energy Servers particularly electrical components common in the semiconductor industry, specialty steel products / processing and raw materials. The United States has recently imposed tariffs on steel and aluminum imports which may increase the cost of raw materials for our Energy Servers and decrease the available supply. The United States is also considering tariffs on additional items which could include items imported by us from China or other countries.
Although we currently maintain alternative sources for raw materials, our business is subject to the risk of price fluctuations and periodic delays in the delivery of certain raw materials, which tariffs may exacerbate. Disruptions in the supply of raw materials and components could temporarily impair our ability to manufacture our Energy Servers for our customers or require us to pay higher prices in order to obtain these raw materials or components from other sources, which could thereby affect our business and our results of operations. While it is too early to predict how the recently enacted tariffs on imported steel will impact our business, the imposition of tariffs on items imported by us from China or other countries could increase our costs and could have a material adverse effect on our business and our results of operations.
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may in the future become subject to product liability claims. Our Energy Servers are considered high energy systems because they use flammable fuels and may operate at 480 volts. Although our Energy Servers are certified to meet ANSI, IEEE, ASME and NFPA design and safety standards, if not properly handled in accordance with our servicing and handling standards and protocols, there could be a system failure and resulting liability. These claims could require us to incur significant costs to defend. Furthermore, any successful product liability claim could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our company and our Energy Servers, which could harm our brand, our business prospects, and our operating results. While we maintain product liability insurance, our insurance may not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage or outside of our coverage may have a material adverse effect on our business and our financial condition.
Current or Our future litigation or administrative proceedings could haveoperating results depend to a material adverse effectlarge extent on our business,ability to manage this expansion and growth successfully.
If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial condition and our results of operations.

reporting may be adversely affected.
We have been and continueare required to be involved in legal proceedings, administrative proceedings, claims and other litigation that arise incomply with Section 404 of the ordinary courseSarbanes-Oxley Act of business. Purchases2002 ("Sarbanes-Oxley Act"). The provisions of our products have also been the subject of litigation. For example, in 2011, an amendment to the Delaware Renewable Energy Portfolio Statute was enacted to permit the Delaware public service utility, Delmarva, to meet its renewable energy standards using energy generated by fuel cells manufactured and operated in Delaware. This statute required Delmarva to charge a tariff to its ratepayors to pay for certain costs of providers of such energy generated by fuel cells. In 2012, plaintiffs FuelCell Energy Inc. and John A. Nichols filed suit against Delaware Governor Jack Markell and the Delaware Public Service Commission in the U.S. District Court for Delaware claiming that the 2011 amendment to the statute discriminated against interstate fuel cell providers and subsidized us for building a manufacturing facility in Delaware to manufacture fuel cells. We were not named as a party to this lawsuit and the litigation was ultimately settled. As another example, in July 2018, we received a Statement of Claim from two former executives of Advanced Equities, Inc. seeking to compel arbitration and alleging a breach of a confidential agreement from June 2014. This Statement of Claim sought,act require, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, voidcalculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and enhance our review and put in place controls to reduce the indemnificationlikelihood for errors, we expect that for the foreseeable future many of our processes will remain manually intensive and confidentiality provisions under the confidential agreement andthus subject to recover attorneys’ fees and costs. The Statement of Claim was dismissed without prejudice on July 22, 2018. In addition, since our Energy Server is a new type of product in a nascent market, we have in the past needed and may in the future need to seek the amendment of existing regulations, or in some cases the creation of new regulations, in order to operate our business in some jurisdictions. Such regulatory processes may require public hearings concerning our business, which could expose us to subsequent litigation.
Unfavorable outcomes or developments relating to proceedings to whichhuman error if we are a party or transactions involving our products such as judgments for monetary damages, injunctions, or denial or revocation of permits, could have a material adverse effect on our business, ourunable to implement key operation controls around pricing, spending and other financial condition, and our results of operations. In addition, settlement of claims could adversely affect our financial condition and our results of operations.
A breach or failure of our networks or computer or data management systems could damage our operations and our reputation.
Our business is dependent on the security and efficacy of our networks and computer and data management systems.processes. For example, allprior to our adoption of our Energy Servers are connected to and controlled and monitored by our centralized remote monitoring service, and we rely on our internal computer networks for manySection 404B of the systemsSarbanes-Oxley Act, we use to operate our business generally. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our infrastructure, including the network that connects our Energy Servers to our remote monitoring service, may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and cyber-attacks that could have a material adverse impact on our business and our Energy Servers in the field. A breach or failure of our networks or computer or data management systems due to intentional actions such as cyber-attacks, negligence or other reasons could seriously disrupt our operations or could affect our ability to control or to assess the performance in the field of our Energy Servers and could result in disruption to our business and potentially legal liability. These events could result in significant costs or reputational consequences.
Our headquarters and other facilities are located in an active earthquake zone, and an earthquake or other types of natural disasters or resource shortages could disrupt and harm our results of operations.
We conduct a majority of our operations in the San Francisco Bay area in an active earthquake zone, and certain of our facilities are located within known flood plains. The occurrence of a natural disaster such as an earthquake, drought, flood, localized extended outages of critical utilities or transportation systems or any critical resource shortages could cause a significant interruption in our business, damage or destroy our facilities, our manufacturing equipment, or our inventory, and cause us to incur significant costs, any of which could harm our business, our financial condition, and our results of operations. The insurance we maintain against fires, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.
Expanding operations internationally could expose us to risks.
Although we currently primarily operate in the United States, we will seek to expand our business internationally. We currently have operations in Japan, China India and South Korea. Managing any international expansion will require additional resources and controls including additional manufacturing and assembly facilities. Any expansion internationally could subject our business to risks associated with international operations, including:
conformity with applicable business customs, including translation into foreign languages and associated expenses;
lack of availability of government incentives and subsidies;
challenges in arranging, and availability of, financing for our customers;
potential changes to our established business model;
cost of alternative power sources, which could be meaningfully lower outside the United States;

availability and cost of natural gas;
difficulties in staffing and managing foreign operations in an environment of diverse culture, laws and customers, and the increased travel, infrastructure and legal and compliance costs associated with international operations;
installation challenges which we have not encountered before which may require the development of a unique model for each country;
compliance with multiple, potentially conflicting and changing governmental laws, regulations and permitting processes including environmental, banking, employment, tax, privacy and data protection laws and regulations such as the EU Data Privacy Directive;
compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act;
difficulties in collecting payments in foreign currencies and associated foreign currency exposure;
restrictions on repatriation of earnings;
compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws and potentially adverse tax consequences due to changes in such tax laws; and
regional economic and political conditions.
As a result of these risks, any potential future international expansion efforts that we may undertake may not be successful.
If we discoveridentified a material weakness in our internal control over financial reporting at December 31, 2019 related to the accounting for and disclosure of complex or otherwise failnon-routine transactions, which has been remediated. If we are unable to successfully maintain effective internal control over financial reporting, our abilitywe may fail to reportprevent or detect material misstatements in our financial results on a timelystatements, in which case investors may lose confidence in the accuracy and an accurate basis may adversely affect the market pricecompleteness of our Class A common stock.
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) requires, among other things, that we evaluate the effectiveness of our internal control over financial reporting, disclosure controls and procedures. Although we did not discover any material weaknesses in internal control over financial reporting at December 31, 2017, subsequent testing by us or our independent registered public accounting firm, which has not performed an audit of our internal control over financial reporting, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. To comply with Section 404A, we may incur substantial cost, expend significant management time on compliance-related issues and hire additional accounting, financial and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404A in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the Securities and Exchange Commission (SEC) or other regulatory authorities, which would require additional financial and management resources.reports. Any failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have a material adverse effect on our business and operating results and cause a decline in the price of our Class A common stock.
Our ability to use our deferred tax assets to offset future taxable income may be subject to limitations that could subject our business to higher tax liability.
We may be limited in the portion of net operating loss carryforwards ("NOLs") that we can use in the future to offset taxable income for U.S. federal and state income tax purposes. If not utilized, our net operating loss carryforwards (NOLs)Our NOLs will expire, if unused, beginning in 2022 and 2018,2028, respectively. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, under
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Section 382 of the Internal Revenue Code of 1986, as amended (the Code)"Code"), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Changes in our stock ownership as well as other changes that may be outside of our control could result in ownership changes under Section 382 of the Code, which could cause our NOLs to be subject to certain limitations. Our NOLs may also be impaired under similar provisions of state law. Our deferred tax assets, which are currently fully reserved with a valuation allowance, may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

Risks Related to Our Liquidity
We must maintain the confidence of our customers in our liquidity, including in our ability to timely service our debt obligations and in our ability to grow our business over the long-term.
Currently, we are the only provider able to fully support and maintain our Energy Servers. If potential customers believe we do not have sufficient capital or liquidity to operate our business over the long-term or that we will be unable to maintain their Energy Servers and provide satisfactory support, customers may be less likely to purchase or lease our products, particularly in light of the significant financial commitment required. In addition, financing sources may be unwilling to provide financing on reasonable terms. Similarly, suppliers, financing partners, and other third parties may be less likely to invest time and resources in developing business relationships with us if they have concerns about the success of our business.
Accordingly, in order to grow our business, we must maintain confidence in our liquidity and long-term business prospects among customers, suppliers, financing partners, and other parties. This may be particularly complicated by factors such as:
•our limited operating history at a large scale;
•the size of our debt obligations;
•our lack of profitability;
•unfamiliarity with or uncertainty about our Energy Servers and the overall perception of the distributed generation market;
•prices for electricity or natural gas in particular markets;
•competition from alternate sources of energy;
•warranty or unanticipated service issues we may experience;
•the environmental consciousness and perceived value of environmental programs to our customers;
•the size of our expansion plans in comparison to our existing capital base and the scope and history of operations;
•the availability and amount of tax incentives, credits, subsidies or other incentive programs; and
•the other factors set forth in this “Risk Factors” section.
Several of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects, even if unfounded, would likely harm our business.
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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.
As of JuneSeptember 30, 2018,2021, we and our subsidiaries had approximately $960.1$504.2 million of total consolidated indebtedness, of which an aggregate of $607.4$291.3 million represented indebtedness that is recourse to us.us, all of which is classified as non-current. Of this amount, $254.1$291.3 million in debt, $68.9 million represented debt under our 8%10.25% Senior Secured Notes $4.1 million represented operating debt, $352.8 million represented debt of our PPA Entities, $254.1due March 2027, and $222.4 million represented debt under the $230.0 million aggregate principal amount of the Green Notes. In addition, our 6% Notes and $95.1PPA Entities’ (defined herein) outstanding indebtedness of $212.9 million represented indebtedness that is non-recourse to us. For a description and definition of PPA Entities, please see Part I, Item 2, Management’s Discussion and Analysis – Purchase and Financing Options – Portfolio Financings. As of September 30, 2021, we had $13.8 million in short-term debt underand $490.4 million in long-term debt. Given our 10% Notes.substantial level of indebtedness, it may be difficult for us to secure additional debt financing at an attractive cost, which may in turn impact our ability to expand our operations and our product development activities and to remain competitive in the market. Our substantialliquidity needs could vary significantly and may be affected by general economic conditions, industry trends, performance, and many other factors not within our control.
The agreements governing our and our PPA Entities’ outstanding indebtedness contain, and any new indebtedness could:other future debt agreements may contain, covenants imposing operating and financial restrictions on our business that limit our flexibility including, among other things:

•borrow money;
•pay dividends or make other distributions;
•incur liens;
•make asset dispositions;
•make loans or investments;
•issue or sell share capital of our subsidiaries;
•issue guaranties;
•enter into transactions with affiliates;
•merge, consolidate or sell, lease or transfer all or substantially all of our assets;
•require us to dedicate a substantial portion of cash flow from operations to the payment of principal and interest on indebtedness, thereby reducing the funds available for other purposes such as working capital and capital expenditures;
•make it more difficult for us to satisfy and comply with our obligations with respect to our indebtedness;
•subject us to increased sensitivity to interest rate increases;
•make us more vulnerable to economic downturns, adverse industry conditions, or catastrophic external events;
•limit our ability to withstand competitive pressures;
•limit our ability to invest in new business subsidiaries that are not PPA Entity-relatedEntity-related;
•reduce our flexibility in planning for or responding to changing business, industry, and economic conditions; and/or
•place us at a competitive disadvantage to competitors that have relatively less debt than have we.we have.
In addition, our substantial levelOur PPA Entities’ debt agreements require the maintenance of indebtedness could limit ourfinancial ratios or the satisfaction of financial tests such as debt service coverage ratios and consolidated leverage ratios. Our PPA Entities’ ability to obtain required additional financing on acceptable terms or at all for working capital, capital expendituresmeet these financial ratios and general corporate purposes. Any of these risks could impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, our financial condition, our liquidity and our results of operations. Our liquidity needs could vary significantly andtests may be affected by general economic conditions, industry trends, performanceevents beyond our control and, manyas a result, we cannot assure you that we will be able to meet these ratios and tests.
Upon the occurrence of certain events to us, including a change in control, a significant asset sale or merger or similar transaction, our liquidation or dissolution or the cessation of our stock exchange listing, each of which may constitute a fundamental change under the outstanding notes, holders of certain of the notes have the right to cause us to repurchase for cash any or all of such outstanding notes. We cannot provide assurance that we would have sufficient liquidity to repurchase such notes. Furthermore, our financing and debt agreements contain events of default. If an event of default were to occur, the trustee or the lenders could, among other factorsthings, terminate their commitments and declare outstanding amounts due and payable and
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our cash may become restricted. We cannot provide assurance that we would have sufficient liquidity to repay or refinance our indebtedness if such amounts were accelerated upon an event of default. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may, as a result, be accelerated and become due and payable as a consequence. We may be unable to pay these debts in such circumstances. We cannot provide assurance that the operating and financial restrictions and covenants in these agreements will not withinadversely affect our control.ability to finance our future operations or capital needs, or our ability to engage in other business activities that may be in our interest or our ability to react to adverse market developments.
We may not be able to generate sufficient cash to meet our debt service obligations.
Our ability to generate sufficient cash to make scheduled payments on our debt obligations will depend on our future financial performance and on our future cash flow performance, which will be affected by a range of economic, competitive, and business factors, many of which are outside of our control.
In addition, we conductWe finance a significant volume of our operations through,Energy Servers and receive equity allocationsdistributions from ourcertain of the PPA Entities whichthat purchase the Energy Servers and other project intangibles through a series of milestone payments. The milestone payments and equity distributions contribute to our cash flow. These PPA Entities are separate and distinct legal entities, do not guarantee our debt obligations, and will have no obligation, contingent or otherwise, to pay amounts due under our debt obligations or to make any funds available to pay those amounts, whether by dividend, distribution, loan, or other payments. Distributions by the PPA Entities to us are precluded under these arrangements if there is an event of default or if financial covenants such as maintenance of applicable debt service coverage ratios are not met even if there is not otherwise an event of default. Furthermore, under the terms of our equity financing arrangements for PPA Company II, PPA Company IIIa and PPA Company IIIb, substantially all of the cash flows generated from these PPA Entities in excess of debt service obligations are distributed to Equity Investors until the investors achieve a targeted internal rate of return or until a fixed date in the future, which is expected to be after a period of five or more years (the flip date) after which time we will receive substantially all of the remaining income (loss), tax and tax allocation attributable to the long-term customer payments and other incentives. In the case of PPA Company IV and PPA Company V, Equity Investors receive 90% of all cash flows generated in excess of its debt service obligations and other expenses for the duration of the applicable PPA Entity without any flip date or other time- or return-based adjustment. Moreover, even after the occurrence of the flip date for the PPA Entities, we do not anticipate distributions to be material enough independently to support our ongoing cash needs and therefore, we will still need to generate significant cash from our product sales. Therefore, itIt is possible that the PPA Entities may not contribute significant cash to us even if we are in compliance with the financial covenants under the project debt incurred by the PPA Entities.
Future borrowings by our PPA Entities may contain restrictions or prohibitions on the payment of dividends to us. The ability of our PPA Entities to make such payments to us may be subject to applicable laws including surplus, solvency and other limits imposed on the ability of companies to pay dividends.
If we do not generate sufficient cash to satisfy our debt obligations, including interest payments, or if we are unable to satisfy the requirement for the payment of principal at maturity or other payments that may be required from time to time under the terms of our debt instruments, we may have to undertake alternative financing plans such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments, or seeking to raise additional capital. We cannot provide assurance that any refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be available or permitted under the terms of our various debt instruments then in effect. Furthermore, the ability to refinance indebtedness would depend upon the condition of the finance and credit markets at the time which have in the past been, and may in the future be, volatile. Our inability to generate sufficient cash to satisfy our debt obligations or to refinance our obligations on commercially reasonable terms or on a timely basis would have an adverse effect on our business, our results of operations and our financial condition.

We may not be able to secure additional debt financing.
As of June 30, 2018, we and our subsidiaries had approximately $960.1 million of total consolidated indebtedness, including $30.0 million in short-term debt and $930.1 million in long-term debt. In addition, our 10% Notes contain restrictions on our ability to issue additional debt and both the 6% Notes and 10% Notes limit our ability to provide collateral for any additional debt. Given our current level of indebtedness, the restrictions on additional indebtedness contained in the 10% Notes and the fact that most of our assets serve as collateral to secure existing debt, it may be difficult for us to secure additional debt financing at an attractive cost, which may in turn impact our ability to expand our operations and our product development activities and to remain competitive in the market.
Under some circumstances, we may be required to or elect to make additional payments to our PPA Entities or the Power Purchase Agreement Program Equity Investors.
OurThree of our PPA Entities are structured in a manner such that, other than the amount of any equity investment we have made, we do not have any further primary liability for the debts or other obligations of the PPA Entities. However, we are required to guarantee the obligations of our wholly-owned subsidiary which invests alongside other investors in the PPA Entities. These obligations typically include the capital contribution obligations of such subsidiary to the PPA Entity as well as the representations and warranties made by and indemnification obligations of such subsidiary to Equity Investors in the applicable PPA Entity. As a result, we may be obligated to make payments on behalf of our wholly-owned subsidiary to Equity Investors in the PPA Entities in the event of a breach of these representations, warranties or covenants.
All of our PPA Entities that operate Energy Servers for end customers have significant restrictions on their ability to incur increased operating costs, or could face events of default under debt or other investment agreements if end customers are not able to meet their payment obligations under PPAs or if Energy Servers are not deployed in accordance with the project’s schedule. For example, under PPA Company IIIa’s credit agreement, on or before February 19, 2019 PPA Company IIIa is obligated to offer its lenders an insurance policy or performance bond, the cost of which is not expected to be material, to mitigate the risk should we will fail to perform our obligations under our operation and maintenance obligations to PPA Company IIIa. Upon receipt of such an offer, the lenders may elect to require PPA Company IIIa to obtain such insurance policy or performance bond, at PPA Company IIIa’s expense, or elect to require PPA Company IIIa to prepay all remaining amounts owed under PPA Company IIIa’s project debt. IfIn three cases, if our PPA Entities experience unexpected, increased costs such as insurance costs, interest expense or taxes or as a result of the acceleration of repayment of outstanding indebtedness, or if end customers are unable or unwilling to continue to purchase power under their PPAs, there could be insufficient cash generated from the project to meet the debt service obligations of the PPA Entity or to meet any targeted rates of return of Equity Investors. If this werea PPA Entity fails to occur,make required debt service payments, this could constitute an event of default and entitle the lender to foreclose on the collateral securing the debt or could trigger other payment obligations of the PPA Entity. To avoid this, we could choose to contribute additional capital to the applicable PPA Entity to enable such PPA Entity to make additional payments to avoid an event of default, which could adversely affect our business or our financial condition. Additionally, under PPA Company II’s credit agreement, PPA Company II is obligated
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Risks Related to offer to repay all outstanding debt in the event that we obtain an investment grade credit rating unless we provide a guarantee of the debt obligations of the PPA Company II. Upon receipt of such offer, the lenders may elect to require PPA Company II to prepay all remaining amounts owed under PPA Company II’s project debt. Under PPA Company IV’s note purchase agreement, PPA Company IV is obligated to offer to repay all outstanding debt in the event that at any time we fail to own (directly or indirectly) at least 50.1% of the equity interest of PPA Company IV not owned by the Equity Investor(s). Upon receipt of such offer, the lenders may elect to require PPA Company IV to prepay all remaining amounts owed under PPA Company IV’s project debt.
Restrictions imposed by the agreements governing of our and our PPA Entities’ outstanding indebtedness contain covenants that significantly limit our actions.
The agreements governing our outstanding indebtedness contain, and our other future debt agreements may contain, covenants imposing operating and financial restrictions on our business that limit our flexibility including, among other things, to:
borrow money;
pay dividends or make other distributions;
incur liens;
make asset dispositions;
make loans or investments;
issue or sell share capital of our subsidiaries;
issue guarantees;
enter into transactions with affiliates; and
merge, consolidate or sell, lease or transfer all or substantially all of our assets.

Our debt agreements and our PPA Entities’ debt agreements require the maintenance of financial ratios or the satisfaction of financial tests such as debt service coverage ratios and consolidated leverage ratios. Our and our PPA Entities’ ability to meet these financial ratios and tests may be affected by events beyond our control and, as a result, we cannot assure you that we will be able to meet these ratios and tests. Upon the occurrence of events such as a change in control of our company, significant asset sales or mergers or similar transactions, the liquidation or dissolution of our company or the cessation of our stock exchange listing, holders of our 6% Notes have the right to cause us to repurchase for cash any or all of such outstanding notes at a repurchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon. We cannot provide assurance that we would have sufficient liquidity to repurchase the notes. Furthermore, our financing and debt agreements, such as our 6% Notes and our 10% Notes, contain events of default. If an event of default were to occur, the trustee or the lenders could, among other things, terminate their commitments and declare outstanding amounts due and payable and our cash may become restricted. We cannot provide assurance that we would have sufficient liquidity to repay or refinance our indebtedness if such amounts were accelerated upon an event of default. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may, as a result, be accelerated and become due and payable as a consequence. We may be unable to pay these debts in such circumstances. If we were unable to repay those amounts, lenders could proceed against the collateral granted to them to secure repayment of those amounts. We cannot assure you that the collateral will be sufficient to repay in full those amounts. We cannot assure you that the operating and financial restrictions and covenants in these agreements will not adversely affect our ability to finance our future operations or capital needs, or our ability to engage in other business activities that may be in our interest or our ability react to adverse market developments.
If our PPA Entities default on their obligations under non-recourse financing agreements, we may decide to make payments to prevent such PPA Entities’ creditors from foreclosing on the relevant collateral, as such a foreclosure would result in our losing our ownership interest in the PPA Entity or in some or all of its assets, or a material part of our assets, as the case may be. To satisfy these obligations, we may be required to use amounts distributed by our other PPA Entities as well as other sources of available cash, reducing the cash available to develop our projects and to our operations. The loss of a material part of our assets or our ownership interest in one or more of our PPA Entities or some or all of their assets, or any use of our resources to support our obligations or the obligations of our PPA Entities, could have a material adverse effect on our business, our financial condition and our results of operations.Operations
We may have conflicts of interest with our PPA Entities.
In eachmost of our PPA Entity,Entities, we act as the managing member and are responsible for the day-to-day administration of the project. However, we are also a major service provider for each PPA Entity in itsour capacity as the operator of the Energy Servers under an operations and maintenanceO&M agreement. Because we are both the administrator and the manager of theour PPA Entities, as well as a major service provider, we face a potential conflict of interest in that we may be obligated to enforce contractual rights that a PPA Entity has against us in our capacity as a service provider. By way of example, thea PPA Entity may have a right to payment from us under a warranty provided under the applicable operations and maintenance agreement, and we may be financially motivated to avoid or delay this liability by failing to promptly enforce this right on behalf of the PPA Entity. While we do not believe that we had any conflicts of interest with our PPA Entities as of JuneSeptember 30, 2018,2021, conflicts of interest may arise in the future whichthat cannot be foreseen at this time. In the event that prospective future Equity Investors and debt financing partners perceive there to exist any such conflicts, it could harm our ability to procure financing for our PPA Entities in the future, which could have a material adverse effect on our business.
We are an “emerging growth company” andExpanding operations internationally could expose us to additional risks.
Although we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company,” as definedcurrently primarily operate in the JOBS Act,United States, we continue to expand our business internationally. We currently have operations in the Asia Pacific region and we intendmore recently Dubai, United Arab Emirates to take advantageoversee operations in Europe and the Middle East. Managing any international expansion will require additional resources and controls including additional manufacturing and assembly facilities. Any expansion internationally could subject our business to risks associated with international operations, including:
•conformity with applicable business customs, including translation into foreign languages and associated expenses;
•lack of certain exemptions from various reporting requirements that are applicableavailability of government incentives and subsidies;
•challenges in arranging, and availability of, financing for our customers;
•potential changes to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirementsour established business model;
•cost of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions for so long as we are an “emerging growth company,”alternative power sources, which could be until December 31, 2023,meaningfully lower outside the last dayUnited States;
•availability and cost of natural gas;
•difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customers, and the increased travel, infrastructure, and legal and compliance costs associated with international operations;
•installation challenges which we have not encountered before which may require the development of a unique model for each country;
•compliance with multiple, potentially conflicting and changing governmental laws, regulations, and permitting processes including environmental, banking, employment, tax, privacy, and data protection laws and regulations such as the EU Data Privacy Directive;
•compliance with U.S. and foreign anti-bribery laws including the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act;
•greater difficulties in securing or enforcing our intellectual property rights in certain jurisdictions;
•difficulties in collecting payments in foreign currencies and associated foreign currency exposure;
•restrictions on repatriation of earnings;
•compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and compliance with applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; and
•regional economic and political conditions.
In addition, a portion of our sales and expenses stem from countries outside of the fiscal year following the fifth anniversary ofUnited States, and are in currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency rates could have a material impact on our initial public offering. We cannot predict if investors will find our Class A common stock less attractive because we will rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.
As an “emerging growth company”, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private

companies.financial results in future periods. As a result of this election, our financial statementsthese risks, any potential future international expansion efforts that we may undertake may not be comparablesuccessful, which may harm our ability for future growth.
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If we are unable to companiesattract and retain key employees and hire qualified management, technical, engineering, finance and sales personnel, our ability to compete and successfully grow our business could be harmed.
We believe that complyour success and our ability to reach our strategic objectives are highly dependent on the contributions of our key management, technical, engineering, finance and sales personnel. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our products and services and negatively impact our business, prospects, and operating results. In particular, we are highly dependent on the services of Dr. Sridhar, our Founder, President, Chief Executive Officer and Director, and other key employees. None of our key employees is bound by an employment agreement for any specific term. We cannot assure you that we will be able to successfully attract and retain senior leadership necessary to grow our business. In addition, many of the accounting rules related to our financing transactions are complex and require experienced and highly skilled personnel to review and interpret the proper accounting treatment with public company effective dates.respect these transactions, and if we are unable to recruit and retain personnel with the required level of expertise to evaluate and accurately classify our revenue-producing transactions, our ability to accurately report our financial results may be harmed. There is increasing competition for talented individuals in our industry, and competition for qualified personnel is especially intense in the San Francisco Bay Area where our principal offices are located. Our failure to attract and retain our executive officers and other key management, technical, engineering, and sales personnel could adversely impact our business, our prospects, our financial condition, and our operating results.
A breach or failure of our networks or computer or data management systems could damage our operations and our reputation.
Our business is dependent on the security and efficacy of our networks and computer and data management systems. For example, our Energy Servers are connected to and controlled and monitored by our centralized remote monitoring service, and we rely on our internal computer networks for many of the systems we use to operate our business generally. The security of our infrastructure, including the network that connects our Energy Servers to our remote monitoring service, may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have a material adverse impact on our business and our Energy Servers in the field, and the protective measures we have taken may be insufficient to prevent such events. A breach or failure of our networks or computer or data management systems due to intentional actions such as cyber-attacks, including but not limited to ransomware attacks, phishing or denial-of-service attacks, negligence, or other reasons, whether as a result of actions by third-parties or our employees, could seriously disrupt our operations or could affect our ability to control or to assess the performance in the field of our Energy Servers and could result in disruption to our business and potentially legal liability.In addition, a failure of certain of our IT systems could affect our production line, which could impact our business and operating results. These events, in addition to impacting our financial results, could result in significant costs or reputational consequences.

Risks Related to Ownership of our Class AOur Common Stock
The stock price of our Class A common stock has been and may continue to be volatile, and you could lose all or part of your investment.volatile.
The market price of our Class A common stock has been and may continue to be volatile. In addition to factors discussed in this Quarterly Report on Form 10-Q,Risk Factors section, the market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•overall performance of the equity markets;
•actual or anticipated fluctuations in our revenue and other operating results;
•changes in the financial projections we may provide to the public or our failure to meet these projections;
•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our companyus or our failure to meet these estimates or the expectations of investors;
•the issuance of reports from short sellers that may negatively impact the trading price of our Class A common stock;
•recruitment or departure of key personnel;
•the economy as a whole and market conditions in our industry;
•new laws, regulations, or subsidies, or credits or new interpretations of them applicable to our business;
•negative publicity related to problems in our manufacturing or the real or perceived quality of our products;
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•rumors and market speculation involving us or other companies in our industry;
•announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, or capital commitments;
•lawsuits threatened or filed against us; and
•other events or factors including those resulting from war, incidents of terrorism or responses to these events;
the expiration of contractual lock-up or market standoff agreements; and
sales or anticipated sales of shares of our Class A common stock by us or our stockholders.events.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to becomeWe are currently involved in securities litigation, it couldwhich may subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
Sales of substantial amountsWe may issue additional shares of our Class A common stock in connection with any future conversion of the public markets, or the perception that they might occur, could causeGreen Notes and thereby dilute our existing stockholders and potentially adversely affect the market price of our Class A common stock.
In the event that some or all of the Green Notes are converted and we elect to deliver shares of common stock, to decline.
Thethe ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our Class A common stock issuable upon such conversion could adversely affect the prevailing market price of our Class A common stock could decline as a resultstock. If we were not able to pay cash upon conversion of salesthe Green Notes, the issuance of a large number of shares of our Class A common stock in the public market. The perception that these sales might occur may also cause the market price of our common stock to decline. We had a total of 10,570,841 shares of our Class B common stock outstanding as of June 30, 2018. In addition, 20,700,000 shares of Class A common stock sold in our in July 2018 IPO are freely tradable, except for any shares purchased by our “affiliates” as defined in Rule 144 underupon conversion of the Securities Act of 1933, as amended (the “Securities Act”).
With respect to our outstanding shares of common stock not sold inGreen Notes could depress the initial public offering, subject to certain exceptions, we, allmarket price of our directors and executive officers and all of the holders of our common stock and securities exercisable for or convertible into our common stock outstanding immediately prior to our IPO, are subject to market stand-off agreements with us or have entered into lock-up agreements with the underwriters of our IPO under which they have agreed, subject to specific exceptions, not to sell, directly or indirectly, any shares of common stock without the permission of our IPO underwriters, for a period of 180 days from July 24, 2018, the date of the Prospectus used in connection with our IPO; provided that if such restricted period ends during a trading blackout period, the restricted period will end one business day following the date that we announce our earnings results for the previous quarter. When the lock-up period expires, we and our security holders subject to a lock-up agreement or market standoff agreement will be able to sell shares in the public market. In addition, the underwriters from our IPO may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period. Sales of a substantial number of such shares upon expiration of the lock-up and market stand-off agreements, or the perception that such sales may occur or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

In addition, as of June 30, 2018, we had options and RSUs outstanding that, if fully exercised or settled, would result in the issuance of 3,107,101 shares of Class B common stock. Subsequent to June 30, 2018, we also issued restricted stock units that may be settled for 13,747,182 shares of our Class B common stock. We have filed a registration statement on Form S-8 to register shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of applicable vesting requirements and expiration of the market standoff agreements and lock-up agreements referred to above, the shares issued upon exercise of outstanding stock options or settlement of outstanding RSUs will be available for immediate resale in the United States in the open market.
Moreover, certain holders of our common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders.
The dual class structure of our common stock and the voting agreements among certain stockholders have the effect of concentrating voting control of our Company with KR Sridhar, our Chairman and Chief Executive Officer, and Chairman, and also with those stockholders who held our capital stock prior to the completion of our initial public offering, including our directors, executive officers and significant stockholders, which limits or precludes your ability to influence corporate matters including the election of directors and the approval of any change of control transaction, and may adversely affect the trading price of our Class A common stock.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of JuneSeptember 30, 20182021, and after giving effect to the voting agreements between KR Sridhar, our Chairman and Chief Executive Officer, and Chairman, and certain holders of Class B common stock, our directors, executive officers, significant stockholders of our common stock, and their respective affiliates collectively held a substantial majority of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval until the earliest to occur of (i) immediately prior to the close of business on July 27, 2023, (ii) immediately prior to the close of business on the date on which the outstanding shares of Class B common stock represent less than five percent (5%) of the aggregate number of shares of Class A common stock and Class B common stock then outstanding, (iii) the date and time or the occurrence of an event specified in a written conversion election delivered by KR Sridhar to our Secretary or Chairman of the Board to so convert all shares of Class B common stock, or (iv) immediately following the date of the death of KR Sridhar. This concentrated control limits or precludes Class A stockholders’ ability to influence corporate matters while the dual class structure remains in effect, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that Class A stockholders may feel are in their best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those remaining holders of Class B common stock who retain their shares in the long-term.
The dual class structure of our common stock may adversely affectIn addition, the trading market for our Class A common stock.
S&P Dow Jones and FTSE Russell have recently announcedimplemented changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, namely, to exclude companies with multiple classes of shares of common stock from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices and may causehas caused shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications
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by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price of our Class A common stock and trading volume could decline.
The market price for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on

us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions in our charter documents and under Delaware law could make an acquisition of our companyus more difficult, may limit attempts by our stockholders to replace or remove our current management, may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and may limit the market price of our Class A common stock.
Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and amended and restated bylaws include provisions that:
provide•require that our board of directors will beis classified into three classes of directors with staggered three year terms;
•permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
•require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;
•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
provide that •only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors will beare authorized to call a special meeting of stockholders;
•prohibit stockholder action by written consent, which thereby requires all stockholder actions be taken at a meeting of our stockholders;
provide for•establish a dual class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval even if they own significantly less than a majority of the outstanding shares of our common stock, including the election of directors and significant corporate transactions such as a merger or other sale of our companyCompany or substantially all of itsour assets;
provide that•expressly authorize the board of directors is expressly authorized to make, alter, or repeal our bylaws; and
•establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, our restated certificate of incorporation and our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Our restated certificate of incorporation and our amended and restated bylaws will also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.Act. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which thereby may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation and our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, our operating results, and our financial condition.
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Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company.Company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.


ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.
Unregistered Sales of Equity Securities
From April 1, 2018 through June 30, 2018, we granted options to purchase an aggregate of 313,909 shares of Class B common stock under our 2012 Plan, with a per share exercise price of $30.96 and we issued 145,856 shares of Class B common stock upon exercise of stock options under our 2012 Plan. These shares were issued pursuant to benefit plans and contracts related to compensation in reliance upon the exemption from registration requirements of Rule 701 of the Securities Act. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
Use of Proceeds
In July 2018, we closed our initial public offering in which we sold 20,700,000 shares of Class A common stock at a price to the public of $15.00 per share including shares sold in connection with the exercise of the underwriters’ option to purchase additional shares. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-225571), which was declared effective by the SEC on July 24, 2018. We raised aggregate net proceeds of $284.3 million from the IPO after underwriting discounts and commissions and payments of offering costs. There has been no material change in the planned use of proceeds from our IPO as described in the Prospectus. The managing underwriters of our IPO were J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors pursuant to our director compensation policy.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4 - MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5 - OTHER INFORMATION

Not applicable.
None.
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ITEM 6 - EXHIBITS


Incorporated by Reference
Exhibit NumberDescriptionFormFile No.ExhibitFiling Date
10.1Securities Purchase Agreement, dated October 23, 2021, by and between the Registrant and SK ecoplant Co., Ltd.8-K001-3859810.110/25/2021
10.2
†Amended and Restated Preferred Distributor Agreement, dated October 23, 2021, by and among the Registrant, Bloom SK Fuel Cell, LLC, and SK ecoplant Co., Ltd.Filed herewith
10.3
Amendment to the Joint Venture Agreement, dated October 23, 2021, by and between the Registrant and SK ecoplant Co., Ltd.Filed herewith
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith
32.1
**Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Filed herewith
101.INSXBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentFiled herewith
101.SCHInline XBRL Taxonomy Extension Schema DocumentFiled herewith
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Exhibit†DocumentPortions of this exhibit are redacted as permitted under Regulation S-K, Rule 601.
**
3.1¹
Restated Certificate of Incorporation
3.2¹
Restated Bylaws, As Adopted April 27, 2018 and As Effective July 27, 2018
10.1¹
Form of Indemnification Agreement
31.1¹
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2¹
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1¹ ²
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS¹XBRL Instance Document
101.SCH¹XBRL Taxonomy Extension Schema Document
101.CAL¹XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF¹XBRL Taxonomy Extension Definition Linkbase Document
101.LAB¹XBRL Taxonomy Extension Label Linkbase Document
101.PRE¹XBRL Taxonomy Extension Presentation Linkbase Document
¹Filed herewith.
²The certificationcertifications furnished in ExhibitsExhibit 32.1 hereto isare deemed to accompany this Quarterly Report on Form 10-Q and iswill not be deemed “filed”"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act.Act of 1934, as amended.



Signatures


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BLOOM ENERGY CORPORATION
BLOOM ENERGY CORPORATION
Date:November 5, 2021By:
Date:September 7, 2018By:/s/ KR Sridhar
KR Sridhar
Founder, President, Chief Executive Officer and Director
(Principal Executive Officer)
Date:November 5, 2021By:/s/ Gregory Cameron
By:/s/ Randy FurrGregory Cameron
Randy FurrExecutive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)




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