Bloom Energy 10Q 2020 Q2 Quarterly report

Draft D5.1, Company Confidential

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________

FORM 10-Q

________________________________________________________________________


(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 2020
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

________________________________________________________________________

BLOOM ENERGY CORPORATION

(Exact name of Registrant as specified in its charter)

________________________________________________________________________


Delaware			77-0565408
(Sate or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

4353 North First Street, San Jose, California			95134
(Address of principal executive offices)			(Zip Code)

(408) 543-1500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act

Title of Each Class⁽¹⁾

Trading Symbol

Name of each exchange on which registered

Class A Common Stock $0.0001 par value

New York Stock Exchange

⁽¹⁾ Our Class B Common Stock is not registered but is convertible into shares of Class A Common Stock at the election of the holder.

________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ

The number of shares of the registrant’s common stock outstanding as of July 30, 2020 was as follows:

Class A Common Stock $0.0001 par value 103,162,077 shares

Class B Common Stock $0.0001 par value 29,391,554 shares

Draft D5.1, Company Confidential

Bloom Energy Corporation

Quarterly Report on Form 10-Q for the Three and Six Months Ended June 30, 2020

Table of Contents


			Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			5
Condensed Consolidated Statements of Comprehensive Loss			6
Condensed Consolidated Statements of Redeemable Noncontrolling Interest, Total Stockholders' Deficit and Noncontrolling Interest			7
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements			11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations			49
Item 3 - Quantitative and Qualitative Disclosures About Market Risk			76
Item 4 - Controls and Procedures			77

PART II - OTHER INFORMATION
Item 1 - Legal Proceedings			78
Item 1A - Risk Factors			78
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			105
Item 3 - Defaults Upon Senior Securities			105
Item 4 - Mine Safety Disclosures			105
Item 5 - Other Information			105
Item 6 - Exhibits			106

Signatures			108

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

Explanatory Note

As previously disclosed, we restated the relevant unaudited interim condensed consolidated financial statements as of and for the quarterly periods ended September 30, 2019, June 30, 2019, and March 31, 2019. The quarterly restatements are or will be effective with the filing of our 2020 Quarterly Reports on Form 10-Q. See Note 2, Restatement of Previously Issued Condensed Consolidated Financial Statements, in Item 1, Financial Statements, for additional information related to the restatement of our condensed consolidated financial statements as of and for the three and six months ended June 30, 2019.


Table of Contents
Index to Financial Statements

Part I

ITEM 1 - FINANCIAL STATEMENTS

Bloom Energy Corporation

Condensed Consolidated Balance Sheets

(in thousands, unaudited)



	June 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents¹	$	144,072	$	202,823
Restricted cash¹	40,393		30,804

Accounts receivable¹	49,614		37,828
Inventories	112,479		109,606
Deferred cost of revenue	68,233		58,470
Customer financing receivable¹	5,254		5,108
Prepaid expenses and other current assets¹	20,747		28,068
Total current assets	440,792		472,707
Property, plant and equipment, net¹	601,566		607,059
Customer financing receivable, non-current¹	48,111		50,747
Restricted cash, non-current¹	139,664		143,761
Deferred cost of revenue, non-current	6,421		6,665
Other long-term assets¹	40,989		41,652
Total assets	$	1,277,543	$	1,322,591
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interest
Current liabilities:
Accounts payable¹	$	64,896	$	55,579
Accrued warranty	10,175		10,333
Accrued expenses and other current liabilities¹	88,052		70,284
Deferred revenue and customer deposits¹	102,944		89,192

Financing obligations	11,603		10,993
Current portion of recourse debt	14,697		304,627
Current portion of non-recourse debt¹	11,367		8,273
Current portion of recourse debt from related parties	—		20,801
Current portion of non-recourse debt from related parties¹	—		3,882
Total current liabilities	303,734		573,964

Derivative liabilities¹	22,281		17,551
Deferred revenue and customer deposits, net of current portion¹	114,684		125,529

Financing obligations, non-current	440,444		446,165
Long-term portion of recourse debt	347,664		75,962
Long-term portion of non-recourse debt¹	218,316		192,180
Long-term portion of recourse debt from related parties	53,675		—
Long-term portion of non-recourse debt from related parties¹	—		31,087
Other long-term liabilities¹	27,276		28,013
Total liabilities	1,528,074		1,490,451

Commitments and contingencies (Note 14)
Redeemable noncontrolling interest	118		443
Stockholders’ deficit:
Preferred stock	—		—
Common stock	13		12
Additional paid-in capital	2,747,890		2,686,759
Accumulated other comprehensive income (loss)	(9)		19
Accumulated deficit	(3,064,845)		(2,946,384)
Total stockholders’ deficit	(316,951)		(259,594)
Noncontrolling interest	66,302		91,291
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest	$	1,277,543	$	1,322,591

¹We have variable interest entities which represent a portion of the consolidated balances recorded within these financial statement line items in the condensed consolidated balance sheets (see Note 13, Power Purchase Agreement Programs).

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

Bloom Energy Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
			As Restated				As Restated
Revenue:
Product	$	116,197	$	144,081	$	215,756	$	235,007
Installation	29,839		13,076		46,457		25,295
Service	26,208		23,026		51,355		46,493
Electricity	15,612		20,143		30,987		40,532
Total revenue	187,856		200,326		344,555		347,327
Cost of revenue:
Product	83,127		113,228		155,616		202,000
Installation	38,287		17,685		59,066		33,445
Service	28,652		18,763		59,622		46,684
Electricity	11,541		22,300		24,071		35,284
Total cost of revenue	161,607		171,976		298,375		317,413
Gross profit	26,249		28,350		46,180		29,914
Operating expenses:
Research and development	19,377		29,772		42,656		58,631
Sales and marketing	11,427		18,194		25,376		38,567
General and administrative	24,945		43,662		54,043		82,736
Total operating expenses	55,749		91,628		122,075		179,934
Loss from operations	(29,500)		(63,278)		(75,895)		(150,020)
Interest income	332		1,700		1,151		3,585
Interest expense	(14,374)		(22,722)		(35,128)		(44,522)
Interest expense to related parties	(794)		(1,606)		(2,160)		(3,218)
Other income (expense), net	(3,913)		(222)		(3,921)		43
Loss on extinguishment of debt	—		—		(14,098)		—
Gain (loss) on revaluation of embedded derivatives	412		(540)		696		(1,080)
Loss before income taxes	(47,837)		(86,668)		(129,355)		(195,212)
Income tax provision	141		258		265		466
Net loss	(47,978)		(86,926)		(129,620)		(195,678)
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(5,466)		(5,015)		(11,159)		(8,847)
Net loss attributable to Class A and Class B common stockholders	$	(42,512)	$	(81,911)	(118,461)		(186,831)


Net loss per share available to Class A and Class B common stockholders, basic and diluted	$	(0.34)	$	(0.72)	$	(0.95)	$	(1.66)
Weighted average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted	125,928		113,622		124,823		112,737

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

Bloom Energy Corporation

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
			As Restated				As Restated
Net loss	$	(47,978)	$	(86,926)	$	(129,620)	$	(195,678)
Other comprehensive income (loss), net of taxes:
Unrealized gain (loss) on available-for-sale securities	(23)		9		(23)		26
Change in derivative instruments designated and qualifying in cash flow hedges	(503)		(3,502)		(8,717)		(5,693)
Other comprehensive loss, net of taxes	(526)		(3,493)		(8,740)		(5,667)
Comprehensive loss	(48,504)		(90,419)		(138,360)		(201,345)
Less: comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests	(5,968)		(8,355)		(19,870)		(14,235)
Comprehensive loss attributable to Class A and Class B stockholders	$	(42,536)	$	(82,064)	$	(118,490)	$	(187,110)

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

Bloom Energy Corporation

Condensed Consolidated Statements of Redeemable Noncontrolling Interest, Total Stockholders' Deficit and Noncontrolling Interest

(in thousands, except Shares) (unaudited)


	Three Months Ended June 30, 2020
	Redeemable Noncontrolling Interest		Class A and Class B Common Stock¹					Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Deficit		Noncontrolling Interest
			Shares	Amount
Balances at March 31, 2020	$	67	125,150,690	$	12	$	2,689,208	$	14	$	(3,022,333)	$	(333,099)	$	73,867


Conversion of notes	—		4,718,128	1		41,129		—		—		41,130		—

Issuance of restricted stock awards	—		309,547	—		—		—		—		—		—

Exercise of stock options	—		59,924	—		341		—		—		341		—
Stock-based compensation expense	—		—	—		17,212		—		—		17,212		—
Unrealized loss on available for sale securities	—		—	—		—		(23)		—		(23)		—
Change in effective portion of interest rate swap agreement	—		—	—		—		—		—		—		(503)
Distributions to noncontrolling interests	(16)		—	—		—		—		—		—		(1,530)


Net income (loss)	67		—	—		—		—		(42,512)		(42,512)		(5,532)
Balances at June 30, 2020	$	118	130,238,289	$	13	$	2,747,890	$	(9)	$	(3,064,845)	$	(316,951)	$	66,302


	Three Months Ended June 30, 2019
	Redeemable Noncontrolling Interest		Class A and Class B Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Gain (Loss)		Accumulated Deficit		Total Stockholders' Deficit		Noncontrolling Interest
			Shares	Amount
Balances at March 31, 2019 (as Restated)	$	58,802	113,214,063	$	11	$	2,552,011	$	5	$	(2,746,890)	$	(194,863)	$	114,664



Issuance of restricted stock awards	—		543,636	—		—		—		—		—		—

Exercise of stock options	—		191,644	—		828		—		—		828		—
Stock-based compensation expense	—		—	—		51,195		—		—		51,195		—
Unrealized gain on available for sale securities	—		—	—		—		9		—		9		—
Change in effective portion of interest rate swap agreement	—		—	—		—		(162)		—		(162)		(3,340)
Distributions to noncontrolling interests	(3,255)		—	—		—		—		—		—		(1,595)
Mandatory redemption of noncontrolling interests	(55,684)		—	—		—		—		—		—		—

Net income (loss) (as restated)	642		—	—		—		—		(81,911)		(81,911)		(5,657)
Balances at June 30, 2019 (as Restated)	$	505	113,949,343	$	11	$	2,604,034	$	(148)	$	(2,828,801)	$	(224,904)	$	104,072


	Six Months Ended June 30, 2020
	Redeemable Noncontrolling Interest		Class A and Class B Common Stock¹					Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Deficit		Noncontrolling Interest
			Shares	Amount
Balances at December 31, 2019	$	443	121,036,289	$	12	$	2,686,759	$	19	$	(2,946,384)	$	(259,594)	$	91,291


Conversion of notes	—		4,718,128	1		41,129		—		—		41,130		—
Adjustment of embedded derivative for debt modification	—		—	—		(24,071)		—		—		(24,071)		—
Issuance of restricted stock awards	—		3,320,153	—		—		—		—		—		—
ESPP purchase	—		992,846	—		4,177		—		—		4,177		—
Exercise of stock options	—		170,873	—		1,008		—		—		1,008		—
Stock-based compensation expense	—		—	—		38,888		—		—		38,888		—
Unrealized loss on available for sale securities	—		—	—		—		(23)		—		(23)		—
Change in effective portion of interest rate swap agreement	—		—	—		—		(5)		—		(5)		(8,712)
Distributions to noncontrolling interests	(17)		—	—		—		—		—		—		(5,427)


Net loss	(308)		—	—		—		—		(118,461)		(118,461)		(10,850)
Balances at June 30, 2020	$	118	130,238,289	$	13	$	2,747,890	$	(9)	$	(3,064,845)	$	(316,951)	$	66,302


	Six Months Ended June 30, 2019
	Redeemable Noncontrolling Interest		Class A and Class B Common Stock¹					Additional Paid-In Capital		Accumulated Other Comprehensive Gain (Loss)		Accumulated Deficit		Total Stockholders' Deficit		Noncontrolling Interest
			Shares	Amount
Balances at December 31, 2018 (as Restated)	$	57,261	109,421,183	$	11	$	2,481,352	$	131	$	(2,624,104)	$	(142,610)	$	125,110
Cumulative effect upon adoption of new accounting standard (Note 3)	—		—	—		—		—		(17,996)		(17,996)		—


Issuance of restricted stock awards	—		3,504,098	—		—		—		—		—		—
ESPP purchase	—		696,036	—		6,916		—		—		6,916		—
Exercise of stock options	—		328,026	—		1,405		—		—		1,405		—
Stock-based compensation expense	—		—	—		114,361		—		—		114,361		—
Unrealized gain on available-for-sale securities	—		—	—		—		26		—		26		—
Change in effective portion of interest rate swap agreement	—		—	—		—		(305)		—		(305)		(5,388)
Distributions to noncontrolling interests	(3,537)		—	—		—		—		—		—		(4,208)
Mandatory redemption of noncontrolling interests	(55,684)		—	—		—		—		—		—		—
Cumulative effect of hedge accounting	—		—	—		—		—		130		130		(130)
Net income (loss) (as restated)	2,465		—	—		—		—		(186,831)		(186,831)		(11,312)
Balances at June 30, 2019 (as Restated)	$	505	113,949,343	$	11	$	2,604,034	$	(148)	$	(2,828,801)	$	(224,904)	$	104,072

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

Bloom Energy Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2020		2019
			As Restated
Cash flows from operating activities:
Net loss	$	(129,620)	$	(195,678)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	25,852		37,034
Write-off of property, plant and equipment, net	—		2,704
Impairment of equity method investment	4,236		—
Write-off of PPA II and PPA IIIb decommissioned assets	—		25,613
Debt make-whole expense	—		5,934

Revaluation of derivative contracts	(72)		1,636
Stock-based compensation	41,650		119,186
Loss on long-term REC purchase contract	2		60



Loss on extinguishment of debt	14,098		—
Amortization of debt issuance and premium cost, net	(470)		11,255
Changes in operating assets and liabilities:
Accounts receivable	(11,787)		49,741
Inventories	(3,532)		22,197
Deferred cost of revenue	(9,995)		(38,793)
Customer financing receivable and other	2,490		2,713
Prepaid expenses and other current assets	7,314		10,227
Other long-term assets	(3,574)		(272)
Accounts payable	8,831		(5,461)
Accrued warranty	(159)		(6,696)
Accrued expenses and other current liabilities	13,665		5,581

Deferred revenue and customer deposits	2,907		51,913
Other long-term liabilities	(2,071)		4,722
Net cash provided by (used in) operating activities	(40,235)		103,616
Cash flows from investing activities:
Purchase of property, plant and equipment	(19,560)		(23,619)
Payments for acquisition of intangible assets	—		(970)

Proceeds from maturity of marketable securities	—		104,500
Net cash provided by (used in) investing activities	(19,560)		79,911
Cash flows from financing activities:
Proceeds from issuance of debt	70,000		—
Proceeds from issuance of debt to related parties	30,000		—
Repayment of debt	(82,248)		(83,997)
Repayment of debt to related parties	(2,105)		(1,220)
Debt make-whole payment	—		(5,934)
Debt issuance costs	(3,371)		—
Proceeds from financing obligations	—		20,333
Repayment of financing obligations	(5,111)		(4,006)

Payments to noncontrolling and redeemable noncontrolling interests	—		(18,690)
Distributions to noncontrolling and redeemable noncontrolling interests	(5,815)		(7,753)
Proceeds from issuance of common stock	5,186		8,321




Net cash provided by (used in) financing activities	6,536		(92,946)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(53,259)		90,581
Cash, cash equivalents, and restricted cash:
Beginning of period	377,388		280,485
End of period	$	324,129	$	371,066

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	34,487	$	35,702
Cash paid during the period for taxes	224		497
Non-cash investing and financing activities:

Liabilities recorded for property, plant and equipment	$	494	$	4,662
Liabilities recorded for noncontrolling and redeemable noncontrolling interest	—		36,994
Equity investment in PPA II assets	—		27,809









Accrued distributions to Equity Investors	2		566
Accrued interest for notes	—		888
Accrued debt issuance costs	1,220		—
Conversion of notes	41,130		—
Adjustment of embedded derivative related to debt extinguishment	24,071		—

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

Bloom Energy Corporation

Notes to Condensed Consolidated Financial Statements

1. Nature of Business, Liquidity, Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

We design, manufacture, sell and, in certain cases, install solid-oxide fuel cell systems ("Energy Servers") for on-site power generation. Our Energy Servers utilize an innovative fuel cell technology and provide efficient energy generation with reduced operating costs and lower greenhouse gas emissions as compared to conventional fossil fuel generation. By generating power where it is consumed, our energy producing systems offer increased electrical reliability and improved energy security while providing a path to energy independence. We were originally incorporated in Delaware under the name of Ion America Corporation on January 18, 2001 and on September 16, 2006, we changed our name to Bloom Energy Corporation.

Liquidity

We have generally incurred operating losses and negative cash flows from operations since our inception. On March 31, 2020, we extended the maturity of our current debt to reduce our required debt payments in the next 12 months. After the following debt extensions were completed, the current portion of our total recourse and non-recourse debt was $26.1 million as of June 30, 2020. Notable elements of our debt extension are as follows:

•On March 31, 2020, we entered into an Amendment Support Agreement with the beneficial owners of our outstanding 6% Convertible Notes due December 1, 2020 pursuant to the maturity date of the outstanding 6% Convertible Notes was extended to December 1, 2021, the interest rate increased from 6% to 10%, and the strike price on the conversion feature was reduced from $11.25 to $8.00 per share. The Amendment Support Agreement required that we repay at least $70.0 million of these 10% Convertible Notes on or before September 1, 2020, which we satisfied through a cash payment of $70.0 million on May 1, 2020. The amended terms are reflected in the Amended and Restated Indenture between Bloom and US Bank National Association dated April 20, 2020.

•In conjunction with entering into the Amendment Support Agreement on March 31, 2020, we also entered into a 10% Convertible Note Purchase Agreement with Foris Ventures, LLC, a new Noteholder, and New Enterprise Associates 10, Limited Partnership, an existing Noteholder, and we issued an additional $30.0 million aggregate principal amount of 10% Convertible Notes. The Amended and Restated Indenture was also amended to reflect a new principal amount of $290.0 million to accommodate the additional $30.0 million in new 10% Convertible Notes.

•On March 31, 2020, we entered into an Amended and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”) with Constellation NewEnergy, Inc. (“Constellation”), pursuant to which Constellation agreed to extend the maturity date to December 31, 2021, increase the interest rate from 5% to 10% and reduce the strike price on the conversion feature from $38.64 to $8.00 per share.

•On May 1, 2020, we entered into a note purchase agreement pursuant to which certain investors purchased $70.0 million of 10.25% Senior Secured Notes due 2027 in a private placement. The proceeds from this note were used to extinguish the $70.0 million of 10% Convertible Notes on May 1, 2020.

•On June 18, 2020, Constellation exercised their voluntary conversion feature and exchanged their entire Constellation Note at the conversion price of $8.00 per share into 4.7 million shares of Class A common stock. At the time of this exchange the unamortized premium of $3.4 million was recorded as an adjustment to additional paid-in capital.

The impact of COVID-19 on our ability to execute our business strategy and on our financial position and results of operations is uncertain. Our future cash flow requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds, the expansion of sales and marketing activities, market acceptance of our product, our ability to secure financing for customer use, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. However, in the opinion of management, the combination of our existing cash and cash equivalents and operating cash flows is expected to be sufficient to meet our operational and capital cash flow requirements and other cash flow needs for the next 12 months from the date of issuance of this Quarterly Report on Form 10-Q, but we may access capital markets opportunistically to continue to improve our capital structure and to address outstanding debt principal repayments that are due in December 2021 if market conditions are favorable.

For additional information, see Note 7, Outstanding Loans and Security Agreements and Note 17, Subsequent Events.

Basis of Presentation

We have prepared the unaudited condensed consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), and as permitted by those rules, the condensed consolidated financial statements do not include all disclosures required by generally accepted accounting principles as applied in the United States (“U.S. GAAP”). However, we believe that the disclosures herein are adequate to ensure the information presented is not misleading. The condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 (the latter has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019), and the condensed consolidated statements of operations, of comprehensive loss, of redeemable noncontrolling interest, total stockholders' deficit and noncontrolling interest, and of cash flows for the periods ended June 30, 2020 and 2019, and related notes, should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on March 31, 2020.

We believe that all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to fairly state the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for our fiscal year ending December 31, 2020.

Principles of Consolidation

These condensed consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirement for each of our variable interest entities ("VIE"), which we refer to as our power purchase agreement entities ("PPA Entities"). This approach focuses on determining whether we haves the power to direct those activities of the PPA Entities that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the PPA Entities. For all periods presented, we have determined that we are the primary beneficiary in all of our operational PPA Entities, other than with respect to the PPA II and PPA IIIb Entities, as discussed in Note 13, Power Purchase Agreement Programs. We evaluate our relationships with the PPA Entities on an ongoing basis to ensure that we continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. The 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 relating to economic useful lives and impairment assessments.

Other accounting estimates include variable consideration relating to product performance guaranties, assumptions to compute the fair value of lease and non-lease components and related financing obligations such as incremental borrowing rates, estimated output, efficiency and residual value of the Energy Servers, warranty, product performance guaranties and extended maintenance, derivative valuations, estimates for recapture of U.S. Treasury grants and similar grants, estimates relating to contractual indemnities provisions, estimates for income taxes and deferred tax asset valuation allowances, and stock-based compensation costs. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, our allowance for doubtful accounts, stock-based compensation, the carrying value of our long-lived assets, inventory, financial assets, and valuation allowances for tax assets, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers, suppliers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods as new information becomes available. Actual results could differ materially from these estimates under different assumptions and conditions.

Concentration of Risk

Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. Additionally, we sell our Energy Servers in Japan, China, India, and the Republic of Korea (collectively, the "Asia Pacific region"). In the three and six months ended June 30, 2020, total revenue in the Asia Pacific

region was 30% and 33%, respectively, of our total revenue. In the three and six months ended June 30, 2019, total revenue in the Asia Pacific region was 21% and 26%, respectively, of our total revenue.

Credit Risk - At June 30, 2020, one customer, Kaiser Foundation Hospitals, accounted for approximately 26% of accounts receivable. At December 31, 2019, two customers, Costco Wholesale Corporation and The Kraft Group LLC, accounted for approximately 19% and 17% of accounts receivable, respectively. At June 30, 2020 and December 31, 2019, we did not maintain any allowances for doubtful accounts as we deemed all of our receivables fully collectible. To date, we have neither provided an allowance for uncollectible accounts nor experienced any credit loss.

Customer Risk - In the quarter ended June 30, 2020, revenue from three customers, Duke Energy, SK Engineering & Construction Co., Ltd. ("SK E&C") and NextEra Energy, accounted for approximately 32%, 29%, and 12%, respectively, of our total revenue. In the six months ended June 30, 2020, revenue from two customers, SK E&C and Duke Energy, accounted for approximately 32% and 32%, respectively, of our total revenue. In the quarter ended June 30, 2019, revenue from two customers, The Southern Company and SK E&C accounted for approximately 56% and 21%, respectively, of our total revenue. In the six months ended June 30, 2019, revenue from two customers, The Southern Company and SK E&C accounted for approximately 44% and 26%, respectively, of our total revenue. Duke Energy and The Southern Company wholly own a Third-Party PPA which purchases Energy Servers from us, however, such purchases and resulting revenue are made on behalf of various customers of these two Third-Party PPAs.

Summary of Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the periods ended June 30, 2020 are consistent with those discussed in Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019, except as described below.

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 2020

Fair Value Measurement - In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 was effective for annual and interim periods beginning after December 15, 2019. Early adoption was permitted. We adopted ASU 2018-13 as of January 1, 2020 and the adoption did not have a material effect on our financial statements and related disclosures.

Stock Compensation - In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07") which aligns the accounting for share-based payment awards issued to employees and nonemployees. Measurement of equity-classified nonemployee awards will now be valued on the grant date and will no longer be remeasured through the performance completion date. ASU 2018-07 also changes the accounting for nonemployee awards with performance conditions to recognize compensation cost when achievement of the performance condition is probable, rather than upon achievement of the performance condition, as well as eliminating the requirement to reassess the equity or liability classification for nonemployee awards upon vesting, except for certain award types. ASU 2018-07 was effective for us for interim and annual reporting periods beginning after December 15, 2019. Early adoption was permitted. We adopted ASU 2018-07 using a modified retrospective approach in January 2020 and the adoption of ASU 2018-07 did not have a material effect on our financial statements and related disclosures.

Accounting Guidance Not Yet Adopted

Leases - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended (“ASC 842”), which provides new authoritative guidance on lease accounting. Among its provisions, the standard changes the definition of a lease, requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases and also requires additional qualitative and quantitative disclosures about lease arrangements. All leases in scope will be classified as either operating or financing. Operating and financing leases will require the recognition of an asset and liability to be measured at the

present value of the lease payments. ASC 842 also makes a distinction between operating and financing leases for purposes of reporting expenses on the income statement. We are the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases and expect to continue to enter into new such leases. Additionally, we expect to continue to enter into Managed Services related financing leases in the future and are the lessor of Energy Servers that are subject to power purchase arrangements with customers under our PPA and Managed Services programs that are currently accounted for as leases.

We are currently evaluating the impact of the adoption of this update on our financial statements. We will be assessing the impacts of whether new power purchase arrangements with customers meet the new definition of a lease and recognizing right of use assets and lease liabilities for arrangements currently accounted for as operating leases where we are the lessee. We anticipate that we will no longer be an emerging growth company beginning on December 31, 2020, after which we will not be able to take advantage of the reduced disclosure requirements applicable to emerging growth companies. As a result, we expect to adopt this guidance on a modified retrospective basis on December 31, 2020 and to reflect the adoption as of January 1, 2020 in our annual results for the period ended December 31, 2020.

Financial Instruments - In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326) as amended, ("Topic 326"), including in February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The pronouncement eliminates the incurred credit loss impairment methodology and replaces it with an expected credit loss concept based on historical experience, current conditions, and reasonable and supportable forecasts. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We anticipate that we will no longer be an emerging growth company beginning on December 31, 2020, after which we will not be able to take advantage of the reduced disclosure requirements applicable to emerging growth companies. As a result, we expect to adopt this guidance on a modified retrospective basis on December 31, 2020 and reflect the adoption as of January 1, 2020 in our annual results for the period ended December 31, 2020. We are currently evaluating the impact of the adoption of this update on our financial statements.

Income taxes - In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) ("ASU 2019-12"), wherein the accounting for income taxes is simplified by eliminating certain exceptions and implementing additional requirements which result in a more consistent application of ASC 740 Income Taxes. ASU 2019-12 is effective as for public business entities, for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We anticipate that we will no longer be an emerging growth company beginning on December 31, 2020, after which we will not be able to take advantage of the reduced disclosure requirements applicable to emerging growth companies. We expect to adopt this guidance on a prospective basis on January 1, 2021. We are evaluating the effect on our financial statements and related disclosures.

Cessation of LIBOR - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") which provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We are currently evaluating the impact of the adoption of this update on our financial statements.

We do not expect any other new accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.

2. Restatement of Previously Issued Condensed Consolidated Financial Statements

We have restated herein our condensed consolidated financial statements as of and for the three and six months ended June 30, 2019. We have also restated related amounts within the accompanying footnotes to the condensed consolidated financial statements.

Restatement Background

As previously disclosed in our Annual Report on Form 10-K as filed on March 31, 2020, on February 11, 2020, our management, in consultation with the Audit Committee of our Board of Directors, determined that our previously issued consolidated financial statements as of and for the year ended December 31, 2018, as well as financial statements as of and for

the three month period ended March 31, 2019, the three and six month periods ended June 30, 2019 and 2018 and the three and nine month periods ended September 30, 2019 and 2018 should no longer be relied upon due to misstatements related to our Managed Services Agreements and similar arrangements and we would restate such financial statements to make the necessary accounting corrections. The revenue for the Managed Services Agreements and similar transactions will now be recognized over the duration of the contract instead of upfront. The restatement also includes corrections for additional identified immaterial misstatements in certain of the impacted periods.

The misstatements impacting as of and for the three and six months ended June 30, 2019 are described in greater detail below.

Description of Misstatements

Under our Managed Services program, we sell our equipment to a bank financing party under a sale-leaseback transaction, which pays us for the Energy Server and takes title to the Energy Server. We then enter into a service contract with an end customer, who pays the bank a fixed, monthly fee for its use of the Energy Server and pays us for our maintenance and operation of the Energy Server.

The majority of these Managed Services Agreements and similar transactions were originally recorded as sales, subject to an operating lease, in which revenues and associated costs were recognized at the time of installation and acceptance of the Energy Server at the customer site.

In December 2019, in the course of reviewing a Managed Services transaction that closed on November 27, 2019, an issue was identified related to the accounting for our Managed Services transactions. The issue primarily related to whether the terms of our Managed Services Agreements and similar arrangements, including the events of default provisions, satisfied the requirements for sales under the revenue accounting standards. Subsequently, it was determined that the previous accounting for the Managed Services Agreements and similar transactions was misstated, as the Managed Services Agreements and similar transactions should have been accounted for as financing transactions under lease accounting standards.

The impact of the correction of the misstatement is to recognize amounts received from the bank financing party as a financing obligation, and the Energy Server is recorded within property, plant and equipment, net, on our consolidated balance sheets. We recognize revenue for the electricity generated by the systems, based on payments received by the bank from the customer, and the corresponding financing obligations to the bank is also amortized as these payments are received by the bank from the customer, with interest thereon being calculated on an effective interest rate basis. Depreciation expense is also recognized over the estimated useful life of the Energy Server.

In addition, it was determined that stock-based compensation costs relating to manufacturing employees that were previously expensed as incurred incorrectly, should have been capitalized as a component of Energy Server manufacturing costs to inventory, deferred cost of revenues, construction-in-progress and property, plant and equipment in accordance with SEC Staff Accounting Bulletin Topic 14. These costs will now be expensed on consumption of the related inventory and over the economic useful life of the property, plant and equipment, as applicable.

Also, as part of a review of historical revenue agreements as a result of the above errors, it was noted that we failed to identify embedded derivatives in certain revenue agreements for an escalator price protection (“EPP”) feature given to our customers. As a result, we have recorded a derivative liability, with an offset to product revenue, to account for the fair value of this feature at inception and will record the liability at its then fair value at each period end with any changes in fair value recognized in gain (loss) on revaluation of embedded derivatives.

In addition to the impact of the restatement described above, in preparation of the condensed consolidated financial statements for the three months ended March 31, 2020, errors in our condensed consolidated statements of comprehensive loss were discovered. For the three and six month periods ended June 30, 2019, the presentation of this statement and other errors identified in this statement have been corrected, which resulted in an additional $5.0 million and $8.8 million increase to comprehensive loss, and an increase of $5.0 million and $8.8 million in comprehensive loss attributable to noncontrolling interest and redeemable noncontrolling interests, respectively. The condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2019 will also be corrected when those periods are next reported. In the consolidated statements of comprehensive loss for the years ended December 31, 2019 and 2018, comprehensive loss as previously reported is understated by $5.8 million and overstated by $1.8 million, respectively. In addition, the reconciliation of comprehensive loss to comprehensive loss attributable to Class A and Class B stockholders was erroneously omitted. As it relates to the impact of the errors to the consolidated statements of comprehensive loss for the years ended December 31, 2019 and 2018, management evaluated the impact of the errors to the previously issued financial statements and concluded the impacts were not material. Accordingly, these items are and will be corrected when those periods are next reported.

Finally, there were certain other immaterial misstatements identified or which had been previously identified that are also being corrected in connection with the restatement of previously issued financial statements.

Description of Restatement Reconciliation Tables

In the following tables, we have presented a reconciliation of our condensed consolidated balance sheet and statements of operations and cash flows from our prior periods as previously reported to the restated amounts as of and for the three and six months ended June 30, 2019. In addition to the errors to the condensed consolidated statement of comprehensive loss discussed above, that Statement has been restated for the restatement impact to net loss. The condensed consolidated statement of redeemable noncontrolling interest, total stockholders' deficit and noncontrolling interest for the three and six months ended June 30, 2019 has also been restated for the restatement impact to net loss. See the condensed consolidated statements of operations reconciliation table below for additional information on the restatement impact to net loss.

Bloom Energy Corporation

Condensed Consolidated Balance Sheet

(in thousands)


	June 30, 2019
	As Previously Reported		Restatement Impacts		Restatement Reference	ASC 606 Adoption Impacts		As Restated And Recast

Assets
Current assets:
Cash and cash equivalents	$	308,009	$	—		$	—	$	308,009
Restricted cash	23,706		—			—		23,706

Accounts receivable	38,296		4,172		1	(2,430)		40,038
Inventories	104,934		1,955		2	—		106,889
Deferred cost of revenue	86,434		(6,127)		3	—		80,307
Customer financing receivable	5,817		—			—		5,817
Prepaid expenses and other current assets	25,088		1,252		4	143		26,483
Total current assets	592,284		1,252			(2,287)		591,249
Property, plant and equipment, net	406,610		234,649		5	—		641,259
Customer financing receivable, non-current	64,146		—			—		64,146
Restricted cash, non-current	39,351		—			—		39,351
Deferred cost of revenue, non-current	59,213		(55,367)		3	—		3,846
Other long-term assets	60,975		9,118		6	2,743		72,836
Total assets	$	1,222,579	$	189,652		$	456	$	1,412,687
Liabilities, Redeemable Noncontrolling Interest, Stockholders’ Deficit and Noncontrolling Interests
Current liabilities:
Accounts payable	$	61,427	$	—		$	—	$	61,427
Accrued warranty	12,393		(1,154)		7	(999)		10,240
Accrued expenses and other current liabilities	109,722		(4,329)		8	—		105,393

Financing obligations	—		10,027		9	—		10,027
Deferred revenue and customer deposits	129,321		(13,847)		10	3,264		118,738
Current portion of recourse debt	15,681		—			—		15,681
Current portion of non-recourse debt	7,654		—			—		7,654

Current portion of non-recourse debt from related parties	2,889		—��			—		2,889
Total current liabilities	339,087		(9,303)			2,265		332,049

Derivative liabilities	13,079		5,096		11	—		18,175
Deferred revenue and customer deposits, net of current portion	181,221		(95,840)		10	25,369		110,750

Financing obligations, non-current	—		400,078		9	—		400,078
Long-term portion of recourse debt	362,424		—			—		362,424
Long-term portion of non-recourse debt	219,182		—			—		219,182
Long-term portion of recourse debt from related parties	27,734		—			—		27,734
Long-term portion of non-recourse debt from related parties	32,643		—			—		32,643
Other long-term liabilities	58,417		(28,438)		8	—		29,979
Total liabilities	1,233,787		271,593			27,634		1,533,014

Redeemable noncontrolling interest	505		—			—		505

Stockholders’ deficit:
Preferred stock	—		—			—		—
Common stock	11		—			—		11
Additional paid-in capital	2,603,279		755		12	—		2,604,034
Accumulated other comprehensive loss	(148)		—			—		(148)
Accumulated deficit	(2,718,927)		(82,696)			(27,178)		(2,828,801)
Total stockholders’ deficit	(115,785)		(81,941)			(27,178)		(224,904)
Noncontrolling interest	104,072		—			—		104,072
Total liabilities, redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest	$	1,222,579	$	189,652		$	456	$	1,412,687

¹ Accounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.

² Inventories — The correction of these misstatements resulted from the change of accounting for inventory, including net capitalization of stock-based compensation cost of $2.0 million.

³ Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from reclassifying deferred cost of revenue to property, plant and equipment, net, for the leased Energy Servers under the Managed Services Agreements and similar sale-leaseback arrangements of $7.4 million (short-term) and $55.4 million (long-term), net capitalization of stock-based compensation costs of $3.7 million into current deferred cost of revenue, and the correction of certain other immaterial misstatements identified to relieve installation deferred cost of revenue of $2.5 million.

⁴ Prepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby prepaid property tax and insurance payments are now classified within prepaid expenses, rather than offset against deferred revenue.

⁵ Property, plant and equipment, net — The correction of these misstatements resulted from the change of accounting for Managed Services transactions and similar arrangements, whereby product and install cost of revenue are now recorded as property, plant and equipment, net in the cases where the risks of ownership have not completely transferred to the financing party of $230.9 million. This includes a net capitalization of stock-based compensation cost for these assets of $3.7 million.

⁶ Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.

⁷ Accrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty, which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements, reducing accrued warranty by $0.2 million and the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements, which are now recorded as derivative liabilities, reducing accrued warranty by $0.9 million.

⁸Accrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which historical accrued liabilities recorded at inception of the agreements, as well as subsequent reductions of those liabilities, were reversed.

⁹ Financing obligations, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received are classified as financing obligations.

¹⁰Deferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.

¹¹ Derivative liabilities — The correction of these misstatements resulted from the change of accounting for embedded derivatives related to grid pricing escalation guarantees we provided in some of our sales arrangements. These are now recorded as derivative liabilities and were previously treated as an accrued liability.

¹² Additional paid-in capital — Relates to the correction of an unadjusted misstatement in the valuation of our 6% Notes derivative, resulting in a credit to additional paid-in capital and additional expense of $0.8 million recorded within other expense, net.

Bloom Energy Corporation

Condensed Consolidated Statement of Operations

(in thousands)


	Three Months Ended June 30, 2019
	_{As Previously Reported}		_{Restatement Impacts}		_{Restatement Reference}	ASC 606 Adoption Impacts		As Restated And Recast

Revenue:
Product	$	179,899	$	(22,757)	a	$	(13,061)	$	144,081
Installation	17,285		(5,900)		a	1,691		13,076
Service	23,659		(586)		a	(47)		23,026
Electricity	12,939		7,204		a	—		20,143
Total revenue	233,782		(22,039)			(11,417)		200,326
Cost of revenue:
Product	131,952		(19,005)		c, d	281		113,228
Installation	22,116		(4,431)		c	—		17,685
Service	19,599		920		b, d	(1,756)		18,763
Electricity	18,442		3,858		c	—		22,300
Total cost of revenue	192,109		(18,658)			(1,475)		171,976
Gross profit	41,673		(3,381)			(9,942)		28,350
Operating expenses:
Research and development	29,772		—			—		29,772
Sales and marketing	18,359		17		e	(182)		18,194
General and administrative	43,662		—			—		43,662
Total operating expenses	91,793		17			(182)		91,628
Loss from operations	(50,120)		(3,398)			(9,760)		(63,278)
Interest income	1,700		—			—		1,700
Interest expense	(16,725)		(5,997)		f	—		(22,722)
Interest expense to related parties	(1,606)		—			—		(1,606)
Other expense, net	(222)		—			—		(222)
Loss on revaluation of warrant liabilities and embedded derivatives	—		(540)		g	—		(540)
Loss before income taxes	(66,973)		(9,935)			(9,760)		(86,668)
Income tax provision	258		—			—		258
Net loss	(67,231)		(9,935)			(9,760)		(86,926)
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(5,015)		—			—		(5,015)
Net loss attributable to Class A and Class B common stockholders	$	(62,216)	$	(9,935)		$	(9,760)	$	(81,911)

^aRevenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation revenue to recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue over the term of our Managed Services Agreements and similar sale-leaseback arrangements, which also impacted our service revenue allocation.

^bService cost of revenue impacted by grid pricing escalation guarantees — The correction of these misstatements resulted in a change in the accounting for our grid escalation guarantees that resulted in a decrease in service cost of revenue of $0.1 million.

c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $18.1 million and installation cost of revenue of $5.2 million, offset by an increase in electricity cost of revenue of $3.8 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $0.8 million.

^dCost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $0.9 million, and an increase in service cost of revenue of $1.0 million due to the expensing of stock-based compensation related to field replacement units.

^e Sales and marketing and general and administrative expenses — The correction of these misstatements primarily resulted from the change of accounting for sales commission expense on an as earned basis, to accounting for the expense over the term of our Managed Services Agreements and similar sale-leaseback arrangements.

^fInterest expense — The correction of these misstatements resulted from the change of accounting for sales that should have been accounted for as financing transactions, in which the upfront consideration received from the financing party is accounted for as a financing obligation and interest expense is recognized over the term of the Managed Services Agreement using the effective interest method.

^g Gain (loss) on revaluation of warrant liabilities and embedded derivatives — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements which is now recorded as a derivative liability that needs to be fair valued each period end. The fair value increased in the period, resulting in a loss of $0.5 million.

Bloom Energy Corporation

Condensed Consolidated Statement of Operations

(in thousands)


	Six Months Ended June 30, 2019
	As Previously Reported		Restatement Impacts		Restatement Reference	ASC 606 Adoption Impacts		As Restated And Recast

Revenue:
Product	$	321,633	$	(70,928)	a	$	(15,698)	$	235,007
Installation	39,543		(17,095)		a	2,847		25,295
Service	46,949		(1,160)		a	704		46,493
Electricity	26,364		14,168		a	—		40,532
Total revenue	434,489		(75,015)			(12,147)		347,327
Cost of revenue:
Product	255,952		(53,985)		c, d	33		202,000
Installation	46,282		(12,837)		c	—		33,445
Service	47,156		2,251		b, d	(2,723)		46,684
Electricity	27,671		7,613		c	—		35,284
Total cost of revenue	377,061		(56,958)			(2,690)		317,413
Gross profit	57,428		(18,057)			(9,457)		29,914
Operating expenses:
Research and development	58,631		—			—		58,631
Sales and marketing	38,822		19		e	(274)		38,567
General and administrative	82,736		—			—		82,736
Total operating expenses	180,189		19			(274)		179,934
Loss from operations	(122,761)		(18,076)			(9,183)		(150,020)
Interest income	3,585		—			—		3,585
Interest expense	(32,687)		(11,835)		f	—		(44,522)
Interest expense to related parties	(3,218)		—			—		(3,218)
Other expense, net	43		—			—		43
Loss on revaluation of warrant liabilities and embedded derivatives	—		(1,080)		g	—		(1,080)
Loss before income taxes	(155,038)		(30,991)			(9,183)		(195,212)
Income tax provision	466		—			—		466
Net loss	(155,504)		(30,991)			(9,183)		(195,678)
Less: net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(8,847)		—			—		(8,847)
Net loss attributable to Class A and Class B common stockholders	$	(146,657)	$	(30,991)		$	(9,183)	$	(186,831)

c Cost of revenue impacted by Managed Services restatements — The correction of these misstatements resulted from the change from upfront recognition of product and installation cost of revenue to recognition of the depreciation expense on the capitalized Energy Servers over their useful life of 21 years for our Managed Services Agreements and similar sale-leaseback transactions, resulting in a decrease in product cost of revenue of $55.6 million and installation cost of revenue of $14.4 million, offset by an increase in electricity cost of revenue of $7.5 million, together with the correction of certain other immaterial misstatements identified to record installation cost of revenue of $1.6 million.

^dCost of revenue impacted by stock-based compensation allocation — The correction of these misstatements resulted from the capitalization of stock-based compensation costs, with a net benefit to product cost of revenue of $1.6 million, and an increase in service cost of revenue of $2.4 million due to the expensing of stock-based compensation related to field replacement units.

Bloom Energy Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)


	Six Months Ended June 30, 2019
	As Previously Reported		Restatement Impacts		Restatement Reference	ASC 606 Adoption Impacts		As Restated And Recast

Cash flows from operating activities:
Net loss	$	(155,504)	$	(30,991)		$	(9,183)	$	(195,678)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	31,023		6,011		^A	—		37,034
Write-off of property, plant and equipment, net	2,704		—			—		2,704

Write-off of PPA II decommissioned costs	25,613		—			—		25,613
Debt make-whole payment	5,934		—			—		5,934

Revaluation of derivative contracts	555		1,081		^B	—		1,636
Stock-based compensation	115,100		4,086		^C	—		119,186
Loss on long-term REC purchase contract	60		—			—		60



Amortization of debt issuance cost	11,255		—			—		11,255
Changes in operating assets and liabilities:
Accounts receivable	46,591		(274)		^D	3,424		49,741
Inventories	27,542		(5,345)		^E	—		22,197
Deferred cost of revenue	19,198		(57,991)		^F	—		(38,793)
Customer financing receivable and other	2,713		—			—		2,713
Prepaid expenses and other current assets	8,477		1,752		^G	(2)		10,227
Other long-term assets	1,028		(1,029)		^H	(271)		(272)
Accounts payable	(5,461)		—			—		(5,461)
Accrued warranty	(6,843)		114		^I	33		(6,696)
Accrued expense and other current liabilities	7,213		(1,632)		^J	—		5,581

Deferred revenue and customer deposits	(25,411)		71,325		^K	5,999		51,913
Other long-term liabilities	3,419		1,303		^L	—		4,722
Net cash provided by operating activities	115,206		(11,590)			—		103,616
Cash flows from investing activities:
Purchase of property, plant and equipment	(18,882)		(4,737)		^M	—		(23,619)
Payments for acquisition of intangible assets	(970)		—			—		(970)

Proceeds from maturity of marketable securities	104,500		—			—		104,500
Net cash provided by investing activities	84,648		(4,737)			—		79,911
Cash flows from financing activities:


Repayment of debt	(83,997)		—			—		(83,997)
Repayment of debt to related parties	(1,220)		—			—		(1,220)
Debt make-whole payment	(5,934)		—			—		(5,934)

Proceeds from financing obligations	—		20,333		^N	—		20,333
Repayment of financing obligations	—		(4,006)		^N	—		(4,006)

Payments to noncontrolling and redeemable noncontrolling interests	(18,690)		—			—		(18,690)
Distributions to noncontrolling and redeemable noncontrolling interests	(7,753)		—			—		(7,753)
Proceeds from issuance of common stock	8,321		—			—		8,321




Net cash used in financing activities	(109,273)		16,327			—		(92,946)
Net increase in cash, cash equivalents, and restricted cash	90,581		—			—		90,581
Cash, cash equivalents, and restricted cash:
Beginning of period	280,485		—			—		280,485
End of period	$	371,066	$	—		$	—	$	371,066
						—		—
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	23,867	$	11,835	^N	$	—	$	35,702
Cash paid during the period for taxes	497		—			—		497

^A Depreciation and amortization — The correction of these misstatements resulted from the change of accounting for Energy Servers under our Managed Services Program and similar arrangements that were previously expensed as product and install cost of revenue, but are now recorded as property, plant and equipment, net and depreciated over their useful lives of 21 years.

^BRevaluation of derivative contracts — The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we provided in some of our sales arrangements. These commitments were previously treated as an accrued liability. We now consider the commitments a derivative liability, with the initial value of recorded as a reduction in product revenue and then any changes in the value adjusted through other expense, net, each period thereafter.

^CStock-based compensation — The correction of these misstatements resulted from the change of accounting for stock-based compensation, including net capitalization of stock-based compensation cost into inventory of $4.7 million. The correction of this misstatement also resulted in the capitalization of $0.6 million of stock-based compensation costs related to assets under the Managed Services Programs now recorded as construction in progress within property, plant and equipment, net.

^DAccounts receivable — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements, for which the amount recorded to accounts receivable represents amounts invoiced for capacity billings to end customers which have not yet been collected by the financing entity as of the period end.

^EInventories — The correction of these misstatements resulted from the change of accounting for inventories held for shipments planned to customers under our Managed Services Program and similar arrangements now being accounted for as construction in progress within property, plant and equipment, net.

^F Deferred cost of revenue, current and non-current — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby leased Energy Servers of $56.5 million previously classified as deferred cost of revenue is now recorded as construction in progress within property, plant and equipment, net, and the net release of stock-based compensation expenses of $1.5 million.

^GPrepaid expenses and other current assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby prepaid property tax and insurance payments are now classified within prepaid expenses.

^H Other long-term assets — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby the timing difference of capacity billings to end customers and the payments received from the financing entity is recorded within long term receivables and prepaid property tax and insurance payments are now classified within other long-term assets, rather than offset against long-term deferred revenue.

^IAccrued warranty — The correction of these misstatements resulted from the change of accounting for accrued warranty which is now recorded on an as-incurred basis for our Managed Services Agreements and similar arrangements. The correction of these misstatements resulted from the change of accounting for the grid pricing escalation guarantees we've provided in some of our sales arrangements. These commitments were previously treated as a contingent liability that was considered remote. We now maintain a $0.3 million accrual, with the initial value treated as a reduction in product revenue and then any changes in the value adjusted through other expense, net each period thereafter.

^JAccrued expense and other current liabilities and other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due are classified as a financing liability.

^KDeferred revenue and customer deposits, current and non-current — The correction of these misstatements resulted from the change of accounting for the recognition of product and installation revenue from upfront or ratable recognition to the recognition of the capacity payments received from the end customer as power is generated by the Energy Servers as electricity revenue.

^L Other long-term liabilities — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements whereby instead of recognizing the bank financing as revenue, the bank financing loan proceeds received and due beyond the next 12 months are classified as a financing obligation.

^MPurchase of property, plant and equipment — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby costs previously recognized as product and installation cost of revenue are now recorded as property, plant and equipment, net, in the cases where the risks of ownership have not completely transferred to the financing party.

^NProceeds and repayments from financing obligations — The correction of these misstatements resulted from the change of accounting for Managed Services Agreements and similar arrangements, whereby instead of recognizing the upfront proceeds received from the bank as revenue, the proceeds received and due are classified as proceeds from financing obligations and the capacity payments received from the end customer are classified as repayment of financing obligations and interest paid.

3. Revenue Recognition

Deferred Revenue and Customer Deposits

Deferred revenue and customer deposits as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):


	June 30, 2020		December 31, 2019

Deferred revenue	$	162,186	$	168,223
Deferred incentive revenue	7,067		7,397
Customer deposits	48,375		39,101
Deferred revenue and customer deposits	$	217,628	$	214,721

Deferred revenue activity during the three and six months ended June 30, 2020 and 2019 consisted of the following (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
			As Restated				As Restated
Beginning balance	$	170,034	$	140,734	$	168,223	$	140,130
Additions	159,142		189,138		297,254		307,497
Revenue recognized	(166,990)		(171,886)		(303,291)		(289,641)
Ending balance	$	162,186	$	157,986	$	162,186	$	157,986

Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the end of the period. The significant component of deferred revenue at the end of the period consists of performance obligations relating to the provision of maintenance services under current contracts and future renewal periods. These obligations provide customers with material rights over a period that we estimate will be largely commensurate with the period of their expected use of the associated Energy Server. As a result, we expect to recognize these amounts as revenue over a period of up to 21 years, predominantly on a cost-to-cost basis that reflects the cost of providing these services. Deferred revenue also includes performance obligations relating to product acceptance and installation. A significant amount of this deferred revenue is reflected as additions and revenue recognized in the same period and we expect to recognize all amounts within a year.

Revenue by source

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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
			As Restated				As Restated
Revenue from contracts with customers:
Product revenue	$	116,197	$	144,081	$	215,756	$	235,007
Installation revenue	29,839		13,076		46,457		25,295
Services revenue	26,208		23,026		51,355		46,493
Electricity revenue	—		5,110		—		10,840
Total revenue from contract with customers	172,244		185,293		313,568		317,635
Revenue from contracts accounted for as leases:
Electricity revenue	15,612		15,033		30,987		29,692
Total revenue	$	187,856	$	200,326	$	344,555	$	347,327

4. Financial Instruments

Cash, Cash Equivalents and Restricted Cash

The carrying value of cash and cash equivalents approximate fair value are as follows (in thousands):


	June 30, 2020		December 31, 2019
As Held:
Cash	$	88,092	$	100,773
Money market funds	236,037		276,615
	$	324,129	$	377,388
As Reported:
Cash and cash equivalents	$	144,072	$	202,823
Restricted cash	180,057		174,565
	$	324,129	$	377,388

Restricted cash consisted of the following (in thousands):


	June 30, 2020		December 31, 2019
Current:
Restricted cash	$	35,073	$	28,494
Restricted cash related to PPA Entities ¹	5,320		2,310
Restricted cash, current	40,393		30,804
Non-current:
Restricted cash	51		10
Restricted cash related to PPA Entities ¹	139,613		143,751
Restricted cash, non-current	139,664		143,761
	$	180,057	$	174,565

¹We have variable interest entities that represent a portion of the consolidated balances recorded within the "restricted cash," and other financial statement line items in the consolidated balance sheets (see Note 13, Power Purchase Agreement Programs). In addition, the restricted cash held in PPA II and PPA IIIb entities as of June 30, 2020, includes $4.2 million and $0.3 million of current restricted cash, and $104.5 million and $20.0 million of non-current restricted cash, respectively, and these entities are not considered variable interest entities. The restricted cash held in PPA II and PPA IIIb entities as of December 31, 2019, includes $108.7 million and $20.0 million of non-current restricted cash, respectively, and these entities are not considered variable interest entities.

Derivative Instruments

We have derivative financial instruments related to natural gas fixed price forward contracts, embedded derivatives in sales contracts, and interest rate swaps. See Note 8, Derivative Financial Instruments for a full description of our derivative financial instruments.

5. Fair Value

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below set forth, by level, our financial assets that were accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):


	Fair Value Measured at Reporting Date Using
June 30, 2020	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents:
Money market funds	$	236,037	$	—	$	—	$	236,037


	$	236,037	$	—	$	—	$	236,037
Liabilities
Accrued expenses and other current liabilities	$	1,451	$	—	$	—	$	1,451
Derivatives:
Natural gas fixed price forward contracts	—		—		5,185		5,185

Embedded EPP derivatives	—		—		5,480		5,480
Interest rate swap agreements	—		17,881		—		17,881
	$	1,451	$	17,881	$	10,665	$	29,997


	Fair Value Measured at Reporting Date Using
December 31, 2019	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents:
Money market funds	$	276,615	$	—	$	—	$	276,615

Interest rate swap agreements	—		3		—		3
	$	276,615	$	3	$	—	$	276,618
Liabilities
Accrued expenses and other current liabilities	$	996	$	—	$	—	$	996
Derivatives:
Natural gas fixed price forward contracts	—		—		6,968		6,968

Embedded EPP derivatives	—		—		6,176		6,176
Interest rate swap agreements	—		9,241		—		9,241



	$	996	$	9,241	$	13,144	$	23,381

Money Market Funds - Money market funds are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial assets.

Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified as Level 2 financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on our condensed consolidated balance sheets. As of June 30, 2020, $2.0 million of the loss on the interest rate swaps accumulated in other comprehensive income (loss) is expected to be reclassified into earnings in the next 12 months.

Natural Gas Fixed Price Forward Contracts - Natural gas fixed price forward contracts are valued using a combination of factors including the counterparty's credit rating and estimates of future natural gas prices and therefore, as no observable inputs to support market activity are available, are classified as Level 3 liabilities.

The following table provides the number and fair value of our natural gas fixed price forward contracts (in thousands):

June 30, 2020

December 31, 2019

Number of

Contracts

(MMBTU)²

Fair
Value

Number of
Contracts
(MMBTU)²

Fair
Value

Liabilities¹:

Natural gas fixed price forward contracts (not under hedging relationships)

1,407

5,185

1,991

6,968

¹ Recorded in 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.

For the three months ended June 30, 2020 and 2019, we marked-to-market the fair value of our natural gas fixed price forward contracts and recorded an unrealized loss of $0.1 million and an unrealized loss of $1.1 million, respectively. For the three months ended June 30, 2020 and 2019, we marked-to-market the fair value of our natural gas fixed price forward contracts and recorded a realized gain of $1.5 million and a realized gain of $1.1 million, respectively, on the settlement of these contracts in cost of revenue on our condensed consolidated statement of operations.

For the six months ended June 30, 2020 and 2019, we marked-to-market the fair value of our natural gas fixed price forward contracts and recorded an unrealized loss of $0.7 million and an unrealized loss of $0.7 million, respectively. For the six months ended June 30, 2020 and 2019, we marked-to-market the fair value of our natural gas fixed price forward contracts and recorded a realized gain of $2.5 million and a realized gain of $1.6 million, respectively, on the settlement of these contracts in cost of revenue on our condensed consolidated statement of operations.

Embedded EPP Derivative Liability in Sales Contracts - We estimated 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 June 30, 2020 and 2019, we marked-to-market the fair value of our embedded EPP derivatives and recorded an unrealized gain of $0.4 million and an unrealized loss of $0.5 million, respectively, in gain (loss) on revaluation of embedded derivatives on our condensed consolidated statement of operations.

For the six months ended June 30, 2020 and 2019, we marked-to-market the fair value of our embedded EPP derivatives and recorded an unrealized loss of $0.7 million and an unrealized loss of $1.1 million, respectively, in gain (loss) on revaluation of embedded derivatives on our condensed consolidated statement of operations.

There were no transfers between fair value measurement classifications during the three and six months ended June 30, 2020 and 2019. The changes in the Level 3 financial liabilities were as follows (in thousands):


	Natural Gas Fixed Price Forward Contracts		Embedded EPP Derivative Liability		Total












Liabilities at December 31, 2019	$	6,968	$	6,176	$	13,144
Settlement of natural gas fixed price forward contracts	(2,478)		—		(2,478)
Changes in fair value	695		(696)		(1)
Liabilities at June 30, 2020	$	5,185	$	5,480	$	10,665

The following table presents the unobservable inputs related to our Level 3 liabilities:

As of June 30, 2020

Commodity Contracts

Derivative Liabilities

Valuation Technique

Unobservable Input

Units

Range

Average

(in thousands)

($ per Units)

Natural Gas

5,185

Discounted Cash Flow

Forward basis price

MMBtu

$2.25 - $4.62

3.07

As of December 31, 2019

Commodity Contracts

Derivative Liabilities

Valuation Technique

Unobservable Input

Units

Range

Average

(in thousands)

($ per Units)

Natural Gas

6,968

Discounted Cash Flow

Forward basis price

MMBtu

$2.39 - $5.65

3.23

The unobservable inputs used in the fair value measurement of the natural gas commodity types consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas contracts were deemed unobservable.

To estimate the liabilities related to the EPP contracts an option pricing method was implemented through a Monte Carlo simulation. The unobservable inputs were simulated based on the available values for Avoided Cost and Cost of Electricity as calculated for June 30, 2020 and December 31, 2019, using an expected growth rate of 7% over the contracts life and volatility of 20%. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 2020. Avoided Cost is the Transmission and Distribution cost expressed in dollars per kilowatt hours avoided in the given year of the contract, calculated using the billing rates of the effective utility tariff applied during the year to the host account for which usage is offset by the generator. If the billing rates within the utility tariff change during the measurement period, the average of the amount of charge for each rate shall be weighted by the number of effective months for each amount.

The inputs listed above would have had a direct impact on the fair values of the above derivatives if they were adjusted. Generally, an increase in natural gas prices and a decrease in electric grid prices would each result in an increase in the estimated fair value of our derivative liabilities.

Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis

Customer Receivables and Debt Instruments - We estimate fair value for customer financing receivables, senior secured notes, term loans and convertible promissory notes based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):


	June 30, 2020						December 31, 2019
	Net Carrying Value		Fair Value		Net Carrying Value		Fair Value

Customer receivables
Customer financing receivables	$	53,365	$	44,157	$	55,855	$	44,002
Debt instruments
Recourse:
LIBOR + 4% term loan due November 2020	697		713		1,536		1,590
5% convertible promissory Constellation note due December 2021	—		—		36,482		32,070

10% convertible promissory notes due December 2021¹	263,405		411,448		273,410		302,047
10% notes due July 2024	83,497		83,977		89,962		97,512
10.25% senior secured notes due March 2027	68,437		63,690		—		—
Non-recourse:

7.5% term loan due September 2028	32,645		37,651		34,969		41,108

6.07% senior secured notes due March 2030	78,565		89,032		80,016		87,618
LIBOR + 2.5% term loan due December 2021	118,473		117,855		120,436		120,510

¹The fair value on the 10% convertible notes increased due to the increase in the fair value of the conversion feature.

Long-Lived Assets - Our long-lived assets include property, plant and equipment and Energy Servers capitalized in connection with our Managed Services Program, Purchase Power Agreement Programs and other similar arrangements. The carrying amounts of our 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.

During the six months ended June 30, 2020, we upgraded 0.4 megawatts of Energy Servers in PPA IIIb by decommissioning these systems and selling and installing new Energy Servers. As a result of these upgrades, the useful lives of all other remaining Energy Servers included within our long-lived assets were reassessed and we concluded that no change in the useful lives or impairment of these remaining Energy Servers was identified in the period ended June 30, 2020. See Note 13, Purchase Power Agreement Programs for further information.

6. Balance Sheet Components

Inventories

The components of inventory consisted of the following (in thousands):



	June 30, 2020		December 31, 2019

Raw materials	$	70,555	$	67,829
Work-in-progress	25,075		21,207
Finished goods	16,849		20,570
	$	112,479	$	109,606

The inventory reserves were $14.0 million and $14.6 million as of June 30, 2020 and December 31, 2019, respectively. In addition, we held Energy Server product inventory at customer locations pending installation and acceptance of $24.0 million and $14.6 million as of June 30, 2020 and December 31, 2019, respectively. As this Energy Server inventory was shipped to customer locations as a result of a signed sales contract, but where title has not transferred until acceptance occurs, these balances are recorded as deferred cost of revenues on the consolidated balance sheets.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):



	June 30, 2020		December 31, 2019

Government incentives receivable	$	832	$	893
Prepaid maintenance	3,158		3,763
Receivables from employees	6,089		6,130

Other prepaid expenses and other current assets	10,668		17,282
	$	20,747	$	28,068

Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following (in thousands):



	June 30, 2020		December 31, 2019

Energy Servers	$	648,273	$	650,600
Computers, software and hardware	20,884		20,275
Machinery and equipment	103,892		101,650
Furniture and fixtures	8,313		8,339
Leasehold improvements	35,784		35,694
Building	46,686		40,512
Construction in progress	22,633		12,611
	886,465		869,681
Less: Accumulated depreciation	(284,899)		(262,622)
	$	601,566	$	607,059

Construction in progress increased $10.0 million from 2019, primarily due to an increase of $13.5 million of Energy Servers under our Managed Services sale-leaseback program pending acceptance, partially offset by $3.5 million primarily due to completion of Delaware plant expansion.

Depreciation expense related to property, plant and equipment was $12.8 million and $22.5 million for the three months ended June 30, 2020 and 2019, respectively. Depreciation expense related to property, plant and equipment was $25.9 million and $36.4 million for the six months ended June 30, 2020 and 2019, respectively.

Property, plant and equipment under operating leases by the PPA Entities was $368.0 million and $371.4 million as of June 30, 2020 and December 31, 2019, respectively. The accumulated depreciation for these assets was $104.2 million and $95.5 million as of June 30, 2020 and December 31, 2019, respectively. Depreciation expense related to our property, plant and equipment under operating leases by the PPA Entities was $5.9 million and $6.4 million for the three months ended June 30, 2020 and 2019, respectively. Depreciation expense related to our property, plant and equipment under operating leases by the PPA Entities was $12.1 million and $12.7 million for the six months ended June 30, 2020 and 2019, respectively.

Customer Financing Receivable

The components of investment in sales-type financing leases consisted of the following (in thousands):



	June 30, 2020		December 31, 2019
Total minimum lease payments to be received	$	73,015	$	76,886
Less: Amounts representing estimated executory costs	(18,759)		(19,931)
Net present value of minimum lease payments to be received	54,256		56,955
Estimated residual value of leased assets	890		890
Less: Unearned income	(1,781)		(1,990)
Net investment in sales-type financing leases	53,365		55,855
Less: Current portion	(5,254)		(5,108)
Non-current portion of investment in sales-type financing leases	$	48,111	$	50,747

The future scheduled customer payments from sales-type financing leases were as follows as of June 30, 2020 (in thousands):


	Remainder of 2020		2021		2022		2023		2024		Thereafter

Future minimum lease payments, less interest	$	2,618	$	5,428	$	5,784	$	6,155	$	6,567	$	25,923

Other Long-Term Assets

Other long-term assets consisted of the following (in thousands):



	June 30, 2020		December 31, 2019

Prepaid and other long-term assets	$	30,862	$	29,153

Deferred commissions	6,143		5,007
Equity-method investments	2,119		5,733
Long-term deposits	1,865		1,759
	$	40,989	$	41,652

Accrued Warranty

Accrued warranty liabilities consisted of the following (in thousands):



	June 30, 2020		December 31, 2019

Product warranty	$	3,156	$	2,345
Product performance	6,275		7,535
Maintenance services contracts	744		453
	$	10,175	$	10,333

Changes in the product warranty and product performance liabilities were as follows (in thousands):












Balances at December 31, 2019	$	9,881
Accrued warranty, net	4,164
Warranty expenditures during period	(4,614)
Balances at June 30, 2020	$	9,431

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):



	June 30, 2020		December 31, 2019


Compensation and benefits	$	22,678	$	17,173
Current portion of derivative liabilities	6,265		4,834
Sales related liabilities	393		416

Accrued installation	12,185		10,348
Sales tax liabilities	3,190		3,849
Interest payable	5,664		3,875
Accrued payables	26,640		18,650
Other	11,037		11,139
	$	88,052	$	70,284

Other Long-Term Liabilities

Other long-term liabilities consisted of the following (in thousands):



	June 30, 2020		December 31, 2019

Delaware grant	$	10,469	$	10,469

Other	16,807		17,544
	$	27,276	$	28,013

In March 2012, we 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. We have received $12.0 million of the grant which is contingent upon us 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. We paid $1.5 million in 2017 for recapture provisions, and no additional amounts have been paid. As of June 30, 2020, we have recorded $10.5 million in other long-term liabilities for potential repayments. See Note 14, Commitments and Contingencies for a full description of the grant.

7. Outstanding Loans and Security Agreements

The following is a summary of our debt as of June 30, 2020 (in thousands):


	Unpaid Principal Balance		Net Carrying Value									Unused Borrowing Capacity	Interest Rate	Maturity Dates	Entity	Recourse
					Current		Long- Term		Total

LIBOR + 4% term loan due November 2020	$	714	$	697	$	—	$	697	$	—	LIBOR plus margin	November 2020	Company	Yes

10% convertible promissory notes due December 2021	249,299		—		263,405		263,405		—		10.0%	December 2021	Company	Yes
10% notes due July 2024	86,000		14,000		69,497		83,497		—		10.0%	July 2024	Company	Yes
10.25% senior secured notes due March 2027	70,000		—		68,437		68,437		—		10.25%	March 2027	Company	Yes
Total recourse debt	406,013		14,697		401,339		416,036		—

7.5% term loan due September 2028	35,675		2,567		30,078		32,645		—		7.5%	September 2028	PPA IIIa	No

6.07% senior secured notes due March 2030	79,466		3,511		75,054		78,565		—		6.1%	March 2030	PPA IV	No
LIBOR + 2.5% term loan due December 2021	119,472		5,289		113,184		118,473		—		LIBOR plus margin	December 2021	PPA V	No
Letters of Credit due December 2021	—		—		—		—		968		2.25%	December 2021	PPA V	No
Total non-recourse debt	234,613		11,367		218,316		229,683		968
Total debt	$	640,626	$	26,064	$	619,655	$	645,719	$	968

The following is a summary of our debt as of December 31, 2019 (in thousands):


	Unpaid Principal Balance		Net Carrying Value									Unused Borrowing Capacity	Interest Rate	Maturity Dates	Entity	Recourse
					Current		Long- Term		Total

LIBOR + 4% term loan due November 2020	$	1,571	$	1,536	$	—	$	1,536	$	—	LIBOR plus margin	November 2020	Company	Yes
5% convertible promissory note due December 2020	33,104		36,482		—		36,482		—		5.0%	December 2020	Company	Yes
6% convertible promissory notes due December 2020	289,299		273,410		—		273,410		—		6.0%	December 2020	Company	Yes
10% notes due July 2024	93,000		14,000		75,962		89,962		—		10.0%	July 2024	Company	Yes
Total recourse debt	416,974		325,428		75,962		401,390		—

7.5% term loan due September 2028	38,337		3,882		31,087		34,969		—		7.5%	September 2028	PPA IIIa	No

6.07% senior secured notes due March 2030	80,988		3,151		76,865		80,016		—		6.1%	March 2030	PPA IV	No
LIBOR + 2.5% term loan due December 2021	121,784		5,122		115,315		120,437		—		LIBOR plus margin	December 2021	PPA V	No
Letters of Credit due December 2021	—		—		—		—		1,220		2.25%	December 2021	PPA V	No
Total non-recourse debt	241,109		12,155		223,267		235,422		1,220
Total debt	$	658,083	$	337,583	$	299,229	$	636,812	$	1,220

Recourse debt refers to debt that Bloom Energy Corporation has an obligation to pay. Non-recourse debt refers to debt that is recourse to only specified assets or our subsidiaries. The differences between the unpaid principal balances and the net carrying values apply to debt discounts and deferred financing costs. We were in compliance with all financial covenants as of June 30, 2020 and December 31, 2019.

Recourse Debt Facilities

LIBOR + 4% Term Loan due November 2020 - The weighted average interest rate as of June 30, 2020 and December 31, 2019 was 4.5% and 6.3%, respectively. As of June 30, 2020 and December 31, 2019, the unpaid principal balance of debt outstanding was $0.7 million and $1.6 million, respectively, and we are in compliance with all covenants, respectively.

10% Constellation Convertible Promissory Note due 2021 - On March 31, 2020, we entered into an Amended and Restated Subordinated Secured Convertible Note Modification Agreement (the “Constellation Note Modification Agreement”)

which amended the terms of the 5% Constellation Note to extend the maturity date to December 31, 2021 and increased the interest rate from 5% to 10% ("10% Constellation Note"). We further amended the 10% Constellation Note by reducing the strike price on the conversion feature from $38.64 per share to $8.00 per share.

When we evaluated the Constellation Note Modification Agreement in accordance with ASC 470-60, Debt - Troubled Debt Restructurings by Debtors ("ASC 470-60") and ASC 470-50, Debt - Modifications and Extinguishments ("ASC 470-50"), we concluded that the amendment did not constitute a troubled debt restructuring and, furthermore, the amendment qualified as a substantial modification as a result of the increase in the fair value of the conversion feature due to the reduced strike price. As a result, on March 31, 2020, the 10% Constellation Note, which consisted of $33.1 million in principal and $3.8 million in accrued and unpaid interest, was extinguished and the 10% Constellation Note was recorded at their fair market value which equaled $40.7 million. The difference between the fair market value of the 10% Constellation Note and the carrying value of the 5% Constellation Note of $3.8 million was recorded as a loss on extinguishment of debt in the condensed consolidated statement of operations.

On June 18, 2020, Constellation NewEnergy, Inc. exchanged their entire 10% Constellation Note at the conversion price of $8.00 per share into 4.7 million shares of Class A common stock. At the time of this exchange the unamortized premium of $3.4 million was recorded as an adjustment to additional paid-in capital.

10% Convertible Promissory Notes due December 2021 - On March 31, 2020, we entered into an Amendment Support Agreement (the “Amendment Support Agreement”) with the noteholders of our outstanding 6% Convertible Notes pursuant to which such Noteholders agreed to extend the maturity date of the outstanding 6% Convertible Notes to December 1, 2021 and increase the interest rate from 6% to 10%, ("10% Convertible Notes"). Additionally, the debt is convertible at the option of the Noteholders into common stock at any time through the maturity date and we further amended the 10% Convertible Notes by reducing the strike price on the conversion feature from $11.25 to $8.00 per share. In conjunction with entering into the Amendment Support Agreement, on March 31, 2020, we also entered into a Convertible Note Purchase Agreement (the “10% Convertible Note Purchase Agreement”) and issued an additional $30.0 million aggregate principal amount of 10% Convertible Notes to Foris Ventures, LLC, a new Noteholder, and New Enterprise Associates 10, Limited Partnership, an existing Noteholder. The 10% Convertible Notes and the $30.0 million new 10% Convertible Notes were all reflected in the Amended and Restated Indenture between the Company and U.S. Bank National Association dated April 20, 2020. The Amendment Support Agreement required that we repay at least $70.0 million of the 10% Convertible Notes on or before September 1, 2020. In return, collateral was released to support the collateral required under the 10.25% Senior Secured Notes, and 50% of the proceeds from the consummation of certain transactions, including equity offerings or additional indebtedness, will be applied to redeem the 10% Convertible Notes at a redemption price equal to 100% of the principal amount of the 10% Convertible Notes, plus accrued and unpaid interest, the aggregate sum of all remaining scheduled interest payments, discounted by a rate equal to the treasury rate plus 50 basis points, multiplied by a certain percentage (“Applicable Percentage”) that ranges from 0% to 100% which is determined based on the time of redemption. If the redemption were to occur on or before October 21, 2020, the Applicable Percentage would be 0% and therefore no redemption penalty would be incurred. If the redemption were to happen after October 21, 2020, the Applicable Percentage would be between 25% and 100%, determined based on the time of redemption. On May 1, 2020, we repaid $70.0 million of the 10% Convertible Notes and accrued and unpaid interest and recorded an adjustment to the unamortized debt premium of $4.3 million.

We evaluated the Amendment Support Agreement in accordance with ASC 470-60 and 470-50 and concluded that the amendment did not constitute a troubled debt restructuring and, furthermore, the amendment qualified as a substantial modification as a result of the increase in the fair value of the conversion feature due to the reduced strike price. As a result, on March 31, 2020, we recorded a $10.3 million loss on extinguishment of debt in the condensed consolidated statement of operations, which was calculated as the difference between the reacquisition price of the 6% Convertible Notes and the carrying value of the 6% Convertible Notes. The total carrying value of the 6% Convertible Notes equaled $279.0 million, which consisted of $289.3 million in principal and $1.4 million in accrued and unpaid interest, reduced by $10.7 million in unamortized discount and $1.0 million in unamortized debt issuance costs. The total reacquisition price of the 6% Convertible Notes equaled $289.3 million which consisted of the $340.7 million fair value of the 10% Convertible Notes, $1.4 million in accrued and unpaid interest, and $1.2 million of fees paid to Noteholders as part of the amendment, reduced by $24.0 million, the fair value at March 31, 2020 of the embedded derivative relating to the equity classified conversion feature was reclassified from additional paid-in capital at the time of the debt extinguishment, $20.0 million cash received from the additional 10% Convertible Notes that were issued to New Enterprise Associates 10, Limited Partnership, and the $10.0 million issuance to Foris Ventures, LLC.

The new net carrying amount of the 10% Convertible Notes of $263.4 million, which consists of the $249.3 million principal of the 10% Convertible Notes, $14.1 million net of premium paid for the 10% Convertible Notes and debt issuance

costs was classified as non-current as of June 30, 2020. Furthermore, the $14.1 million deemed premium net of debt issuance cost is being amortized over the term of the 10% Convertible Notes using the effective interest method.

10% Notes due July 2024 - The outstanding unpaid principal balance of the 10% Notes of $14.0 million and $14.0 million were classified as current as of June 30, 2020 and December 31, 2019, respectively, and the net carrying amount of the 10% Notes of $69.5 million and $76.0 million were classified as non-current as of June 30, 2020 and December 31, 2019, respectively. The accrued unpaid interest balance on the 10% Notes was $3.6 million and $3.9 million as on June 30, 2020 and December 31, 2019, respectively.

10.25% Senior Secured Notes due March 2027 - On May 1, 2020, we issued $70.0 million of 10.25% Senior Secured Notes due 2027 (the “10.25% Senior Secured Notes”) in a private placement (the “Senior Secured Notes Private Placement”). The 10.25% Senior Secured Notes are governed by an indenture (the “Senior Secured Notes Indenture”) entered into among us, the guarantors party thereto and U.S. Bank National Association, in its capacity as trustee and collateral agent. The 10.25% Senior Secured Notes are secured by certain of our operations and maintenance agreements that previously were part of the security for the 6% Convertible Notes. We used the proceeds of this issuance to repay $70.0 million of our 10% Convertible Notes on May 1, 2020. The 10.25% Senior Secured Notes are supported by a $150.0 million indenture between us and US Bank National Association which contains an accordion feature for an additional $80.0 million of notes that can be issued within the next 18 months.

Interest on the 10.25% Senior Secured Notes is payable on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 2020. The 10.25% Senior Secured Notes Indenture contains customary events of default and covenants relating to, among other things, the incurrence of new debt, affiliate transactions, liens and restricted payments. On or after March 27, 2022, we may redeem all of the 10.25% Senior Secured Notes at a price equal to 108% of the principal amount of the 10.25% Senior Secured Notes plus accrued and unpaid interest, with such optional redemption prices decreasing to 104% on and after March 27, 2023, 102% on and after March 27, 2024 and 100% on and after March 27, 2026. Before March 27, 2022, we may redeem the 10.25% Senior Secured Notes upon repayment of a make-whole premium. If we experience a change of control, we must offer to purchase for cash all or any part of each holder’s 10.25% Senior Secured Notes at a purchase price equal to 101% of the principal amount of the 10.25% Senior Secured Notes, plus accrued and unpaid interest. The outstanding unpaid principal of the 10.25% Senior Secured Notes of $70.0 million was classified as non-current as of June 30, 2020.

Non-recourse Debt Facilities

7.5% Term Loan due September 2028 - In December 2012 and later amended in August 2013, PPA IIIa entered into a $46.8 million credit agreement to help fund the purchase and installation of our Energy Servers. The loan bears a fixed interest rate of 7.5% payable quarterly. The loan requires quarterly principal payments which began in March 2014. The credit agreement requires us to maintain a debt service reserve for all funded systems, the balance of which was $3.8 million and $3.8 million as of June 30, 2020 and December 31, 2019, respectively, and which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The loan is secured by all assets of PPA IIIa.

6.07% Senior Secured Notes due March 2025 - The notes bear a fixed interest rate of 6.07% per annum payable quarterly which began in December 2015 and ends in March 2030. The notes are secured by all the assets of the PPA IV. The note purchase agreement requires us to maintain a debt service reserve, the balance of which was $8.3 million as of June 30, 2020 and $8.0 million as of December 31, 2019, and which was included as part of long-term restricted cash in the condensed consolidated balance sheets. The notes are secured by all the assets of the PPA IV.

LIBOR + 2.5% Term Loan due December 2021 - The outstanding debt balance of the Term Loan of $5.3 million and $5.1 million were classified as current and $113.2 million and $115.3 million were classified as non-current as of June 30, 2020 and December 31, 2019, respectively.

In accordance with the credit agreement, PPA V was issued a floating rate debt based on LIBOR plus a margin, paid quarterly. The applicable margins used for calculating interest expense are 2.25% for years 1-3 following the Term Conversion Date and 2.5% thereafter. For the Lenders’ commitments to the loan and the commitments to a letter of credit ("LC") facility, the PPA V also pays commitment fees at 0.50% per annum over the outstanding commitments, paid quarterly. The loan is secured by all the assets of the PPA V and requires quarterly principal payments which began in March 2017. In connection with the floating-rate credit agreement, in July 2015 PPA V entered into pay-fixed, receive-float interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan.

Letters of Credit due December 2021 - In June 2015, PPA V entered into a $131.2 million term loan due December 2021. The agreement also included commitments to a LC facility with the aggregate principal amount of $6.4 million, later adjusted down to $6.2 million. The amount reserved under the letter of credit as of June 30, 2020 and December 31, 2019 was $5.2 million and $5.0 million, respectively. The unused capacity as of June 30, 2020 and December 31, 2019 was $1.0 million and $1.2 million, respectively.

Related Party Debt

Portions of the above described recourse and non-recourse debt are held by various related parties. See Note 16, Related Party Transactions for a full description.

Repayment Schedule and Interest Expense

The following table presents detail of our outstanding loan principal repayment schedule as of June 30, 2020 (in thousands):


Remainder of 2020	$	20,373
2021	395,201
2022	38,480
2023	44,768
2024	39,615
Thereafter	102,189
	$	640,626

Interest expense of $15.2 million and $24.3 million for the three months ended June 30, 2020 and 2019, respectively, was recorded in interest expense on the condensed consolidated statements of operations. Interest expense of $37.3 million and $47.7 million for the six months ended June 30, 2020 and 2019, respectively, was recorded in interest expense on the condensed consolidated statements of operations.

8. Derivative Financial Instruments

Interest Rate Swaps

We use various financial instruments to minimize the impact of variable market conditions on our results of operations. We use interest rate swaps to minimize the impact of fluctuations of interest rate changes on our outstanding debt where LIBOR is applied. We do not enter into derivative contracts for trading or speculative purposes.

The fair values of the derivatives designated as cash flow hedges as of June 30, 2020 and December 31, 2019 on our condensed consolidated balance sheets were as follows (in thousands):



	June 30, 2020		December 31, 2019
Assets
Prepaid expenses and other current assets	$	—	$	3

	$	—	$	3

Liabilities

Accrued expenses and other current liabilities	$	2,098	$	782
Derivative liabilities	15,783		8,459
	$	17,881	$	9,241

PPA Company V - In July 2015, PPA Company V entered into 9 interest rate swap agreements to convert a variable interest rate debt to a fixed rate and we designated and documented the interest rate swap arrangements as cash flow hedges. NaN of these swaps matured in 2016, 3 will mature on December 21, 2021 and the remaining 3 will mature on September 30, 2031. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change was

recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swaps were $183.2 million and $184.2 million as of June 30, 2020 and December 31, 2019, respectively.

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. We recorded a gain of $35,600 and a gain of $36,000 attributable to the change in valuation during the three months ended June 30, 2020 and 2019, respectively, and were included in other income (expense), net in the condensed consolidated statements of operations. We recorded a gain of $71,000 and a gain of $12,000 attributable to the change in valuation during the six months ended June 30, 2020 and 2019, respectively, and were included in other income (expense), net in the condensed consolidated statement 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 were as follows (in thousands):


	Three Months Ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Beginning balance	$	17,415	$	5,692	$	9,238	$	3,548
Loss recognized in other comprehensive loss	928		3,460		9,284		5,590
Amounts reclassified from other comprehensive loss to earnings	(425)		42		(567)		103
Net loss recognized in other comprehensive loss	503		3,502		8,717		5,693
Gain recognized in earnings	(37)		(48)		(74)		(95)
Ending balance	$	17,881	$	9,146	$	17,881	$	9,146

For the three months ended June 30, 2020 and 2019, we marked-to-market the fair value of our natural gas fixed price forward contract and recorded an unrealized loss of $0.1 million and an unrealized loss of $1.1 million, respectively. For the six months ended June 30, 2020 and 2019, we marked-to-market the fair value of our natural gas fixed price forward contract and recorded an unrealized loss of $0.7 million and an unrealized loss of $0.7 million, respectively.

For the three months ended June 30, 2020 and 2019, we recorded a realized gain of $1.5 million and realized gain of $1.1 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the condensed consolidated statement of operations. For the six months ended June 30, 2020 and 2019, we recorded a realized gain of $2.5 million and realized gain of $1.6 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the condensed consolidated statement of operations.

Embedded EPP Derivatives in Sales Contracts

Embedded EPP Derivatives in Sales Contracts - We estimated the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo simulation model which considers various potential electricity price forward curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. The grid pricing EPP guarantees that we provided in some of our sales arrangements represent an embedded derivative, with the initial value accounted for as a reduction in product revenue and any changes, reevaluated quarterly, in the fair market value of the derivative recorded in gain (loss) on revaluation of embedded derivatives. We recorded an unrealized gain of $0.4 million and an unrealized loss of $0.5 million attributable to the change in fair value for the three months ended June 30, 2020 and 2019, respectively. We recorded an unrealized gain of $0.7 million and an unrealized loss of $1.1 million attributable to the change in fair value for the six months ended June 30, 2020 and 2019, respectively. These gains and losses were included within loss on revaluation of embedded derivatives in the condensed consolidated statements of operations. The fair value of these derivatives was $5.5 million and $6.2 million as of June 30, 2020 and December 31, 2019, respectively.

9. Stockholders' Equity

Our capitalization as of June 30, 2020 and December 31, 2019 is described as follows:


	Authorized	Shares Issued and Outstanding
		June 30, 2020	December 31, 2019
Total common stock - Class A¹	600,000,000	99,233,074	84,549,511
Total common stock - Class B¹	600,000,000	31,005,215	36,486,778
Total preferred stock	10,000,000	—	—
		130,238,289	121,036,289
Rights to acquire stock
Stock Plans' options and awards outstanding:
2002 stock plan		1,684,718	1,856,154
2012 equity incentive plan		13,530,104	16,638,850
2018 equity incentive plan		9,664,887	9,454,578
		24,879,709	27,949,582
Warrants outstanding:
Common warrants ²		494,121	494,121
		25,373,830	28,443,703
Total diluted shares		155,612,119	149,479,992
Total options/RSUs available for grant - 2018 EIP plan		22,789,740	17,233,144
Total shares available for grant - 2018 ESPP plan		3,532,380	3,030,407
		181,934,239	169,743,543

Unreserved Stock 503,245,441

Total authorized shares

¹ We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to 1 vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible into 1 share of Class A common stock at the discretion of its holder, or automatically upon 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.

² As of June 30, 2020 and December 31, 2019, we had Class B common stock warrants outstanding to purchase 481,181 and 12,940 shares of Class B common stock at exercise prices of $27.78 and $38.64, respectively.

10. Stock-Based Compensation and Employee Benefit Plans

Share-based grants are designed to reward employees for their long-term contributions to us and provide incentives for them to remain with us.

2002 Stock Plan

As of June 30, 2020, options to purchase 1,684,718 shares of Class B common stock were outstanding with a weighted average exercise price of $24.80 per share.

2012 Equity Incentive Plan

As of June 30, 2020, options to purchase 9,510,910 shares of Class B common stock were outstanding with a weighted average exercise price of $27.15 per share and no shares were available for future grant. As of June 30, 2020, we had outstanding RSUs that may be settled for 4,019,194 shares of Class B common stock under the plan.

2018 Equity Incentive Plan

As of June 30, 2020, options to purchase 5,975,977 shares of Class A common stock were outstanding with a weighted average exercise price of $9.25 per share and 3,688,910 shares of outstanding RSUs that may be settled for Class A common stock which were granted pursuant to the plan.

Stock-Based Compensation Expense

We used the following weighted-average assumptions in applying the Black-Scholes valuation model for determination of options:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019

Risk-free interest rate	0.6%	2.4%- 2.5%	0.6%	2.4% - 2.6%
Expected term (years)	6.6	6.4 - 6.7	6.6	6.4 - 6.7
Expected dividend yield	—	—	—	—
Expected volatility	71.0%	47.5%	71.0%	47.5% - 50.2%

The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of operations (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
			As Restated				As Restated

Cost of revenue	$	4,736	$	10,538	$	10,243	$	28,850
Research and development	4,714		12,218		10,810		26,448
Sales and marketing	2,234		8,935		6,124		20,447
General and administrative	6,947		19,673		14,473		43,441
	$	18,631	$	51,364	$	41,650	$	119,186

Stock-based Compensation - During the three months ended June 30, 2020 and 2019, we recognized $18.6 million and $51.4 million of total stock-based compensation costs, respectively. During the six months ended June 30, 2020 and 2019, we recognized $41.7 million and $119.2 million of total stock-based compensation costs, respectively.

During the three months ended June 30, 2020 and 2019, we recognized $0.9 million and $6.2 million, respectively, of stock-based compensation expense previously capitalized in inventory and property, plant and equipment. During the six months ended June 30, 2020 and 2019, we recognized $1.8 million and $17.0 million, respectively, of stock-based compensation expense previously capitalized in inventory and property, plant and equipment.

Stock Option and RSU Activity

The following table summarizes the stock option activity 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)




December 31, 2019	17,837,316	$	20.76	6.94	$	14,964
Granted	200,000	7.30
Exercised	(170,873)	5.90
Cancelled	(694,838)	22.46
Balances at June 30, 2020	17,171,605	20.69		6.46	26,824
Vested and expected to vest at Current period end	16,555,245	21.08		6.37	24,325
Exercisable at Current period end	9,515,698	28.48		4.67	384

Stock Options - During the three months ended June 30, 2020 and 2019, we recognized $4.9 million and $9.0 million of stock-based compensation costs for stock options, respectively. During the six months ended June 30, 2020 and 2019, we recognized $10.5 million and $18.2 million of stock-based compensation costs for stock options, respectively.

We granted 200,000 options of Class A common stock during the three and six months ended June 30, 2020 and the weighted average grant-date fair value of those options was $7.30 per share.

As of June 30, 2020 and 2019, we had unrecognized compensation costs related to unvested stock options of $31.0 million and $56.8 million, respectively. This cost is expected to be recognized over the remaining weighted-average period of 2.2 years and 2.6 years, respectively. We had 0 excess tax benefits in the quarters ended June 30, 2020 and 2019. Cash received from stock options exercised totaled $1.0 million and $ 1.4 million ended June 30, 2020 and 2019, respectively.

A summary of our RSUs activity and related information is as follows:


	Number of Awards Outstanding	Weighted Average Grant Date Fair Value





Unvested Balance at December 31, 2019	10,112,266	$	17.29
Granted	1,214,942	8.75
Vested	(3,320,153)	19.06
Forfeited	(298,951)	15.50
Balances at June 30, 2020	7,708,104	15.26

Restricted Stock Units - The estimated fair value of RSU awards is based on the fair value of our Class A common stock on the date of grant. For the three months ended June 30, 2020 and June 30, 2019, we recognized $10.5 million and $39.7 million of stock-based compensation costs for RSUs, respectively. For the six months ended June 30, 2020 and June 30, 2019, we recognized $23.7 million and $90.7 million of stock-based compensation costs for RSUs, respectively.

As of June 30, 2020, we had $35.3 million of unrecognized stock-based compensation cost related to unvested RSUs. This cost is expected to be recognized over a weighted average period of 1.2 years. As of June 30, 2019, we had $108.2 million of unrecognized stock-based compensation cost related to unvested RSUs. This expense was expected to be recognized over a weighted average period of 1.1 years.

The following table presents the stock activity and the total number of RSUs available for grant under our stock plans as of June 30, 2020:


						Plan Shares Available for Grant







Balances at December 31, 2019						17,233,144
Added to plan						6,654,552
Granted						(1,414,942)

Cancelled						992,262
Expired						(675,276)
Balances at June 30, 2020						22,789,740

2018 Employee Stock Purchase Plan

During the three months ended June 30, 2020 and 2019, we recognized $1.8 million and $2.4 million of stock-based compensation costs under our 2018 Employee Stock Purchase Plan (the "2018 ESPP"), respectively. During the six months ended June 30, 2020 and 2019, we recognized $4.7 million and $5.2 million of stock-based compensation costs for the 2018 ESPP, respectively. We issued 992,846 shares in the six months ended June 30, 2020. During the first six months of 2020, we added an additional 1,494,819 shares and there were 3,532,380 shares available for issuance as of June 30, 2020.

2019 and 2020 Executive Awards

In November 2019, the Board approved stock options ("2019 Executive Awards") to certain executive staff. The 2019 Executive Awards consist of three vesting tranches with a vesting schedule based on the attainment of market conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2019 Executive Awards are recognized over the service period, even though no tranches of the 2019 Performance Awards vest unless a market condition is achieved. The grant date fair value of the options is determined using a Monte Carlo simulation.

In June 2020, the Board approved stock awards ("2020 Executive Awards") to certain executive staff. The 2020 Executive Awards consist of three vesting tranches with an annual vesting schedule based on the attainment of performance conditions and assuming continued employment and service through each vesting date. Stock-based compensation costs associated with the 2020 Executive Awards is recognized over the service period as we evaluate the probability of the achievement of the performance conditions.

11. Income Taxes

For the three months ended June 30, 2020 and 2019, we recorded provisions for income taxes of $0.1 million and $0.3 million on pre-tax losses of $47.8 million and $86.7 million for effective tax rates of (0.3)% and (0.3)%, respectively. For the six months ended June 30, 2020 and 2019, we recorded provisions for income taxes of $0.3 million and $0.5 million on pre-tax losses of $129.4 million and $195.2 million for effective tax rates of (0.2)%, and (0.2)%, respectively.

The effective tax rate for the three and six months ended June 30, 2020 and 2019 is lower than the statutory federal tax rate primarily due to a full valuation allowance against U.S. deferred tax assets.

12. Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of our net loss per share attributable to common stockholders, basic and diluted (in thousands, except per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
			As Restated				Restated
Numerator:
Net loss attributable to Class A and Class B common stockholders	$	(42,512)	$	(81,911)	$	(118,461)	$	(186,831)


Denominator:




Weighted average shares of common stock, basic and diluted	125,928		113,622		124,823		112,737
Net loss per share available to Class A and Class B common stockholders, basic and diluted	$	(0.34)	$	(0.72)	$	(0.95)	$	(1.66)

The following common stock equivalents (in thousands) were excluded from the computation of our net loss per share attributable to common stockholders, diluted, for the periods presented as their inclusion would have been antidilutive:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

Convertible notes	$	31,162	$	27,253	$	31,162	$	27,253
Stock options and awards	4,788		6,480		4,889		5,811


	$	35,950	$	33,733	$	36,051	$	33,064

13. Power Purchase Agreement Programs

Overview

In mid-2010, we began offering our Energy Servers through our Bloom Electrons program, which we denote as Power Purchase Agreement Programs, financed via investment entities. For additional information, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

PPA Entities' Activities Summary

The table below shows the details of the three Investment Companies' VIEs that were active during the six months ended June 30, 2020 and their cumulative activities from inception to the periods indicated (dollars in thousands):


	PPA IIIa		PPA IV		PPA V
Overview:
Maximum size of installation (in megawatts)	10		21		40
Installed size (in megawatts)	10		19		37
Term of power purchase agreements (in years)	15		15		15
First system installed	Feb-13		Sep-14		Jun-15
Last system installed	Jun-14		Mar-16		Dec-16
Income (loss) and tax benefits allocation to Equity Investor	99%		90%		99%
Cash allocation to Equity Investor	99%		90%		90%
Income (loss), tax and cash allocations to Equity Investor after the flip date	5%		No flip		No flip
Equity Investor ¹	US Bank		Exelon Corporation		Exelon Corporation
Put option date ²	1st anniversary of flip point		N/A		N/A
Company cash contributions	$	32,223	$	11,669	$	27,932
Company non-cash contributions ³	$	8,655	$	—	$	—
Equity Investor cash contributions	$	36,967	$	84,782	$	227,344
Debt financing	$	44,968	$	99,000	$	131,237
Activity as of June 30, 2020:
Distributions to Equity Investor	$	4,819	$	8,582	$	74,128
Debt repayment—principal	$	9,293	$	19,534	$	11,765
Activity as of December 31, 2019:
Distributions to Equity Investor	$	4,803	$	6,692	$	70,591
Debt repayment—principal	$	6,631	$	18,012	$	9,453
















¹ Investor name represents ultimate parent of subsidiary financing the project.
² Investor right on the certain date, upon giving us advance written notice, to sell the membership interests to us or resign or withdraw from the investment partnership.
³Non-cash contributions consisted of warrants that were issued by us to respective lenders to each PPA Entity, as required by such entity’s credit agreements. The corresponding values are amortized using the effective interest method over the debt term.

The noncontrolling interests in PPA IIIa are redeemable as a result of the put option held by the Equity Investors as of June 30, 2020 and December 31, 2019. At June 30, 2020 and December 31, 2019, the carrying value of redeemable noncontrolling interests of $0.1 million and $0.4 million, respectively, exceeded the maximum redemption value.

PPA Entities’ Aggregate Assets and Liabilities

Generally, Operating Company assets can be used to settle only the Operating Company obligations and Operating Company creditors do not have recourse to us. The aggregate carrying values of our VIEs, including PPA IIIa, PPA IV and PPA V, for their assets and liabilities in our condensed consolidated balance sheets, after eliminations of intercompany transactions and balances, were (in thousands):



	June 30, 2020		December 31, 2019

Assets
Current assets:
Cash and cash equivalents	$	4,600	$	1,894
Restricted cash	827		2,244
Accounts receivable	4,004		4,194
Customer financing receivable	5,254		5,108
Prepaid expenses and other current assets	1,030		3,587
Total current assets	15,715		17,027
Property and equipment, net	263,793		275,481
Customer financing receivable, non-current	48,111		50,747
Restricted cash	15,123		15,045
Other long-term assets	241		607
Total assets	$	342,983	$	358,907

Liabilities
Current liabilities:

Accrued expenses and other current liabilities	$	2,312	$	1,391
Deferred revenue and customer deposits	662		662
Current portion of debt	11,366		12,155
Total current liabilities	14,340		14,208
Derivative liabilities	15,783		8,459
Deferred revenue	6,405		6,735
Long-term portion of debt	218,316		223,267
Other long-term liabilities	2,627		2,355
Total liabilities	$	257,471	$	255,024

As of January 1, 2020, the flip date, we are the majority owner shareholder in the PPA IIIa entity receiving 95% of all cash distributions and profits and losses. In PPA IV and PPA V we consolidate as VIEs, we are the minority shareholder. PPA Entities contain debt that is non-recourse to us. The PPA Entities also own Energy Server assets for which we do not have title. Although we will continue to have Power Purchase Agreement Program entities in the future and offer customers the ability to purchase electricity without the purchase of our Energy Servers, we do not intend to be a minority investor in any new Power Purchase Agreement Program entities.

We believe that by presenting assets and liabilities separate from the PPA Entities, we provide a better view of the true operations of our 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's stand-alone, the PPA Entities combined and these consolidated balances as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020										December 31, 2019
	Bloom Energy		PPA Entities		Consolidated		Bloom Energy		PPA Entities		Consolidated

Assets
Current assets	$	425,077	$	15,715	$	440,792	$	455,680	$	17,027	$	472,707
Long-term assets	509,483		327,268		836,751		508,004		341,880		849,884
Total assets	$	934,560	$	342,983	$	1,277,543	$	963,684	$	358,907	$	1,322,591
Liabilities
Current liabilities	$	274,696	$	2,974	$	277,670	$	234,328	$	2,053	$	236,381
Current portion of debt	14,698		11,366		26,064		325,428		12,155		337,583
Long-term liabilities	579,870		24,815		604,685		599,709		17,549		617,258
Long-term portion of debt	401,339		218,316		619,655		75,962		223,267		299,229
Total liabilities	$	1,270,603	$	257,471	$	1,528,074	$	1,235,427	$	255,024	$	1,490,451

14. Commitments and Contingencies

Commitments

Facilities Leases

We lease most of our facilities, office buildings and equipment under operating leases that expire at various dates through December 2028. Our headquarters is used for administration, research and development and sales and marketing.

Additionally, we lease various manufacturing facilities in Sunnyvale, California and Mountain View, California.

Our current lease for our Sunnyvale manufacturing facilities, entered into in April 2005, expires in 2020. Our current lease for our manufacturing facilities at Mountain View, entered into in December 2011, expired in December 2019 and is extended on a month to month arrangement. In June 2020, we signed a lease to replace a manufacturing facility in Mountain View, California that will expire in 2027. The existing leased plants together comprise approximately 370,601 square feet of space. We lease additional office space as field offices in the United States and around the world including in India, the Republic of Korea, China and Taiwan.

During the three months ended June 30, 2020 and 2019, rent expense for all occupied facilities was $1.9 million and $1.8 million, respectively. During the six months ended June 30, 2020 and 2019, rent expense for all occupied facilities was $4.0 million and $3.8 million, respectively.

Equipment Leases

We are a party to master lease agreements that provide for the sale of our Energy Servers to third parties and the simultaneous leaseback of the systems which we then sublease to customers. The lease agreements expire on various dates through 2025 and there was no recorded rent expense for the three and six months ended June 30, 2020 and 2019.

At June 30, 2020, future minimum lease payments under operating leases and financing obligations were as follows (in thousands):


	Operating Leases Obligations		Financing Obligations		Sublease Payments¹
Remainder of 2020	$	4,214	$	19,054	$	(19,054)
2021	10,005		38,726		(38,726)
2022	6,110		39,680		(39,680)
2023	6,230		40,582		(40,582)
2024	6,416		38,442		(38,442)
Thereafter	24,087		117,592		(117,592)
Total lease payments	$	57,062	294,076		$	(294,076)
Less: imputed interest			(170,557)
Total lease obligations			123,519
Less: current obligations			(11,603)
Long-term lease obligations			$	111,916

¹Sublease Payments primarily represents the fees received by the bank from our end customer for the electricity generated by our Energy Servers leased under our Managed Services and other similar arrangements, which also pay down our financing obligation to the bank.

Managed Services Financing Obligations - Our Managed Services arrangements are classified as capital leases and are recorded as financing transactions, while the sublease arrangements with the end customer are classified as operating leases. Payments received from the financier are recorded as financing obligations. These obligations are included in each agreements' contract value and are recorded as short-term or long-term liabilities based on the estimated payment dates. The long-term financing obligations were $440.4 million and $446.2 million as of June 30, 2020 and December 31, 2019, respectively. The difference between these obligations and the principal 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. We recognize revenue for the electricity generated by allocating the total proceeds of the sublease payments based on the relative standalone selling prices to electricity revenue and to service revenue.

Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and to ensure an adequate supply of inventories, we have agreements with our component suppliers and contract manufacturers to allow long lead-time component inventory procurement based on a rolling production forecast. We are contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with its forecasts. We can generally give notice of order cancellation at least 90 days prior to the delivery date. However, we issue purchase orders to our component suppliers and third-party manufacturers that may not be cancellable. As of June 30, 2020 and December 31, 2019, we had no material open purchase orders with our component suppliers and third-party manufacturers that are not cancellable.

Power Purchase Agreement Program - Under the terms of the Bloom Electrons program, customers agree to purchase power from our Energy Servers at negotiated rates, generally for periods of up to fifteen years. We are responsible for all operating costs necessary to maintain, monitor and repair the Energy Servers, including the fuel necessary to operate the systems under certain PPA contracts. The risk associated with the future market price of fuel purchase obligations is mitigated with commodity contract futures. For additional information on the Bloom Electrons program, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Note 13, Power Purchase Agreement Programs.

The PPA Entities guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. The PPA Entities monitor the need for any accruals arising from such guaranties, which are calculated as the difference between committed and actual power output or between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by the contractual rates with the customer. Amounts payable under these guaranties are accrued in periods when the guaranties are not met and are recorded in cost of service revenue in the condensed consolidated statements of operations. We paid $5.7 million and $3.5 million for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively.

Letters of Credit - In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of our Energy Servers. The lenders have commitments to a LC facility with the aggregate principal amount of $6.2

million. The LC facility is to fund the Debt Service Reserve Account. The amount reserved under the LC as of June 30, 2020 was $5.2 million.

In 2019, pursuant to the PPA II upgrade of Energy Servers, we agreed to indemnify SPDS for losses that may be incurred in the event of certain regulatory, legal or legislative development and established a cash-collateralized letter of credit for this purpose. As of June 30, 2020, the balance of this cash-collateralized LC was $108.7 million, of which $4.2 million and $104.5 million is recorded as short-term and long-term restricted cash, respectively.

Pledged Funds - In 2019, pursuant to the PPA IIIb upgrade of Energy Servers, we have restricted cash of $20.0 million which has been pledged for a seven-year period to secure our operations and maintenance obligations with respect to the totality of our obligations to the financier. All or a portion of such funds 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 Energy Servers continue to perform in compliance with our warranty obligations.

Contingencies

Indemnification Agreements - We enter into standard indemnification agreements with our customers and certain other business partners in the ordinary course of business. Our exposure under these agreements is unknown because it involves future claims that may be made against us but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

Delaware Economic Development Authority - In March 2012, we entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 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 grant contains two types of milestones that we 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 period of September 30, 2017. The second milestone was to pay these full-time workers a cumulative total of $108.0 million in compensation by September 30, 2017. There are two additional recapture periods at which time we must continue to employ 900 full time workers and the cumulative total compensation paid by us is required to be at least $324.0 million by September 30, 2023. As of June 30, 2020, we had 380 full time workers in Delaware and paid $135.1 million in cumulative compensation. As of December 31, 2019, we had 323 full time workers in Delaware and paid $120.1 million in cumulative compensation. We have so far received $12.0 million of the grant which is contingent upon meeting the milestones through September 30, 2023. In the event that we do not meet the milestones, we may have to repay the Delaware Economic Development Authority, including up to $2.6 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. As of June 30, 2020, we paid $1.5 million for recapture provisions and have recorded $10.5 million in other long-term liabilities for potential recapture.

Investment Tax Credits ("ITCs") - Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, 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 of the incentives. Energy Servers are purchased by the PPA Entities, other financial sponsors or customers and, therefore, these bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future although in certain limited circumstances we do provide indemnification for such risk.

Legal Matters - We are involved in various legal proceedings that arise in the ordinary course of business. We review all legal matters at least quarterly and assess whether an accrual for loss contingencies needs to be recorded. We 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 our estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on our 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. We do not believe claimant’s claims supporting rescission have merit nor that claimants can remit to us the monetary benefits they already obtained under the Confidential Agreement. We have recorded no loss contingency related to this claim. On July 30, 2020, Claimants notified us that they intend to file a complaint in the Northern District of California seeking to stay the arbitration, and disqualify the arbitration panel on procedural grounds. We believe Claimants have no basis to bring this Complaint and that doing so will breach the Confidential Agreement.

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 has been stayed pending the outcome of the arbitration. We believe the complaint to be without merit and we have recorded no loss contingency related to this claim.

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 initial public offering 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 our July 25, 2018 initial public offering ("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 vigorously defend.

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 our 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 the underwriters in our initial public offering, claims under Sections 10b and 20a of the Securities Exchange Act of 1934 (the Exchange Act") and extending the 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 allegations pertaining to the Restatement and, as to claims under the Exchange Act, extends the class period through February 12, 2020. We believe the complaint to be without merit and we intend to vigorously defend. On July 1, 2020, we filed a motion to dismiss the second amended complaint.

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 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. A trial date for this matter has been set for December 7, 2020. We believe the complaint to be without merit.

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 (PAGA). We are still investigating the Plantiff's allegations and intend to vigorously defend against the complaint, but any range of potential loss is not currently estimable.

15. Segment Information

Segment and the Chief Operating Decision Maker

Our chief operating decision makers ("CODMs"), our CEO and the 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 our operations and product development efforts. We are managed under a functionally-based organizational structure with the head of each function reporting to the Chief Executive Officer. The CODMs assess performance, including incentive compensation, based upon consolidated operations performance and financial results on a consolidated basis. As such, we have a single operating unit structure and are a single reporting segment.

16. Related Party Transactions

Our operations included the following related party transactions (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

Total revenue from related parties	$	881	$	81,572	$	1,930	$	82,354
Interest expense to related parties	794		1,606		2,160		3,218

Bloom Energy Japan Limited

In May 2013, we entered into a joint venture with Softbank Corp., which is accounted for as an equity method investment. Under this arrangement, we sell Energy Servers and provide maintenance services to the joint venture. For the three months ended June 30, 2020 and June 30, 2019, we recognized related-party total revenue of $0.9 million and $0.8 million, respectively. For the six months ended June 30, 2020 and June 30, 2019, we recognized related-party total revenue of $1.9 million and $1.6 million, respectively. Accounts receivable from this joint venture was $0.1 million as of June 30, 2020 and $2.4 million as of December 31, 2019.

Debt to Related Parties

The following is a summary of our debt and convertible notes from investors considered to be related parties as of June 30, 2020 (in thousands):


	Unpaid Principal Balance		Net Carrying Value
					Current			Long- Term			Total

Recourse debt from related parties:
10% convertible promissory notes due December 2021 from related parties	$	50,801	$	—		$	53,675		$	53,675


Total debt from related parties	$	50,801	$	—		$	53,675		$	53,675

The following is a summary of our debt and convertible notes from investors considered to be related parties as of December 31, 2019 (in thousands):


	Unpaid Principal Balance		Net Carrying Value
					Current			Long- Term			Total

Recourse debt from related parties:
6% convertible promissory notes due December 2020 from related parties	$	20,801	$	20,801		$	—		$	20,801
Non-recourse debt from related parties:
7.5% term loan due September 2028 from related parties	38,337		3,882			31,088			34,970
Total debt from related parties	$	59,138	$	24,683		$	31,088		$	55,771

In November 2019, one related-party note holder exchanged $6.9 million of their 6% Convertible Notes at the conversion price of $11.25 per share into 616,302 shares of Class A common stock. On March 31, 2020, we issued $30.0 million of new 10% Convertible Notes to two related-party note holders. In May 2020, the 7.5% term loan note holder ceased to be considered a related party. We made 0 payments to this note holder prior to them terminating their related party relationship with us in the three months ended June 30, 2020, and we paid $0.4 million on this non-recourse 7.5% term loan principal balance in the three months ended June 30, 2019. We paid 0 interest and $0.7 million of interest in the three months ended June 30, 2020 and June 30, 2019, respectively. We repaid $2.1 million and $1.2 million of the non-recourse 7.5% term loan principal balance in the six months ended June 30, 2020 and June 30, 2019, respectively, and we paid $0.7 million and $1.5 million of interest in the six months ended June 30, 2020 and June 30, 2019, respectively. See Note 7, Outstanding Loans and Security Agreements for additional information on our debt facilities.

17. Subsequent Events

Other Events

There have been no other subsequent events that occurred during the period subsequent to the date of these financial statements that would require adjustment to our disclosure in the financial statements as presented.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

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

Overview

Restatement of Previously Issued Condensed Consolidated Financial Statements

We have restated our previously reported financial information as of and for the three and six months ended June 30, 2019 in this Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within Results of Operations and Liquidity and Capital Resources sections.

See Note 2, Restatement of Previously Issued Condensed Consolidated Financial Statements, in Part I, Item 1, Financial Statements, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our condensed consolidated financial statements.

Description of Bloom Energy

Our solution, the Bloom Energy Server, is a stationary power generation platform built for the digital age and capable of delivering highly reliable, uninterrupted, 24x7 constant power that is also clean and sustainable. The Bloom Energy Server converts standard low-pressure natural gas, biogas or hydrogen into electricity through an electrochemical process without combustion, resulting in very high conversion efficiencies and lower harmful emissions than conventional fossil fuel generation. A typical configuration produces 250 kilowatts of power in a footprint roughly equivalent to that of half of a standard thirty-foot shipping container, or approximately 125 times more space-efficient than solar power generation. 250 kilowatts of power is roughly equivalent to the constant power requirement of a typical big box retail store. Any number of our Energy Server systems can be clustered together in various configurations to form solutions from hundreds of kilowatts to many tens of megawatts. We currently primarily target commercial and industrial customers.

We market and sell our Energy Servers primarily through our direct sales organization in the United States, and also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a material financial commitment, we have developed a number of financing options to support sales of our Energy Servers to customers who lack the financial capability to purchase our Energy Servers directly, who prefer to finance the acquisition using third party financing or who prefer to contract for our services on a pay-as-you-go model.

Our typical target commercial or industrial customer has historically been either an investment-grade entity or a customer with investment-grade attributes such as size, assets and revenue, liquidity, geographically diverse operations and general financial stability. We have recently expanded our product and financing options to the below-investment-grade customers and have also expanded internationally to target customers with deployments on a wholesale grid. Given that our customers are typically large institutions with multi-level decision making processes, we generally experience a lengthy sales process.

COVID-19 Pandemic

General

We have been and will continue monitoring and adjusting as appropriate our operations in response to the COVID-19 pandemic. As a technology company that supplies resilient, reliable and clean energy, we have been able to conduct the majority of operations as an “essential business” in California and Delaware, where we manufacture and perform many of our R&D activities, as well as in other states and countries where we are installing or maintaining our Energy Servers, notwithstanding government “shelter in place” orders. For the safety of our employees and others, many of our employees are still working from home unless they are directly supporting essential manufacturing production operations, installation work,

service and maintenance activities and R&D. We have established protocols to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning, and temperature screenings upon entry. In addition, all individuals entering Bloom facilities are required to wear face coverings and are directed not to enter if they have COVID-19-like symptoms. We follow all CDC guidelines when notified of possible exposures. For more information regarding the risks posed to our company by the COVID-19 pandemic, refer to Risk Factors – Risks Relating to Our Products and Manufacturing – Our business has been and will continue to be adversely affected by the COVID-19 pandemic.

Liquidity and Capital Resources

We have implemented measures to preserve cash and enhance liquidity, including suspending salary increases and bonuses, instituting a company-wide hiring freeze, eliminating business travel, reducing capital expenditures, and delaying or eliminating discretionary spending. We are also focused on managing our working capital needs, maintaining as much flexibility as possible around timing of taking and paying for inventory and manufacturing our product while managing potential changes or delays in installations.

In March 2020, we extended the terms of the 10% Convertible Notes and the 10% Constellation Note to December 2021. Since then, the 10% Constellation Note was converted into equity and the potential liabilities associated with the 10% Constellation Notes have been extinguished. This relieves some pressure on our liquidity position in the near term. While we will likely need to access the capital markets to raise sufficient capital to redeem the 10% Convertible Notes, we do not expect that it will be necessary to access capital markets for cash to operate our business for the next 12 months, unless the impact of COVID-19 to our business and financial position is more extensive than expected. Capital markets have been volatile and there is no assurance that we would have access to capital markets at a reasonable cost, or at all, at times when capital is needed. In addition, our existing debt has restrictive covenants that limit our ability to raise new debt or to sell assets, which would limit our ability to access liquidity by those means without obtaining consent from existing noteholders. The redemption penalty on our 10% Convertible Notes starting in October 2020 could also adversely affect our financial position if we are unable to access capital markets to refinance them on reasonable terms. Refer to Note 7, Outstanding Loans and Security Agreements; Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources; and Risk Factors – Risks Relating to Our Liquidity – Our substantial indebtedness, and restrictions imposed by the agreements governing our and our PPA Entities’ outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs, and We may not be able to generate sufficient cash to meet our debt service obligations, for more information regarding the terms of and risks associated with our debt.

Operations and maintenance cash flows for certain PPAs, direct purchases and leases are pledged to the 10% Senior Secured Notes and 10.25% Senior Secured Notes. If there is delay in payment from customers, or if a customer does not renew a contract with us that we expect to be renewed, our ability to service existing debt would be adversely affected, which could trigger a default if non-payment extends beyond the grace period. Even if we are able to sustain debt service payments, if we do not meet certain minimum debt service coverage ratio levels specified in our debt agreements, excess cash after the debt has been serviced could not be released to support our operations and would negatively affect our liquidity position.

Sales

In some markets, we have experienced an increase in time to obtain new business as our customers deal with the impact of the COVID-19 pandemic. Decision makers in organizations such as education and entertainment have shifted their focus to the immediate needs of the pandemic, thus delaying their purchase decisions and capital outlays. While there may ultimately be a reduction in electricity needs due to decrease in economic activity, the current impact generally equates to a longer transaction cycle.

Our ability to continue to expand our business both domestically and internationally and develop customer relationships also has been negatively impacted by current travel restrictions. Our marketing efforts historically have often involved customer visits to our manufacturing centers in California or Delaware, which we have suspended.

On the other hand, a significant portion of our customers are hospitals, healthcare companies, retailers and data centers. These industries are composed of essential businesses that still need the resiliency and reliability offered by our products. We have seen an increase in demand for our products in these sectors where the COVID-19 pandemic has highlighted the benefits of always-on, on-site power in times of disaster and uncertainty. In addition, the pandemic has had no significant effect on our business in the Republic of Korea.

We have also had some unique opportunities to deploy our systems on an emergency basis to support temporary hospitals. We believe deploying clean electrical power with no oxides of nitrogen (NOx) or sulfur (SOx) emissions, especially as atmospheric pollutants, is important for facilities preparing to treat a respiratory disease like COVID-19. As a result of this opportunity to introduce our products to more healthcare providers, demand for our products at some permanent hospitals has also increased.

Customer Financing

COVID-19 has not yet had any significant impact on our ability to obtain financing for our customers’ use of our products, but we are finding it more difficult to find financiers who are able to monetize tax credit. A majority of the installations we have planned in the United States in 2020 have obtained financing. However, we have actively been working with new sources of capital that could finance projects for our 2021 installations. We believe the current environment may increase the time to solidify new relationships, and thus negatively impact the time required to achieve funding. In addition, our ability to obtain financing for our Energy Servers partly depends on the creditworthiness of our customers. Some of our customers’ credit ratings have recently fallen, which may make it difficult for us to obtain financing for their use of an Energy Server. Our recent experience has been that financing parties have capital to deploy and are interested in financing our Energy Servers and, at present, cash flow and results of operations including revenue have not been impacted by our inability to obtain financing for customer installations.

Installations of Energy Servers

The COVID-19 pandemic has caused delays that affected nearly all of our installations with varying degrees of severity. Since we do not recognize revenue on the sales of our products until installation and acceptance, installation delays have a negative impact on our results of operations including revenue. Since we generally earn cash as we progress through the installation process, delays to installation activity also adversely affects our cash flows.

While our installation activity has been deemed “essential business” and allowed to proceed in many jurisdictions, the essential business designations for our activities (and those of our suppliers and other third party organizations that are critical to our success) has been inconsistent from region to region and across the various third parties upon whom we are critically dependent to complete our installations. As an example, in New York City, one of our installations was deemed essential while the other was not deemed essential and the utilities on whom we rely for water, gas and electric inter-connections were also not uniformly affected. This resulted in all of the projects in New York City being adversely affected to some extent. As another example, while the State of Massachusetts designated construction as an essential business, some local authorities in Massachusetts did not apply the same designation, resulting in delays and additional compliance costs.

In addition, we have experienced delays and interruptions to our installations where customers have shut down or otherwise limited access to their facilities.

Some of our backlog can only be deployed when the customer brings on sufficient load for our systems. Facility closings and diminished economic activity delay that load coming online, leading customers to postpone the completion of installations.

We use general contractors and sub-contractors, and need supplies of various types of ancillary equipment, for our installations. Some of our suppliers have had COVID-19 outbreaks among their workforces, which have caused installation delays. In addition, the availability and productivity of contractors, sub-contractors, and suppliers has generally been negatively impacted by social distancing requirements and other safety measures.

Nearly all of our installations completed in the quarter ended June 30, 2020 were impacted by COVID-19 to some extent and some installations were unable to achieve acceptance in light of the delays which impacted our cash flows and results of operation including revenue for the quarter ended June 30, 2020. As examples, our pre-contract installation planning activity was affected by access to potential customer sites, our permitting activity was affected in virtually all jurisdictions by delays in the permitting process as various cities and municipalities shut down or implemented limited services in response to COVID-19, and our utility related work was impacted as our gas and electric utility suppliers facing challenges brought on by COVID-19. We expect disruptions like those noted above to continue with the current COVID-19 restrictions.

Supply Chain

We have experienced COVID-19 related delays from certain vendors and suppliers, however, we have been able to find and qualify alternative suppliers and our production to date has not been impacted. At present, our supply chain has stabilized; however, if spikes in COVID-19 occur in regions in which our supply chain operates we could experience a delay in materials which could in turn impact production and installations and our cash flow and results of operations including revenue.

Manufacturing

As an essential business, we have continued to manufacture Energy Servers, but have adopted strict measures to keep our employees safe. These measures have decreased productivity to an extent, but our deployments, maintenance and installations have not yet been constrained by our current pace of manufacturing. As described above, we have established protocols to minimize the risk of COVID-19 transmission within our manufacturing facilities and follow all CDC guidelines when notified of possible exposures. We also are now instituting testing of anyone who comes into any of our facilities. Even with these

precautions, it is possible an asymptomatic individual could enter our facilities and transmit the virus to others. We have had a couple positive tests and in such cases, we have followed CDC Guidelines. To date, it has not impacted our production.

If we become aware of any cases of COVID-19 among any of our employees, we notify those with whom the person is known to have been in contact, send the exposed employees home for at least 14 days and require each employee to be tested negative before returning to work. Certain roles within our facilities involve greater mobility throughout our facilities and potential exposure to more employees. In the event one of such employees suffers from COVID-19, or if we otherwise believe that a significant number of employees have been exposed and sent home, particularly in our manufacturing facilities, our production could be significantly impacted. Furthermore, since our manufacturing process requires tasks performed at both our California facility and Delaware facility, significant exposure at either facility would have a substantial impact on our overall production, and could adversely affect our cash flow and results of operations including revenue.

Purchase and Lease Options

Initially, we only offered our Energy Servers on a direct purchase basis, in which the customer purchases the product directly from us. In order to expand our offerings to customers who lack the financial capability to purchase our Energy Servers directly (including customers who are unable to monetize the tax credits available to purchasers of our Energy Servers) and/or who prefer to lease the product or contract for our services on a pay-as-you-go model, we subsequently developed the traditional lease ("Traditional Lease"), Managed Services, and power purchase agreement ("PPA") programs ("PPA Programs").

Our capacity to offer our Energy Servers through any of these financed arrangements depends in large part on the ability of the financing party or parties involved to monetize the related investment tax credits, accelerated tax depreciation and other incentives. Interest rate fluctuations may also impact the attractiveness of any financing offerings for our customers, and currency exchange fluctuations may also impact the attractiveness of international offerings. The Traditional Lease, Managed Services and PPA Program options are limited by the creditworthiness of the customer. Additionally, the Managed Services and Traditional Lease options, as with all leases, are also limited by the customer’s willingness to commit to making fixed payments regardless of the performance of the Energy Servers or our performance of our obligations under the customer agreement.

In each of our purchase options, we typically perform the functions of a project developer, including identifying end customers and financiers, leading the negotiations of the customer agreements and financing agreements, securing all necessary permitting and interconnections approvals, and overseeing the design and construction of the project up to and including commissioning the Energy Servers.

Under each purchase option, we provide warranties and performance guaranties regarding our Energy Servers’ efficiency and output. We refer to a “warranty” as a commitment where the failure of the Energy Servers to satisfy the stated performance level obligates us to repair or replace the Energy Servers as necessary to improve performance. If we fail to complete such repair or replacement, or if repair or replacement is impossible, we may be obligated to repurchase the Energy Servers from the customer or financier. We refer to a “guaranty” as a commitment where the failure of the Energy Servers to satisfy the stated performance level obligates us to make a payment to compensate the beneficiary of such guaranty for the resulting increased cost or diminution in benefits resulting from such failure. Our obligation to make payments under the guaranty is always contractually capped and represents a contingency linked to our services obligation with no economic incentive for us to default and force an exercise of the payment obligation.

Under direct purchase and Traditional Lease, the warranties and guaranties are typically included in the price of our Energy Server for the first year. The warranties and guaranties may be renewed annually at the customer’s option, as an operations and maintenance services agreement, at predetermined prices for a period of up to 30 years. Historically, our customers and financiers have almost always exercised their option to renew the warranties and guaranties under these operations and maintenance services agreements.

Under the Managed Services Program, the warranties and guaranties are included for the fixed period specified in the customer agreement. This period is typically 10 years, which may be extended at the option of the parties for additional years.

Under the PPA Programs, we typically provide warranties and guaranties regarding our Energy Servers’ efficiency to the customer (i.e., the end user of the electricity generated by our Energy Servers, who is also responsible for the purchase of the fuel required for our Energy Servers’ operations), and we provide warranties and guaranties regarding our Energy Servers’ output to the financier(s) that purchases our Energy Servers. The warranties and guaranties are typically included in the price of our Energy Server for the first year and may be renewed annually at the financier’s option, as an operations and maintenance services agreement, at predetermined prices for a period of up to 30 years. Historically, our financiers have almost always exercised their option to renew the warranties and guaranties under these operations and maintenance services agreements. We

also provide a fixed schedule of prices for each year of the term of our agreements with our customers and none of our customers have failed to renew our operations and maintenance agreements.

The substantial majority of bookings made in recent periods are pursuant to the PPA and the Managed Services Programs.

Each of our financing structures is described in further detail below.

Traditional Lease

Under the Traditional Lease arrangement, the customer enters into a lease directly with a financier, which pays us for our Energy Servers purchased pursuant to a sales agreement (see the description of the Financing Agreement below). We recognize product and installation revenue upon acceptance. After the standard one-year warranty period, our customers have almost always exercised the option to enter into operations and maintenance services agreements with us, under which we receive annual service payments from the customer. The price for the annual operations and maintenance services is set at the time we enter into the Financing Agreement. The term of a lease in a Traditional Lease ranges from five to eight years.

Under a Financing Agreement, we are generally paid the full price of our Energy Servers as if sold as a purchase by the customer based on four milestones. The four payment milestones are typically as follows: (i) 15% upon execution of the financier's entry into the lease with a customer, (ii) 25% on the day that is 180 days prior to delivery of the Energy Servers, (iii) 40% upon shipment of the Energy Servers, and (iv) 20% upon acceptance of the Energy Servers. The financier receives title to the Energy Servers upon installation at the customer site and the financier has risk of loss while our Energy Server is in operation on the customer’s site.

The Financing Agreement provides for the installation of our Energy Servers and includes a standard one-year warranty, to the financier, which includes the performance guaranties described below, with the warranty offered on an annually renewing basis at the discretion of, and to, the customer. The customer must provide fuel for the Bloom Energy Servers to operate.

Our direct lease deployments typically provide for warranties and guaranties of both the efficiency and output of our Energy Servers, all of which are written in favor of the customer and contained in the operations and maintenance services agreement. These warranties and guaranties may be measured on a monthly, annual, cumulative or other basis. As of June 30, 2020, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these warranties. Our obligation to make payments for underperformance against the performance guaranties for Traditional Lease projects was capped contractually under the sales agreements between us and each customer at an aggregate total of approximately $6.0 million (including payments both for low output and for low efficiency), and our aggregate remaining potential liability under this cap was approximately $4.1 million.

Remarketing at Termination of Lease

In the event the customer does not renew or purchase our Energy Servers to the end of any customer lease, we may remarket any such Energy Servers to a third party. Any proceeds of such sale would be allocated between us and the applicable financing partner as agreed between them at the time of such sale.

Managed Services Financing

Under our Managed Services Programs, we enter into a Managed Services Agreement with a customer, pursuant to which the customer is able to use the Energy Server for a certain term. Under the Managed Services Agreement, the customer makes a monthly payment for the use of the Energy Server. The customer payment typically has two components: (i) a fixed monthly capacity-based payment and (ii) a performance-based payment based on the output of electricity that month from the Energy Server. The fixed capacity-based payments made by the customer under the Managed Services Agreement are applied toward our obligation to pay down our liability under the master lease with the financier. The performance payment is transferred to us as compensation for operations and maintenance services and recorded as services revenue within the condensed consolidated statements of operations. In some cases, the customer’s monthly payment consists solely of the first component, a fixed monthly capacity-based payment.

Once a financier is identified and the Energy Server’s installation is complete, we sell the Energy Server contemplated by the Managed Services Agreement directly to a financier and the financier, as lessor, leases it back to us, as lessee, pursuant to a master lease in a sale-leaseback transaction. The proceeds from the sale are recorded as a financing obligation within the condensed consolidated balance sheets. Any ongoing operations and maintenance service payments are scheduled in the Managed Services Agreement in the form of the performance-based payment described above. The financier typically pays the financing proceeds for the Energy Server contemplated by the Managed Services Agreement on or shortly after acceptance.

The fixed capacity payments made by the customer under the Managed Services Agreement are recognized as electricity revenue when billed and applied toward our obligation to pay the financing obligation under the master lease. Our Managed Services financings have historically shifted customer credit risk to the financier, as lessor, by providing in the master lease agreement that we have no liability for payment of rent except in certain enumerated circumstances, including in the event we are in breach of the Managed Services Agreement between us and the customer.

The duration of the master lease in a Managed Services financing is typically 10 years. The term of the master lease is typically the same as the term of the related Managed Services Agreement, but in some cases the term of the master lease is shorter than that of the Managed Services Agreement.

Our Managed Services deployments typically provide only for warranties of both the efficiency and output of the Energy Server(s), all of which are written in favor of the customer and contained in the operations and maintenance services agreement. These warranties may be measured on a monthly, annual, cumulative or other basis. Managed Services projects typically do not

include guaranties above the warranty commitments, but in projects where the customer agreement includes a service payment for our operations and maintenance, that payment is typically proportionate to the output generated by the Energy Server(s) and our pricing assumes service revenues at the 95% output level. This means that our service revenues may be lower than expected if output is less than 95% and higher if output exceeds 95%. As of June 30, 2020, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these warranties and the fleet of our Energy Servers deployed pursuant to the Managed Services Program was performing at a lifetime average output of approximately 87%.

Power Purchase Agreement Programs

*Under the Third Party PPA arrangements, there is no link with an investment company, as we do not have an equity investment in these arrangements.

Under our PPA Programs, we sell our Energy Servers to an Operating Company, which sells the electricity generated by the Energy Servers to the ultimate end customers pursuant to a PPA, energy services agreement, or similar contract. Because the end customer's payment is stated on a dollar-per-kilowatt-hour basis, we refer to these agreements as Power Purchase Agreements ("PPAs"). Currently, our offerings for PPA Programs primarily include our Third-Party PPA Programs pursuant to which we recognize revenue on acceptance. Through 2017, as part of our PPA Programs, we had also offered the Bloom Electrons Program, which included an equity investment by us in the Operating Company and in which we recognized revenue as the electricity was produced. For further discussion on our Bloom Electrons Programs, see Note 13, Power Purchase Agreement Programs, in Part I, Item 1, Financial Statements.

In our PPA Program, we enter into an Energy Server sales, operations and maintenance agreement ("EPC and O&M Agreement") with the Operating Company that will own the Energy Servers. The Operating Company then enters into the PPA with the end customer which purchases electricity generated by the Energy Servers. The Operating Company receives all cash flows generated under the PPA(s), in addition to all investment tax credits, all accelerated tax depreciation benefits, and any other cash flows generated by the operation of the Energy Servers not allocated to the end customer under the PPA.

The sales of our Energy Servers to the Operating Company in connection with the various PPA Programs have many of the same terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery of the Energy Server, and upon acceptance of the Energy Server. Acceptance typically occurs when the Energy Server is installed and running at full power as

defined in the applicable EPC and O&M Agreement. A one-year service warranty is provided with the initial sale. After the expiration of the initial standard one-year warranty, the Operating Company has the option to extend our operations and maintenance services under the EPC and O&M Agreement on an annual basis at a price determined at the time of purchase of our Energy Server, which may be renewed annually for each Energy Server for up to 30 years. After the standard one-year warranty period, the Operating Company has almost always exercised the option to renew our operations and maintenance obligations under the EPC and O&M Agreement.

We typically provide output warranties and output guaranties to the Operating Company pursuant to the applicable EPC and O&M Agreement with the Operating Company. The end customer agreement between the Operating Company and the end customer also provides efficiency warranties and efficiency guaranties to the end user, and we provide a backstop of all of the Operating Company’s obligations under those agreements, including both the repair or replacement obligations pursuant to the warranties and any payment liabilities under the guaranties.

As of June 30, 2020, we had incurred no liabilities due to failure to repair or replace Energy Servers pursuant to these warranties. Our obligation to make payments for underperformance against the performance guaranties for PPA Program projects was capped at an aggregate total of approximately $106.5 million (including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately $101.4 million.

Obligations to Operating Companies

In addition to our obligations to the end customers, our PPA Programs involve many obligations to the Operating Company that purchases our Energy Servers. These obligations are set forth in the applicable EPC and O&M Agreement(s), and may include some or all of the following obligations:

•designing, manufacturing, and installing the Energy Servers, and selling such Energy Servers to the Operating Company,

•obtaining all necessary permits and other governmental approvals necessary for the installation and operation of the Bloom Energy Servers, and maintaining such permits and approvals throughout the term of the EPC and O&M Agreements,

•operating and maintaining the Bloom Energy Servers in compliance with all applicable laws, permits and regulations,

•satisfying the efficiency and output warranties set forth in such EPC and O&M Agreements and the PPAs ("performance warranties"), and

•complying with any specific requirements contained in the PPAs with individual end-customers.

The EPC and O&M Agreements obligate us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the performance warranties and in the event we otherwise breach the terms of the applicable EPC and O&M Agreements and we fail to remedy such failure or breach after a cure period, or in the event that a PPA terminates as a result of any failure by us to comply with the applicable EPC and O&M Agreements. In some PPA Program projects, our obligation to repurchase Energy Servers extends to the entire fleet of Energy Servers sold pursuant to the applicable EPC and O&M Agreements in the event such failure affects more than a specified number of Energy Servers.

In some PPA Programs, we have also agreed to pay liquidated damages to the applicable Operating Company in the event of delays in the manufacture and installation of our Energy Servers, either in the form of a cash payment or a reduction in the purchase price for the applicable Energy Servers.

Both the upfront purchase price for our Energy Servers and the ongoing fees for our operations and maintenance are paid on a fixed dollar-per-kilowatt basis.

Indemnification of Performance Warranty Expenses Under PPAs - In addition to the performance warranties and guaranties in the EPC and O&M Agreements, we also have agreed to indemnify certain Operating Companies for any expenses they incur to any of the end customers resulting from failures of the applicable Energy Servers to satisfy any of the performance warranties and guaranties set forth in the applicable PPAs.

Administration of Operating Companies - In each of the Bloom Electrons programs, we perform certain administrative services on behalf of the applicable Operating Company, including invoicing the end customers for amounts owed under the PPAs, administering the cash receipts of the Operating Company in accordance with the requirements of the financing arrangements, interfacing with applicable regulatory agencies, and other similar obligations. We are compensated for these services on a fixed dollar-per-kilowatt basis.

The Operating Company in each of the Bloom Electrons Programs (other than PPA I) has incurred debt in order to finance the acquisition of Energy Servers. The lenders for these projects are a combination of banks and/or institutional investors. In each case, the debt is secured by all of the assets of the applicable Operating Company, such assets being primarily comprised of the Energy Servers and a collateral assignment of each of the contracts to which the Operating Company is a party, including the O&M Agreement entered into with us and the off take agreements entered into with the Operating Company’s customers, and is senior to all other debt obligations of the Operating Company. As further collateral, the lenders receive a security interest in 100% of the membership interest of the Operating Company. However, as is typical in structured finance transactions of this nature, although the project debt is secured by all of the Operating Company’s assets, the lenders have no recourse to us or to any of the other equity investors in the project. The applicable debt agreements include provisions that implement a customary “payment waterfall” that dictates the priority in which the Operating Company will use its available funds to satisfy its payment obligations to us, the lenders, the tax equity investors and other third parties.

We have determined that we are the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions (see Note 13, Power Purchase Agreement Programs, in Part I, Item 1, Financial Statements.) Accordingly, we consolidate 100% of the assets, liabilities and operating results of these entities, including the Energy Servers and lease income, in our consolidated financial statements. We recognize the tax equity investors’ share of the net assets of the investment entities as noncontrolling interests in subsidiaries in our condensed consolidated balance sheet. We recognize the amounts that are contractually payable to these investors in each period as distributions to noncontrolling interests in our condensed consolidated statements of redeemable noncontrolling interest, stockholders' deficit and noncontrolling interest. Our condensed consolidated statements of cash flows reflect cash received from these investors as proceeds from investments by noncontrolling interests in subsidiaries. Our condensed consolidated statements of cash flows also reflect cash paid to these investors as distributions paid to noncontrolling interests in subsidiaries. We reflect any unpaid distributions to these investors as distributions payable to noncontrolling interests in subsidiaries on our condensed consolidated balance sheets. However, the PPA Entities are separate and distinct legal entities, and Bloom Energy Corporation may not receive cash or other distributions from the PPA Entities except in certain limited circumstances and upon the satisfaction of certain conditions, such as compliance with applicable debt service coverage ratios and the achievement of a targeted internal rate of return to the tax equity investors, or otherwise.

For further information about our PPA Programs, see Note 13, Power Purchase Agreement Programs, in Part I, Item 1, Financial Statements.

Delivery and Installation

The timing of delivery and installations of our products have a significant impact on the timing of the recognition of product and installation revenue. Many factors can cause a lag between the time that a customer signs a purchase order and our recognition of product revenue. These factors include the number of Energy Servers installed per site, local permitting and utility requirements, environmental, health and safety requirements, weather, and customer facility construction schedules. Many of these factors are unpredictable and their resolution is often outside of our or our customers’ control. Customers may also ask us to delay an installation for reasons unrelated to the foregoing, including delays in their obtaining financing. Further, due to unexpected delays, deployments may require unanticipated expenses to expedite delivery of materials or labor to ensure the installation meets the timing objectives. These unexpected delays and expenses can be exacerbated in periods in which we deliver and install a larger number of smaller projects. In addition, if even relatively short delays occur, there may be a significant shortfall between the revenue we expect to generate in a particular period and the revenue that we are able to recognize. For our installations, revenue and cost of revenue can fluctuate significantly on a periodic basis depending on the timing of acceptance and the type of financing used by the customer. As described in the Power Purchase Agreement Programs section above, we offered the Bloom Electrons purchase program through the end of 2016 and no longer offer this financing structure to potential customers.

International Channel Partners

Prior to 2018, we consummated a small number of sales outside the United States, including in India and Japan.

India. In India, sales activities are currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly-owned indirect subsidiary; however, we are currently evaluating the Indian market to determine whether the use of channel partners would be a beneficial go-to-market strategy to grow our India market sales.

Japan. In Japan, sales are conducted pursuant to a Japanese joint venture established between us and subsidiaries of SoftBank Corp, called Bloom Energy Japan Limited ("Bloom Energy Japan"). Under this arrangement, we sell Energy Servers to Bloom Energy Japan and we recognize revenue once the Energy Servers leave the port in the United States. Bloom Energy Japan enters into the contract with the end customer and performs all installation work as well as some of the operations and maintenance work.

The Republic of Korea. In 2018, Bloom Energy Japan consummated a sale of Energy Servers in the Republic of Korea to Korea South-East Power Company. Following this sale, we entered into a Preferred Distributor Agreement with SK Engineering & Construction Co., Ltd. ("SK E&C") to enable us to sell directly into the Republic of Korea.

Under our agreement with SK E&C, SK E&C has a right of first refusal during the term of the agreement, with certain exceptions, to serve as distributor of Energy Servers for any fuel cell generation project in the Republic of Korea, and we have the right of first refusal to serve as SK E&C’s supplier of generation equipment for any Bloom Energy fuel cell project in the Republic of Korea. Under the terms of each purchase order, title, risk of loss and acceptance of the Energy Servers pass from us to SK E&C upon delivery at the named port of lading for shipment in the United States for the Energy Servers shipped in 2018 and thereafter upon delivery at the named port of unlading in the Republic of Korea, prior to unloading subject to final purchase order terms. The Preferred Distributor Agreement has an initial term expiring on December 31, 2021, and thereafter will automatically be renewed for three-year renewal terms unless either party terminates this agreement by prior written notice under certain circumstances.

Under the terms of the Preferred Distributor Agreement, we (or our subsidiary) contract directly with the customer to provide operations and maintenance services for the Energy Servers. We have established a subsidiary in the Republic of Korea, Bloom Energy Korea, LLC, to which we subcontract such operations and maintenance services. The terms of the operations and maintenance are negotiated on a case-by-case basis with each customer, but are generally expected to provide the customer with the option to receive services for at least 10 years, and for up to the life of the Energy Servers.

SK E&C Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK E&C to establish a light-assembly facility in the Republic of Korea for sales of certain portions of our Energy Server for the stationary utility and commercial and industrial market in the Republic of Korea. The joint venture is majority controlled and managed by us. We expect the facility to be operational by mid-2020 subject to the completion of certain conditions precedent to the establishment of the joint venture company. Other than a nominal initial capital contribution by Bloom, the joint venture will be funded by SK E&C. SK E&C, who currently acts as a distributor for our Energy Servers for the stationary utility and commercial and industrial market in the Republic of Korea, will be the primary customer for the products assembled by the joint venture.

Community Distributed Generation Programs

In July 2015, the state of New York introduced its Community Distributed Generation program, which extends New York’s net metering program in order to allow utility customers to receive net metering credits for electricity generated by distributed generation assets located on the utility’s grid but not physically connected to the customer’s facility. This program allows for the use of multiple generation technologies, including fuel cells.

In December 2019, we entered into fuel cell sales, installation, operations and maintenance agreements with two developers for the deployment of fuel cells pursuant to this Community Distributed Generation program. These agreements have many of the same terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery of the Energy Server, and upon acceptance of the Energy Server. Acceptance typically occurs when the Energy Server is installed and running at full power as defined in each contract. A one-year service warranty is provided with the initial sale. After the expiration of the initial standard one-year warranty, the owner has the option to renew our operations and maintenance services for subsequent quarterly or annual periods for up to 30 years. We provide warranties and guaranties regarding both efficiency and output to the owners of the Energy Servers pursuant to the operations and maintenance services agreement with the Operating Company.

As of June 30, 2020, we had not yet completed the sale of any Energy Servers in connection with the New York Community Distributed Generation program.

Key Operating Metrics

In addition to the measures presented in the condensed consolidated financial statements, we use the following key operating metrics to evaluate business activity, to measure performance, to develop financial forecasts and to make strategic decisions:

•Product accepted - the number of customer acceptances of our Energy Servers in any period. We recognize revenue when an acceptance is achieved. We use this metric to measure the volume of deployment activity. We measure each Energy Server manufactured, shipped and accepted in terms of 100 kilowatt equivalents.

•Billings for product accepted in the period - the total contracted dollar amount of the product component of all Energy Servers that are accepted in a period. We use this metric to gauge the dollar value of the product acceptances and to evaluate the change in dollar amount of acceptances between periods.

•Billings for installation on product accepted in the period - the total contracted dollar amount billable with respect to the installation component of all Energy Servers that are accepted. We use this metric to gauge the dollar value of the installations of our product acceptances and to evaluate the change in dollar value associated with the installation of our product acceptances between periods.

•Billings for annual maintenance service agreements - the dollar amount billable for one-year service contracts that have been initiated or renewed. We use this metric to measure the cumulative billings for all service contracts in any given period. As our installation base grows, we expect our billings for annual maintenance service agreements to grow, as well.

•Product costs of product accepted in the period (per kilowatt) - the average unit product cost for the Energy Servers that are accepted in a period. We use this metric to provide insight into the trajectory of product costs and, in particular, the effectiveness of cost reduction activities.

•Period costs of manufacturing expenses not included in product costs - the manufacturing and related operating costs that are incurred to procure parts and manufacture Energy Servers that are not included as part of product costs. We use this metric to measure any costs incurred to run our manufacturing operations that are not capitalized (i.e., absorbed, such as stock-based compensation) into inventory and therefore, expensed to our condensed consolidated statement of operations in the period that they are incurred.

•Installation costs on product accepted (per kilowatt) - the average unit installation cost for Energy Servers that are accepted in a given period. This metric is used to provide insight into the trajectory of install costs and, in particular, to evaluate whether our installation costs are in line with our installation billings.

Comparison of the Three and Six Months Ended June 30, 2020 and 2019

Acceptances

We use acceptances as a key operating metric to measure the volume of our completed Energy Server installation activity from period to period. We typically define an acceptance as when an Energy Server is installed and running at full power as defined in the customer contract or the financing agreements. For orders where a third party performs the installation, acceptances are generally achieved when the Energy Servers are shipped.

The product acceptances in the periods were as follows:


	Three Months Ended June 30,			Change				Six Months Ended June 30,			Change
	2020	2019	Amount	%		2020	2019	Amount	%

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

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

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


	100	%	100	%	100	%	100	%

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

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

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

Billings Related to Our Products

Total billings attributable to each revenue classification for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands, except percentages):


	Three Months Ended June 30,						Change						Six Months Ended June 30,				Change
	2020		2019		Amount		%		2020		2019		Amount		%

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

Billings for product accepted decreased by approximately $47.6 million, or 28.8%, for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019. The decrease is primarily due to a higher average selling price mix in the three months ended June 30, 2019, driven mainly by the PPA II upgrade that occurred in the three months ended June 30, 2019. Billings for installation on product accepted increased $14.7 million for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019. Although product acceptances in the period increased 12.9%, billings for installation on product accepted increased 111.4% due to the mix in installation billings driven by site complexity, site size, personalized applications, and customer option to complete the installation of our Energy Servers themselves. Billings for annual maintenance service agreements increased $3.8 million, or 24.8%, for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019. This increase was driven primarily by the increase in our installed base.

Billings for product accepted decreased by approximately $42.6 million, or 15.7%, for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. The decrease is primarily due to a higher average selling price mix in the six months ended June 30, 2019, driven mainly by the PPA II upgrade that occurred in the six months ended June 30, 2019. Billings for installation on product accepted increased $14.8 million for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. Although product acceptances in the period increased 11.1%, billings for installation on product accepted increased 53.6% due to the mix in installation billings driven by site complexity, site size, personalized applications, and customer option to complete the installation of our Energy Servers themselves. Billings for annual maintenance service agreements increased $6.4 million, or 19.4%, for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. This increase was driven primarily by the increase in our installed base.

Costs Related to Our Products

Total product related costs for the three and six months ended June 30, 2020 and 2019 was as follows:


	Three Months Ended June 30,						Change						Six Months Ended June 30,				Change
	2020		2019		Amount		%		2020		2019		Amount		%

Product costs of product accepted in the period	$2,409 /kW		$3,045 /kW		$(636) /kW		(20.9)	%	$2,456 /kW		$3,120 /kW		$(664) /kW		(21.3)	%
Period costs of manufacturing related expenses not included in product costs (in thousands)	$	4,913	$	3,321	$	1,592	47.9	%	$	11,267	$	10,258	$	1,009	9.8	%
Installation costs on product accepted in the period	$1,200 /kW		$627 /kW		$573 /kW		91.4	%	$1,011/kW		$650/kW		$361/kW		55.5	%

Product costs of product accepted decreased by approximately $636 per kilowatt, or 20.9%, for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019. The product cost reduction was driven generally by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through improved processes and automation at our manufacturing facilities.

Product costs of product accepted decreased by approximately $664 per kilowatt, or 21.3%, for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. The product cost reduction was driven generally by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through improved processes and automation at our manufacturing facilities.

Period costs of manufacturing related expenses increased by approximately $1.6 million, or 47.9%, for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019. This increase was driven primarily by additional one-time expenses incurred due to COVID-19.

Period costs of manufacturing related expenses increased by approximately $1.0 million, or 9.8%, for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. This increase was driven primarily by additional one-time expenses incurred due to COVID-19.

Installation costs on product accepted increased by approximately $573 per kilowatt, or 91.4%, for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, personalized applications, and customer option to complete the installation of our Energy Servers themselves. As such, installation on a per kilowatt basis can vary significantly from period-to-period.

Installation costs on product accepted increased by approximately $361 per kilowatt, or 55.5%, for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, personalized applications, and customer option to complete the installation of our Energy Servers themselves. As such, installation on a per kilowatt basis can vary significantly from period-to-period.

Results of Operations

A discussion regarding the comparison of our financial condition and results of operations for the three and six months ended June 30, 2020 and 2019 is presented below (in thousands, except percentage data).

Comparison of the Three and Six Months Ended June 30, 2020 and 2019

Revenue

Three Months Ended
June 30,

Change

Six Months Ended
June 30,

Change

2020

2019

Amount

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. senior Avg

Bloom Energy (BE) 10-Q2020 Q2 Quarterly report

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