Bloom Energy Corp

Previous wording

This Quarterly Report on Form 10-Q contains“forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products and services, including our aim to provide resilient products, business strategies, including capital expenditures to expand production capacity and sources of funding for capital expenditures, our expanded strategic partnership with SK ecoplant, operations, supply chain (including any direct or indirect effects from the Russia-Ukraine war or geopolitical developments in China), new markets, government incentive programs, impact of the Inflation Reduction Act of 2022 (the “IRA”) and transferability of tax credits on our business and the financing market for installations of our products, impact of new foreign tax rules on our financial statements, growth of the hydrogen market and the sufficiency of our cash and our liquidity, the potential to engage in equity or debt financing transactions, future capital requirements and use of proceeds and our commitments or contingencies. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact are forward-looking statements. Forward-looking statements may be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “designs,” “plans,”“predicts,” “targets,” “forecasts,” “will,” “would,” “could,” “can,” “may,” “aim,” “potential,” “mission,” “commit” and similar terms. These statements are based on the beliefs and assumptions of our management based on information currently available to management at the time they are made. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results, outcomes and the timing of certain events to differ materially from future results or outcomes expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those factors discussed in the section titled “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in our other filings with the U.S. Securities and Exchange Commission (“SEC”). You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipa…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report on Form 10-Q contains“forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products and services, including our aim to provide resilient products, business strategies, including capital expenditures to expand production capacity and sources of funding for capital expenditures, our expanded strategic partnership with SK ecoplant, operations, supply chain (including any direct or indirect effects from the Russia-Ukraine war or geopolitical developments in China), new markets, government incentive programs including the scheduled expiration of the Investment Tax Credit at the end of 2024, impact of the Inflation Reduction Act of 2022 (the “IRA”) and transferability of tax credits on our business and the financing market for installations of our products, impact of new foreign tax rules on our financial statements, growth of the hydrogen market, sufficiency of our cash and our liquidity, the potential to engage in equity or debt financing transactions, future capital requirements and use of proceeds, our commitments or contingencies, and statements under “Key Macro Trends.” All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact are forward-looking statements. Forward-looking statements may be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “designs,” “plans,”“predicts,” “targets,” “forecasts,” “will,” “would,” “could,” “can,” “may,” “aim,” “potential,” “mission,” “commit” and similar terms. These statements are based on the beliefs and assumptions of our management based on information currently available to management at the time they are made. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results, outcomes and the timing of certain events to differ materially from future results or outcomes expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those factors discussed in the section titled “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and in our other filings with the U.S. Securities and Exchange Commission (“SEC”). You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Our technology, invented in the U.S., is one of the most advanced electricity and hydrogen producing technologies on the market today. Our fuel-flexible Bloom Energy Servers can use biogas, hydrogen, natural gas, or a blend of fuels to create resilient, sustainable and cost-predictable power at typically significantly higher efficiencies than traditional, combustion-based resources. In addition, our same solid oxide platform that powers our fuel cells can be used to create hydrogen with our Bloom Electrolyzer. Hydrogen is increasingly recognized as a critically important tool for the decarbonization of the energy economy. Our enterprise customers include some of the largest multinational corporations in the world. We also have strong relationships with some of the largest utility companies in the U.S. and the Republic of Korea, with a growing presence in various international markets.

Current wording

Our technology, invented in the U.S., is one of the most advanced electricity and hydrogen producing technologies on the market today. Our fuel-flexible Bloom Energy Servers can use biogas, hydrogen, natural gas, or a blend of fuels to create resilient, sustainable and cost-predictable power at higher efficiency levels than traditional, combustion-based resources. Our enterprise customers include some of the largest multinational corporations in the world. We also have relationships with some of the largest utility companies in the U.S. and the Republic of Korea, with a growing presence in various international markets. The solid oxide platform that powers our fuel cells can be used to create hydrogen with our Bloom Electrolyzer, and hydrogen is increasingly recognized as a critically important decarbonization tool in the energy transition.

Previous wording

At Bloom Energy, we look forward to a net-zero future. Our technology is designed to help enable this future by delivering reliable, low-carbon electricity in a world facing unacceptable levels of power disruptions. Our resilient platform has kept electricity available for our customers through hurricanes, earthquakes, typhoons, forest fires, extreme heat and grid failures. Unlike traditional combustion power generation, our platform is community-friendly and designed to significantly reduce emissions of criteria air pollutants. We have made tremendous progress towards renewable fuel production through our biogas, hydrogen and electrolyzer programs, and we believe that we are well-positioned as a core platform and fixture in the new energy paradigm to help organizations and communities achieve their net-zero objectives.

Current wording

At Bloom Energy, we look forward to a net-zero future. Our technology is designed to help enable this future by delivering reliable, low-carbon electricity in a world facing unacceptable power disruptions. Our resilient platform has kept electricity available for our customers through hurricanes, earthquakes, typhoons, forest fires, extreme heat and grid failures. Unlike traditional combustion power generation, our platform is community-friendly and designed to significantly reduce emissions of criteria air pollutants. We can enable renewable fuel production through our biogas, hydrogen and electrolyzer programs, and we believe that we are well-positioned to help organizations and communities achieve their net-zero objectives.

Previous wording

We market and sell our Energy Servers primarily through our direct sales organization in the U.S., and we also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a significant 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, and who may prefer to finance the acquisition using third-party financing or to contract for our services on a pay-as-you-go model.

Current wording

We market and sell our Energy Servers primarily through our direct sales organization in the U.S., and we also have direct and indirect sales channels internationally. Recognizing that deploying our solutions requires a significant financial commitment, we have developed financing options to support sales of our Energy Servers to customers who lack the financial capability to purchase our Energy Servers directly, and who may prefer to use third-party financing.

Previous wording

The global energy transition to a zero-carbon environment has created new challenges and opportunities for utilities, suppliers of energy solutions and customers. Shifts and uncertainty in market and regulatory dynamics and corporate and governmental policies are currently impacting the selling process and extending sales cycles and timelines for our natural gas-, biogas- and hydrogen-related products. Increasing electricity rates, decreasing energy reliability, and delays in the development of transmission infrastructure and grid interconnection have led to increased customer interest in our power solutions. At the same time, natural gas supply and pricing concerns due to geopolitical stresses and resulting market changes as well as increasing focus on sustainability targets have led to increased caution from potential customers. The increased use of renewable power generation and the weather effects of climate change have exacerbated aging grid fragilities, increased the occurrence of power outages, created grid transmission shortages, and lengthened already extensively delayed interconnection cycles. Low- and zero-carbon sources of baseload energy have also been curtailed and even banned in some locations, forcing utilities, states and countries to revisit less clean sources of baseload and intermediate power in an attempt to ensure energy reliability. This supply and demand mismatch globally has threatened energy security reliability, reduced the availability of energy, and increased the cost of energy.

Current wording

The global energy transition to a zero-carbon environment has created new challenges and opportunities for utilities, suppliers of energy solutions, and customers. Shifts and uncertainty in market and regulatory dynamics and corporate and governmental policies are currently impacting the selling process and extending sales cycles and timelines for our products. Increasing electricity rates, decreasing energy reliability, and delays in the development of transmission infrastructure and grid interconnection have led to increased customer interest in our power solutions. At the same time, natural gas supply and pricing concerns due to geopolitical stresses and resulting market changes as well as increasing focus on sustainability targets have led to increased caution from potential customers. Increasing demand for power has forced utilities, states and countries to revisit less clean sources of baseload and intermediate power, which our technology is designed to replace, in an attempt to ensure energy reliability. This supply and demand mismatch globally has threatened energy’s security, reliability, availability, and increased its cost.

Previous wording

Bloom’s power solutions enable customers to address these energy market challenges by offering fuel flexible solutions that are designed to provide cost predictable, resilient, and reliable energy in a timely fashion. As customers and utilities navigate the energy transition and evolving landscape, the ability of our power solutions to fit their economic, regulatory, and policy needs depends on a number of factors, including natural gas availability and pricing, electrical interconnection needs and availability, redundant back up power requirements, cost requirements, and sustainability profile. Even in those situations where the time to power from the utility is years away in light of the need to build out energy transmission infrastructure, these factors still may impact a customer’s buying decision. For example, although our power generation solutions can operate as microgrids, independent from the grid, if a customer desires back up power or a “grid parallel” solution in combination with the Bloom microgrid, required interconnection studies and lengthy interconnection queues remain, eroding the time to power value proposition. According to the Lawrence Berkeley National Lab, U.S. interconnection queue delays are growing, with a forty percent year over year increase in 2022. The typical project interconnection process for large scale projects grew to five years in 2022 compared to three years in 2015 and two years in 2008. In addition, many data center customers and other large power users have signed exclusivity arrangements with their utilities, and this often creates a more complicated dynamic for them to move to a behind the meter solution. To add to this, the rising cost of natural gas, increases in gas distribution rates, limited availability of natural gas supply, as well as disruptions to the world gas markets, has increased the cost of our power solutions for customers and, in certain cases where there is a lack of fuel supply, a complete inability to operate the systems. In the U.S., the lack or slow development of pipeline infrastructure is impacting the timing of customers being able to take advantage of our power solution opportunities. In certain jurisdictions in the U.S. and Europe, natural gas bans have been enacted that prevent the use of our power solutions unless alternative fuels are available. In addition, there is a growing hesitancy among potential customers to purchase our power solutions to run on natural gas. Increasingly, customers want a zero-carbon solution for power, and, although our power solutions are designed to run on biofuels or hydrogen (in addition to natural gas) and help our customers achieve their sustainability goals, these fuels continue to have very limited availability and, for most customers, are not yet economical. This impetus by customers to use zero-carbon solutions today, combined with the current lack of availability of zero-carbon fuels, is adversely impacting our power solution selling oppo…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Bloom enables customers to address these energy market challenges by offering fuel flexible solutions that are designed to provide cost predictable, resilient, and reliable energy in a timely fashion. As customers and utilities navigate the energy transition and evolving landscape, the ability of our power solutions to fit their economic, regulatory, and policy needs depends on a number of factors, including natural gas availability and pricing, electrical interconnection needs and availability, redundant back up power requirements, cost requirements, and sustainability profiles. Even in those situations where the time to power from the utility is measured in years because of the need to build out energy transmission infrastructure, these factors still may impact a customer’s buying decision.

Previous wording

The regulatory environment for energy solutions continues to shift. In South Korea, the government recently moved to a new, government-run bidding process for fuel cell purchases, which has impacted and may continue to impact demand for our power solutions. In the U.S., the ITC for fuel cells running on a non-zero carbon fuel currently expires at the end of fiscal year 2024. To date, we have been unsuccessful in getting Congress to renew the ITC. Because 2024 is an election year in the U.S., it may be difficult for Congress to achieve an extension of the ITC for commercial fuel cell purchasers this year. If the ITC is not extended for fuel cells, U.S. bookings, revenue and gross margins will likely be materially impacted. In Ireland, which is a large data center market, a directive from the Minister of the Department of the Environment, Climate and Communications to restrict grid connections to data centers and other large power users, along with a halt in high-pressure gas installations has delayed our selling activities in Ireland. Delays in adoption of Renewable Fuel Standard regulations in the U.S. for the use of biogas to generate electricity for electric vehicles, and minimal governmental focus on utilization of biogas outside of its direct use by methane-fueled vehicles, have created uncertainty in prospects for broader biogas availability for industrial uses, including our power solutions. In addition, in most jurisdictions, air permits and various land use permits are required for installation of our solutions over a certain amount of mega-watts, and generally the length of time to obtain these permits increased, while the level of certainty of issuance has decreased and if issued, the cost of compliance requirements can be cost prohibitive. We have experienced a reluctance in certain states to issue permits for gas generation equipment. Even if issued, states may require a blend of costly renewable fuels or other measures to advance climate goals. This has adversely impacted our selling activities.

Current wording

In 2023, the South Korean government moved to a new, government-run bidding process for fuel cell purchases, which has impacted and may continue to impact demand for our power solutions. In the U.S., absent Congressional action, the Investment Tax Credit (“ITC”) for fuel cells running on a non-zero carbon fuel is currently scheduled to expire at the end of fiscal year 2024. To date, Congress has not renewed the ITC. Because 2024 is a presidential election year in the U.S., it is possible Congress may be unable to achieve an extension of the ITC for commercial fuel cell purchasers this year. If the ITC is not extended for fuel cells, U.S. bookings, revenue and gross margins could be materially impacted. In 2024, the expiration of the ITC could increase demand for ITC-compliant sales of our Energy Servers due to customer desire to secure ITC for their projects through safe harboring. However, if our customers or project-level investors prove reluctant to make sufficient cash outlays in 2024 for purchases of Energy Servers for future projects, our sales could be negatively impacted. The Inflation Reduction Act of 2022 (“IRA”) established a new clean electricity production credit and a clean electricity investment credit. There is considerable uncertainty around whether, or the conditions under which, such credits will be available for transactions involving our Energy Servers. In addition, delays in adoption of Renewable Fuel Standard regulations in the U.S. for the use of biogas to generate electricity for electric vehicles, along with minimal governmental focus on utilization of biogas outside of use by methane-fueled vehicles, have created uncertainty in prospects for broader biogas availability for industrial uses, including our power solutions. In addition, in most jurisdictions, air permits and various land use permits are required for installation of our solutions over a certain amount of mega-watts, and generally the length of time to obtain these permits increased, while the level of certainty of issuance has decreased and if issued, the cost of compliance requirements can be cost prohibitive. We have experienced a reluctance in certain states to issue permits for gas generation equipment. Even if issued, states may require a blend of costly renewable fuels or other measures to advance climate goals. In Ireland, which is a large data center market, a directive from the Minister of the Department of the Environment, Climate and Communications to restrict grid connections to data centers and other large power users, along with a halt in high-pressure gas installations has delayed our selling activities. This has adversely impacted our selling activities.

Previous wording

Significant governmental interest, investment and stimulation of clean hydrogen in the U.S., Europe and in many other regions across the globe have not yet had significant impacts on demand for hydrogen. To date, while the number of proposed hydrogen production projects has grown rapidly, only a small fraction has reached the final investment decision (FID) stage, and an even smaller fraction have been deployed. In addition, the infrastructure needed to transport hydrogen, whether through pipelines or maritime or land-based tankers, is currently only sufficient for existing uses, and has not begun to be extended for anticipated future uses, with hydrogen blending and other approaches remaining at pilot stages. It remains unclear whether regulators in some jurisdictions will allow hydrogen to be introduced into gas distribution systems, which could effectively preclude or severely limit our ability to transport hydrogen from the point of production to the point of consumption.

Current wording

In the second quarter of 2024, we entered into an agreement to sell Bloom Electrolyzers in the European market. The significant governmental interest, investment, and stimulation of clean hydrogen in the U.S., Europe and in many other regions across the globe have not yet had significant impacts on the supply of hydrogen. To date, while the number of proposed hydrogen production projects has grown rapidly, only a small fraction has reached the final investment decision stage, and an even smaller fraction have been deployed. In addition, the infrastructure needed to transport hydrogen, whether through pipelines or maritime or land-based tankers, is currently only sufficient for existing uses, and has not begun to be significantly extended for anticipated future uses, with hydrogen blending and other approaches remaining at pilot stages. It remains unclear whether regulators in some jurisdictions will allow hydrogen to be introduced into gas distribution systems, which could limit our customers’ ability to transport hydrogen from the point of production to the point of consumption. Additionally, U.S. Treasury Department rules surrounding the use of market-based renewable energy could make it more difficult for hydrogen projects to acquire energy needed to access the Production Tax Credit.

Previous wording

All of these factors have lengthened the selling cycles for our electrolyzer product and power solutions, and we have experienced delays in our anticipated bookings. Our revenue, margins, and cash flow in any given year are largely dependent on bookings during the prior year. Historically, the majority of our bookings have occurred in the second half of the year, with a significant portion occurring in the fourth quarter. That trend did not continue to the same degree in 2023. If a substantial portion of our anticipated bookings continue to be delayed, our future revenue, margins and cash flow could be materially adversely impacted.

Current wording

Many of the factors discussed above have lengthened the selling cycles for our products and we have experienced delays in our anticipated bookings as a result. Our revenue, margins, and cash flow in any given year are largely dependent on bookings during the prior year. Historically, the majority of our bookings have occurred in the second half of the year, with a significant portion occurring in the fourth quarter. That trend did not continue to the same degree in 2023. If a substantial portion of our anticipated bookings continue to be delayed, our future revenue, margins and cash flow could be materially adversely impacted.

Previous wording

We continue to see effects from global supply chain tightness due to the current inflationary environment, war in Ukraine, and trade tensions between the U.S. and China. We are not aware of, and do not expect any significant direct impact on our business or supply chain from the Israel-Gaza Strip armed conflict. While we have not experienced any significant component shortages to date, we are facing pressures from inflation. These dynamics could worsen as a result of continued geopolitical instability. In the event we are unable to mitigate the impacts of delays and/or price increases in raw materials and components, it could delay the manufacturing and installation of, and increase the costs of, our products, which would adversely impact our cash flows and results of operations, including our revenues and gross margin. We expect these supply chain challenges to continue in the short term.

Current wording

We continue to see effects from global supply chain tightness due to the current inflationary environment, war in Ukraine, and trade tensions between the U.S. and China. We are not aware of, and do not expect any significant direct impact on our business or supply chain from the Israel-Gaza Strip armed conflict. While we have not experienced any significant component shortages to date, we are facing pressures from inflation. These dynamics could worsen as a result of continued geopolitical instability. We are also reliant on third party providers of storage equipment, infrastructure equipment and pipelines, and other materials and technologies that work with our products to provide an energy solution for customers. In the event we are unable to mitigate the impacts of delays and/or price increases in raw materials and components, it could delay the manufacturing and installation of, and increase the costs of, our products, which would adversely impact our cash flows and results of operations, including our revenues and gross margin. We expect these supply chain challenges to continue in the short term.

Previous wording

Our ability to obtain financing for our Energy Servers depends partially on the creditworthiness of our customers, and deterioration of our customers’ credit ratings can impact the financing for their use of our Energy Servers. Regional banking and financial institution instability, such as the failure of Silicon Valley Bank in the first quarter of 2023, may make it more difficult for our customers to obtain financing. Rising interest rates have also increased the cost of financing for our customers. As interest rates rise, the financiers of our installations demand a higher rate of return, which puts pressure on our margins. We continue to work on obtaining the financing required for our 2024 installations, but if we are unable to secure such financing, our revenue, cash flow, and liquidity could be materially impacted. We expect that in the U.S., the IRA and the transferability of tax credits should make the financing market more robust in 2024, thereby easing some of these customer financing constraints, but this cannot be assured.

Current wording

Our ability to obtain financing for our products depends partially on the creditworthiness of our customers, and deterioration of our customers’ credit ratings could impact this financing. Regional banking and financial institution instability, such as the failure of Silicon Valley Bank in the first quarter of 2023, may make it more difficult for our customers to obtain financing. Rising interest rates have also increased the cost of financing for our customers. As interest rates rise, the financiers of our installations demand a higher rate of return, which puts pressure on our margins. We continue to work on obtaining the financing required for our 2024 installations, but if we are unable to secure such financing, our revenue, cash flow, and liquidity could be materially impacted. We expect that in the U.S., the IRA and the transferability of tax credits should make the financing market more robust in 2024, thereby easing some of these customer financing constraints, but this cannot be assured.

Previous wording

As recently as 2022, we experienced impacts from labor shortages and challenges in hiring for our manufacturing facilities. While these constraints abated in 2023 and we reduced headcount as part of the Restructuring Plan adopted in September 2023, we may still experience difficulties with hiring and retention, and may face additional labor shortages in the future. For details on the Restructuring Plan refer to Part II, Item 8, Note 12 —Restructuringin our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. In addition, the current inflationary environment has led to rising wages and labor costs as well as increased competition for labor. In the event these constraints continue, and we are unable to continue to mitigate the impacts of these challenges, it could delay the manufacturing and installation of our Energy Servers or Electrolyzers, and we may be unable to meet customer demand, which could adversely impact our cash flows and results of operations, including our revenues and gross margin.

Current wording

As recently as 2022, we experienced impacts from labor shortages and challenges in hiring for our manufacturing facilities. While these constraints have since abated, and we reduced headcount as part of the Restructuring Plan adopted in September 2023, we may still experience difficulties with hiring and retention, and may face additional labor shortages in the future. For details on the Restructuring Plan refer to Part II, Item 8, Note 12 —Restructuring in our Annual Reporton Form 10-K for the fiscal year ended December 31, 2023. In addition, the current inflationary environment has led to rising wages and labor costs as well as increased competition for labor. In the event these constraints continue, and we are unable to mitigate the impacts of these challenges, it could delay the manufacturing and installation of our products, and we may be unable to meet customer demand, which could adversely impact our cash flows and results of operations, including our revenues and gross margin.

Previous wording

In the first quarter of 2024, our installation projects experienced some delays relating to, among other things, permitting, utility delays, and access to customer facilities. However, these delays did not significantly impact our revenue.

Current wording

In the second quarter of 2024, our installation projects experienced some delays relating to, among other things, permitting, utility delays, and access to customer facilities. However, these delays did not significantly impact our revenue.

Previous wording

If we are delayed in or unable to perform maintenance, our previously installed Energy Servers would likely experience adverse performance impacts, including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may incur higher costs in the future. During the three months ended March 31, 2024, we experienced no significant delays in servicing our Energy Servers.

Current wording

If we are delayed in or unable to perform maintenance, our previously installed Energy Servers would likely experience adverse performance impacts, including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may incur higher costs in the future. During the six months ended June 30, 2024, we experienced no significant delays in servicing our Energy Servers.

Previous wording

On March 27, 2024, Bloom, Bloom SK Fuel Cell, LLC , a joint venture in the Republic of Korea with SK ecoplant (“Korean JV”), and SK ecoplant entered into the Third Amendment to the Amended and Restated Preferred Distribution Agreement (the “Third ARPDA”). The Third ARPDA adds SK Eternix Co., Ltd. as an additional distributor of Bloom products and ancillary equipment in the Republic of Korea.

Current wording

On March 27, 2024, Bloom, Bloom SK Fuel Cell, LLC, a joint venture in the Republic of Korea with SK ecoplant (the “Korean JV”), and SK ecoplant entered into the Third Amendment to the Amended and Restated Preferred Distribution Agreement (the “Third ARPDA”). The Third ARPDA adds SK Eternix Co., Ltd., as an additional distributor of Bloom products and ancillary equipment in the Republic of Korea.

Previous wording

We raised cash and supplemented liquidity through financing activities with SK ecoplant in the first quarter of 2023 and issuing the 3% Green Convertible Senior Notes due June 2028 (the “3% Green Notes”) in the second quarter of 2023. At the same time, we increased our working capital spent. In the first quarter of 2024, we built up inventory in preparation for more expected shipments in the second half of 2024. This enabled us to level load production and gain manufacturing efficiency. In addition, we expanded our warehouse space in Delaware and California to store more inventory to meet the anticipated increase in demand. If this increase in demand does not materialize to the degree we anticipated, our liquidity and financial condition may be adversely impacted.

Current wording

We raised cash and supplemented liquidity by issuing the 3% Green Convertible Senior Notes due June 2029 (the “3% Green Notes due June 2029”) in the second quarter of 2024, as well as through financing activities with SK ecoplant in the first quarter of 2023 and issuing the 3% Green Convertible Senior Notes due June 2028 (the “3% Green Notes due June 2028”) in the second quarter of 2023. We expanded our warehouse space in Delaware and California to store more inventory to meet the anticipated increase in demand. If this increase in demand does not materialize to the degree we anticipated, our liquidity and financial condition may be adversely impacted.

Previous wording

The combination of our cash and cash equivalents and cash flow to be generated by our operations, is expected to be sufficient to meet our anticipated cash flow needs for at least the next 12 months. If these sources of cash are insufficient or are not received in a timely manner to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, our manufacturing capacity, product development, and market expansion requirements and to timely respond to competitive market pressures or strategic opportunities, among other things. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. During the three months ended March 31, 2024, we factored $80.7 million of accounts receivable. However, we may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. Although currently we do not have any floating-rate notes on our balance sheet, rising interest rates may increase our overall cost of capital, if and when we refinance our fixed-rate convertible notes. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock.

Current wording

The combination of our cash and cash equivalents and cash flow to be generated by our operations is expected to be sufficient to meet our anticipated cash flow needs for at least the next 12 months. If these sources of cash are insufficient or are not received in a timely manner to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, our manufacturing capacity, product development, and market expansion requirements and to timely respond to competitive market pressures or strategic opportunities, among other things. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. During the six months ended June 30, 2024, we factored $102.3 million of accounts receivable. However, we may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. Although currently we do not have any floating-rate notes on our balance sheet, rising interest rates may increase our overall cost of capital. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock.

Previous wording

Our future capital requirements depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional working capital, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our Energy Servers, the timing of installations and of inventory build in anticipation of future sales and installations, and overall economic conditions. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. Failure to obtain this financing in future quarters may affect our results of operations, including our revenues and cash flows.

Current wording

Our future capital requirements depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional working capital, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our products, the timing of installations and of inventory build in anticipation of future sales and installations, and overall economic conditions. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing. Failure to obtain this financing in future quarters may affect our results of operations, including our revenues and cash flows.

Previous wording

Our operating activities consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. Net cash used in operating activities during the three months ended March 31, 2024 was $147.3 million, a decrease of $167.4 million compared to the prior year period. The decrease in cash used in operating activities during the three months ended March 31, 2024 as compared to the prior year period was primarily driven by investments made in fiscal year 2023 in our working capital of $142.5 million due to an increase in inventory levels by $25.0 million to support future demand, an increase in accounts receivable by $7.6 million triggered by the timing of revenue transactions and corresponding collections, and the timing of payments to vendors.

Current wording

Our operating activities consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. Net cash used in operating activities during the six months ended June 30, 2024, was $322.8 million, a decrease of $38.4 million compared to the prior year period. The decrease in cash used in operating activities during the six months ended June 30, 2024, as compared to the prior year period, was primarily driven by changes in our working capital of $305.7 million due to (1) an increase in accounts receivable and contract assets by $183.3 million and $49.0 million, respectively, triggered by the timing of revenue transactions, corresponding collections and billing milestones, (2) an increase in inventory levels by $19.1 million to support future demand, and (3) the timing of payments to vendors.

Previous wording

Our investing activities have consisted of capital expenditures, including investments to increase our production capacity. Cash used in investing activities during the three months ended March 31, 2024, was $21.4 million, a decrease of $5.1 million compared to the prior year period and was primarily due to the decrease in expenditures on tenant improvements for a newly leased engineering and manufacturing building in Fremont, California, which opened in July 2022. We expect to continue to make capital investments over the next few quarters to expand production capacity at our new manufacturing facility in Fremont, California, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital expenditures from cash on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures.

Current wording

Our investing activities have consisted of capital expenditures, including investments to increase our production capacity. Cash used in investing activities during the six months ended June 30, 2024, was $33.4 million, a decrease of $12.7 million compared to the prior year period and was primarily due to the decrease in expenditures on tenant improvements for a newly leased engineering and manufacturing building in Fremont, California, which opened in July 2022. We expect to continue to make capital investments over the next few quarters to expand production capacity at our new manufacturing facility in Fremont, California, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital expenditures from cash on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures.

Previous wording

Historically, our financing activities consisted of borrowings and repayments of debt, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests, contributions from noncontrolling interests, and proceeds from the issuances of our common stock. Net cash provided by financing activities during the three months ended March 31, 2024 was $7.2 million, a decrease of $299.3 million compared to the prior year period, predominantly due to the proceeds from issuance of redeemable convertible preferred stock of $310.6 million, net of paid issuance costs of $0.4 million, in the three months ended March 31, 2023 as a result of SK ecoplant Second Tranche Closing (please refer to Part II, Item 8, Note 17 —SK ecoplant Strategic Investmentin our Annual Report on Form 10-K for the fiscal year ended December 31, 2023), offset primarily by the repayment of debt of $9.9 million in the three months ended March 31, 2023. Net cash provided by financing activities for the three months ended March 31, 2024, consisted of the proceeds from issuance of common stock of $6.8 million, a contribution from a noncontrolling interest of $4.0 million, and proceeds from financing obligations of $1.3 million, offset by repayment of financing obligations of $5.0 million. Our working capital was strengthened with the supplemented liquidity through financing activities with SK ecoplant in the first quarter of 2023 and issuing the 3% Green Notes in the second quarter of 2023, but we may still enter the equity or debt market as needed to support the expansion of our business. Please refer to Part I, Item 1, Note 7 —Outstanding Loans and Security Agreements of this Quarterly Report on Form 10-Q and Part I, Item 1A, Risk Factors— Risks Related to Our Liquidity— Our indebtedness, and restrictions imposed by the agreements governing our outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for more information regarding the terms of and risks associated with our debt.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024, consisted of (1) the proceeds from issuance of the 3% Green Notes due June 2029 of $402.5 million, (2) the proceeds from issuance of common stock of $7.0 million, (3) the contribution from a noncontrolling interest of $4.0 million, (4) the proceeds from financing obligations of $1.3 million, (5) the partial repurchase of the 2.5% Green Notes of $141.0 million, (6) the repayment of debt issuance costs of $12.3 million pertaining to the 3% Green Notes due June 2029, (7) the repayment of financing obligations of $10.0 million, and (8) a dividend payment of $1.5 million. Our working capital was strengthened by the issuance of the 3% Green Notes due June 2029 and 3% Green Notes due June 2028 in May 2024 and May 2023, respectively, as well as financing activities with SK ecoplant in the first quarter of 2023, but we may still enter the equity or debt market as needed to support the expansion of our business. Please refer to Part I, Item 1, Note 7 —Outstanding Loans and Security Agreements of this Quarterly Report on Form 10-Q and Part I, Item 1A, Risk Factors— Risks Related to Our Liquidity— Our indebtedness, and restrictions imposed by the agreements governing our outstanding indebtedness, may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for more information regarding the terms of and risks associated with our debt.

Previous wording

For O&M Agreements that are subject to renewal, our future service revenue from such agreements are subject to our obligations to make payments for underperformance against the performance guaranties, which are capped at an aggregate total of approximately $577.7 million (including $451.9 million related to portfolio financing entities and $125.8 million related to all other transactions, and include payments for both low output and low efficiency) and our aggregate remaining potential payment related to these underperformance obligations was approximately $490.8 million as of March 31, 2024. For the three months ended March 31, 2024, we made performance guarantee payments of $15.1 million.

Current wording

For O&M Agreements that are subject to renewal, our future service revenue from such agreements are subject to our obligations to make payments for underperformance against the performance guaranties, which are capped at an aggregate total of approximately $577.7 million (including $451.9 million related to portfolio financing entities and $125.8 million related to all other transactions, and include payments for both low output and low efficiency) and our aggregate remaining potential payment related to these underperformance obligations was approximately $489.1 million as of June 30, 2024. For the six months ended June 30, 2024, we made performance guarantee payments of $16.9 million.

Previous wording

There were no significant changes in our international channel partners during the three months ended March 31, 2024. For information on international channel partners, see Part II, Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations, International Channel Partners section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Current wording

There were no significant changes in our international channel partners during the six months ended June 30, 2024. For information on international channel partners, see Part II, Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations, International Channel Partners section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

The product and megawatt acceptances in the three months ended March 31, 2024 and 2023 were as follows:

Current wording

The product and megawatt acceptances in the three and six months ended June 30, 2024, and 2023 were as follows:

Previous wording

Product accepted decreased approximately by 35 systems, or 6.8%, for the three months ended March 31, 2024, as compared to the prior year period, which is equivalent to 3 megawatts. Acceptance volume decreased due to a large transaction in the first quarter of fiscal 2023 that did not repeat in fiscal 2024.

Current wording

Product accepted increased approximately by 33 systems, or 3.0%, for the six months ended June 30, 2024, as compared to the prior year period, which is equivalent to 3 megawatts. Acceptance volume increased as demand increased for our products, offset by the effect of a large transaction in the first quarter of fiscal year 2023 that did not repeat in fiscal 2024.

Previous wording

The increase in acceptances of 48 megawatts achieved for the three months ended March 31, 2024 was added to our installed base and, therefore, increased our total megawatts accepted, net, from 1,241 megawatts to 1,289 megawatts.

Current wording

The increase in acceptances of 115 megawatts achieved for the six months ended June 30, 2024, was added to our installed base and, therefore, increased our total megawatts accepted, net, from 1,241 megawatts to 1,356 megawatts.

Previous wording

Our customers have several purchase alternatives for our Energy Servers. The portion of acceptances attributable to each purchase alternative in the three months ended March 31, 2024 and 2023 was as follows:

Current wording

Our customers have several purchase alternatives for our Energy Servers. The portion of acceptances attributable to each purchase alternative in the three and six months ended June 30, 2024, and 2023 was as follows:

Previous wording

The portion of total revenue attributable to each purchase option in the three months ended March 31, 2024 and 2023 was as follows:

Current wording

The portion of total revenue attributable to each purchase option in the three and six months ended June 30, 2024, and 2023 was as follows:

Previous wording

Total product related costs for the three months ended March 31, 2024 and 2023 was as follows:

Current wording

Total product related costs for the three and six months ended June 30, 2024, and 2023 was as follows:

Previous wording

Product costs of product accepted decreased by $228 per kilowatt, or 10.0%, for the three months ended March 31, 2024, as compared to the prior year period. The decrease in costs was primarily driven by our continued efforts to reduce material costs, implement cost reduction programs with our vendors, improved processes, and automation at our manufacturing facilities, and reduced labor and overhead costs through restructuring programs executed in fiscal 2023.

Current wording

Product costs of product accepted decreased by $62 per kilowatt, or 2.8%, for the six months ended June 30, 2024, as compared to the prior year period. The decrease in costs was primarily driven by our continued efforts to reduce material costs, implement cost reduction programs with our vendors, improved processes, and automation at our manufacturing facilities, and reduced labor and overhead costs through restructuring programs executed in fiscal year 2023. The decrease was partially offset by changes in mix of the solutions delivered.

Previous wording

Period costs of manufacturing related expenses increased by $4.8 million, or 38.5%, for the three months ended March 31, 2024, as compared to the prior year period. Our period costs of manufacturing related expenses increased primarily as a result of costs incurred to support capacity expansion efforts, which are expected to be brought online in future periods.

Current wording

Period costs of manufacturing related expenses increased by $2.3 million, or 7.6%, for the six months ended June 30, 2024, as compared to the prior year period. Our period costs of manufacturing related expenses increased primarily as a result of costs incurred to support capacity expansion efforts, which are expected to be brought online in future periods.

Previous wording

Installation costs on product accepted decreased by $165 per kilowatt, or 33.9%, for the three months ended March 31, 2024, as compared to the prior year period. Each customer site is unique and installation costs can vary due to a number of factors, including site complexity, size, and location of gas, among other factors. As such, installation on a per kilowatt basis can vary significantly from period to period. For the three months ended March 31, 2024, this decrease in cost was primarily driven by the change in the mix of sites requiring Bloom installation.

Current wording

Installation costs on product accepted increased by $215 per kilowatt, or 48.5%, and by $56 per kilowatt, or 12.1%, for the three and six months ended June 30, 2024, respectively, as compared to the prior year period. Each customer site is unique and installation costs can vary due to a number of factors, including site complexity, size, and location of gas, among other factors. As such, installation on a per kilowatt basis can vary significantly from period to period. For the three and six months ended June 30, 2024, this increase in cost was primarily driven by the change in the mix of sites requiring Bloom installation.

Previous wording

A discussion regarding the comparison of our financial condition and results of operations for the three months ended March 31, 2024 and 2023 is presented below.

Current wording

A discussion regarding the comparison of our financial condition and results of operations for the three and six months ended June 30, 2024, and 2023 is presented below.

Previous wording

Total revenue decreased by $39.9 million, or 14.5%, for the three months ended March 31, 2024, as compared to the prior year period. This decrease was driven by a $40.4 million decrease in product revenue, a $9.1 million decrease in installation revenue, a $6.2 million decrease in electricity revenue, offset by a $15.8 million increase in service revenue.

Current wording

Total revenue decreased by $5.2 million, or 0.9%, for the six months ended June 30, 2024, as compared to the prior year period. This decrease was driven by a $28.8 million decrease in product revenue and a $11.8 million decrease in electricity revenue, partially offset by a $26.0 million increase in service revenue and a $9.3 million increase in installation revenue.

Previous wording

Product revenue decreased by $40.4 million, or 20.8%, for the three months ended March 31, 2024, as compared to the prior year period. This decrease was primarily driven by the lower average selling price and a 6.8% decrease in product acceptances resulting from a large transaction in the first quarter of fiscal 2023 that did not repeat in fiscal 2024.

Current wording

Product revenue decreased by $28.8 million, or 7.0%, for the six months ended June 30, 2024, as compared to the prior year period. This decrease was primarily driven by the lower average selling price attributable to large transactions in the first half of fiscal year 2023 that did not repeat in fiscal year 2024. The decrease was partially offset by a 3.0% increase in product acceptances resulting from higher demand for our products.

Previous wording

Service revenue increased by $15.8 million, or 38.8%, for the three months ended March 31, 2024, as compared to the prior year period. This increase was primarily driven by (1) 188 megawatts of Energy Servers reaching full power in the three months ended March 31, 2024, which contributed to a $12.7 million increase in revenue from maintenance contracts associated with our fleet of Energy Servers, and (2) a decrease of $3.2 million in product performance guarantees that resulted from improved fleet performance.

Current wording

Service revenue increased by $10.2 million, or 24.2%, for the three months ended June 30, 2024, as compared to the prior year period. This increase was primarily driven by (1) 159 megawatts of Energy Servers reaching full power in the past twelve months, which contributed to a $5.6 million increase in revenue from maintenance contracts associated with our fleet of Energy Servers, and (2) a decrease of $4.7 million in product performance guarantees that resulted from improved fleet performance.

Previous wording

Electricity revenue decreased by $6.2 million, or 30.7%, for the three months ended March 31, 2024, as compared to the prior year period, primarily due to the decrease in installed units, primarily driven by 2015 ESA Project Company, LLC (“PPA V”) activity, which was sold in the third quarter of fiscal 2023.

Current wording

Electricity revenue decreased by $5.6 million, or 28.2%, and by $11.8 million, or 29.5%, for the three and six months ended June 30, 2024, respectively, as compared to the prior year period. The decrease for each period was predominantly due to the decrease in installed units, primarily driven by the upgrade of 2015 ESA Project Company, LLC (“PPA V”), which was sold in the third quarter of fiscal year 2023.

Previous wording

Total cost of revenue decreased by $23.7 million, or 10.7%, for the three months ended March 31, 2024, as compared to the prior year period. The decrease was driven by a $13.9 million decrease in cost of product revenue, a $9.7 million decrease in costs of installation revenue, and a $5.4 million decrease in cost of electricity revenue, offset by a $5.3 million increase in cost of service revenue.

Current wording

Total cost of revenue decreased by $1.2 million, or 0.3%, for the six months ended June 30, 2024, as compared to the prior year period. The decrease was driven by a $11.6 million decrease in cost of electricity revenue, partially offset by a $7.7 million increase in costs of installation revenue, a $2.3 million increase in cost of product revenue, and a $0.4 million increase in cost of service revenue.

Previous wording

Product gross profit decreased by $26.5 million in the three months ended March 31, 2024, as compared to the prior year period. The decrease was primarily driven by the lower average selling price of our products and a 6.8% decrease in product acceptances, partially offset by (1) a lower cost per unit attributable to our ongoing efforts to reduce material costs, (2) reduced labor and overhead costs through restructuring programs executed in fiscal 2023, and (3) improved processes and automation at our manufacturing facilities.

Current wording

Cost of product revenue increased by $16.2 million, or 11.2%, and by $2.3 million, or 0.8%, for the three and six months ended June 30, 2024, respectively, as compared to the prior year period. The increase in cost of product revenue was primarily driven by a 11.1% and a 3.0% increase in product acceptances for the three and six months ended June 30, 2024, respectively, partially offset by (1) our ongoing efforts to reduce material costs, (2) reduced labor and overhead costs through restructuring programs executed in fiscal year 2023, and (3) improved processes and automation at our manufacturing facilities.

Previous wording

Cost of service revenue increased by $5.3 million, or 10.3%, for the three months ended March 31, 2024, as compared to the prior year period. This increase was primarily due to an increase in the deployment of field replacement units, contributing an increase of $4.1 million, and an increase in maintenance material and labor and overhead costs of $2.7 million. The increase was partially offset by (1) a decrease of $2.7 million in repair and overhaul costs, and (2) cost reductions and our actions to proactively manage fleet optimizations.

Current wording

Cost of service revenue increased by $0.4 million, or 0.4%, for the six months ended June 30, 2024, as compared to the prior year period. This increase was primarily due to (1) an increase in the deployment of field replacement units, contributing an increase of $4.2 million, and (2) an increase in maintenance material and labor and overhead costs of $5.4 million. The increase was partially offset by (1) repair and overhaul cost reductions of $6.2 million and (2) our cost reduction efforts to proactively manage fleet optimizations.