BLOOM ENERGY CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management's beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products, services, business strategies, impact of COVID-19, our expanded strategic partnership with SK ecoplant, operations, supply chain (including any direct or indirect effects from the
Russia- Ukraineconflict), new markets, government incentive programs, growth of the hydrogen market and the sufficiency of our cash and our liquidity. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "targets," "forecasts," "will," "would," "could," "can," "may" and similar terms. These statements are based on the beliefs and assumptions of our management based on information currently available to management at the time they are made. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2021filed on February 25, 2022. Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Overview
Our mission is to make clean, reliable energy affordable for everyone in the world. We created the first large-scale, commercially viable solid oxide fuel-cell based power generation platform that empowers businesses, essential services, critical infrastructure and communities to responsibly take charge of their energy. Our technology, invented in
the United States, 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 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, which is increasingly recognized as a critically important tool necessary for the full 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 United Statesand the Republic of Korea. At Bloom Energy, we look forward to a net-zero future. Our technology is designed to help enable this future in order to deliver 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 making renewable fuel production a reality 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. 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 also expanded our product and financing options to the below-investment-grade customers 40 -------------------------------------------------------------------------------- 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. Strategic InvestmentOn October 23, 2021, we entered into the SPA with SK ecoplant in connection with a strategic partnership. Pursuant to the SPA, on December 29, 2021, we sold to SK ecoplant 10 million shares of zero coupon, non-voting redeemable convertible Series A preferred stock in us, par value $0.0001per share ("RCPS"), at a purchase price of $25.50per share for an aggregate purchase price of $255 million(the " Initial Investment"). Simultaneous with the execution of the SPA, we and SK ecoplant executed an amendment to the Joint Venture Agreement ("JVA"), an amendment and restatement to our Preferred Distribution Agreement ("PDA Restatement") and a new Commercial Cooperation Agreement regarding initiatives pertaining to the hydrogen market and general market expansion for the Bloom Energy Server and Bloom EnergyElectrolyzer. For additional details about the transaction with SK ecoplant, please see Note 18 - SK ecoplant Strategic Investment, and for more information about our joint venture with SK ecoplant, please see Note 12 - Related PartyTransactions in Part I, Item 1, Financial Statements.
We continue to monitor and adjust as appropriate our operations in response to the COVID-19 pandemic, including the Omicron and Delta variants. We maintain protocols to minimize the risk of COVID-19 transmission within our facilities, including enhanced cleaning and masking if required by the local authorities, as well as providing testing for all employees. We will continue to follow CDC and local guidelines when notified of possible exposures. For more information regarding the risks posed to our company by the COVID-19 pandemic, refer to Part I, Item 1A, Risk Factors - Risks Related to Our Products and Manufacturing - Our business has been and continues to be adversely affected by the COVID-19 pandemic.
Cash and capital resources
COVID-19 created disruptions throughout various aspects of our business as noted herein. While we improved our liquidity in 2021, we increased our working capital spend in the first quarter of 2022. We have entered into new leases to maintain sufficient manufacturing facilities to meet anticipated demand in 2022, including new product line expansion. In addition, we also increased our working capital spend and resources to enhance our marketing efforts and to expand into new geographies both domestically and internationally. We believe we have the sufficient capital to run our business over the next 12 months, including the completion of the build out of our manufacturing facilities. Our working capital was strengthened with the
Initial Investmentby SK ecoplant as described above. In addition, we may still enter the equity or debt market as need to support the expansion of our business. Please refer to Note 7 - Outstanding Loans and Security Agreements in Part I, Item 1, Financial Statements; and Part II, Item 1A, Risk Factors - Risks Related to Our Liquidity - Our substantial indebtedness, and restrictions imposed by the 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.
We have not experienced a material impact on our sales activity related to COVID-19 in the three months ended
The ongoing COVID-19 pandemic resulted in a significant drop in the ability of many financiers (particularly financing institutions) to monetize tax credits, primarily the result of a potential drop in taxable income stemming from the pandemic. However, during the second half of 2021 and the first three months of 2022, we have seen this constraint improving. Our ability to obtain financing for our Energy Servers partly depends on the creditworthiness of our customers, and a few of our customers' credit ratings have fallen during the pandemic, which can impact the financing for their use of an Energy Server. We continue to work on obtaining the financing required for our 2022 installations but if we are unable to secure such financing our revenue, cash flow and liquidity will be materially impacted.
Installation and maintenance of energy servers
41 -------------------------------------------------------------------------------- Our installation and maintenance operations were impacted by the COVID-19 pandemic and supply chain shortages in general during the first three months of 2022. Our installation projects have experienced some delays relating to, among other things, shortages in available parts and labor for design, installation and other work; and the inability or delay in our ability to access customer facilities due to shutdowns or other restrictions. Despite the impact on installations during the three months ended
March 31, 2022and given our mitigation strategies, we only had one instance in the first quarter of 2022 of a significant delay in the installation of our Energy Servers as a result of supply chain issues that pushed an installation out a quarter. As to maintenance, if we are delayed in or unable to perform scheduled or unscheduled maintenance, our previously-installed Energy Servers will likely experience adverse performance impacts including reduced output and/or efficiency, which could result in warranty and/or guaranty claims by our customers. Further, due to the nature of our Energy Servers, if we are unable to replace worn parts in accordance with our standard maintenance schedule, we may be subject to increased costs in the future. During the three months ended March 31, 2022, we experienced no delays in servicing our Energy Servers due to COVID-19.
During the three months ended
March 31, 2022, we continued to experience supply chain disruptions due to direct and indirect COVID-19 impacts although we were able to mitigate the impact so that we did not experience delays in the manufacture of our Energy Servers. We have a global supply chain and obtain components from Asia, Europeand India. In many cases, the components we obtain are jointly developed with our suppliers and unique to us, which makes it difficult to obtain and qualify alternative suppliers should our suppliers be impacted by the COVID-19 pandemic or related effects. The Russia- Ukrainewar impact so far has been limited to increased freight cost due to the rise in oil and related fuel prices. If the direct or indirect effects from this conflict spread, this could impact our supply base ability to provide the materials we need to meet our planned build and shipment plans. Although we were able to find alternatives for many component shortages, we experienced cost increases with respect to container shortages, ground transport, ocean shipping and air freight. We have put actions in place to mitigate the disruptions by booking alternate sea routes, limiting our use of air shipments, creating virtual hubs and consolidating shipments coming from the same region. During the three months ended March 31, 2022, we continued to manage disruptions from an increase in lead times for most of our components due to a variety of factors, including supply shortages, shipping delays and labor shortages, and we expect this to continue through 2022. We are experiencing raw material pricing pressures and component shortages especially for semiconductors and specialty metals that we expect to persist through the remainder of the calendar year. In addition, the impact of inflation on the price of components, raw materials and labor have increased. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials, electronic components and freight, it could delay the manufacturing and installation of our Energy Servers and increase the cost of our Energy Server, which would adversely impact our cash flows and results of operations, including revenue and gross margin. If spikes in COVID-19 occur in regions in which our supply chain operates we could experience a delay in components and incur further freight price increases, which could in turn impact production and installations and our cash flow and results of operations, including revenue and gross margin.
Although we have experienced labor shortages due to COVID-19 absences and the relative shortage of labor, overall this has not impacted our production given the safety protocols we have put in place augmented by our ability to increase our shifts and obtain a contingent work force for some of the manufacturing activities. We have incurred additional labor expense due to enhanced safety protocols designed to minimize exposure and risk of COVID-19 transmission as well as increased wages in general. If COVID-19 materially impacts our supply chain or if we experience a significant COVID-19 outbreak that affects our manufacturing workforce, our production could be adversely impacted which could adversely impact our cash flow and results of operation, including revenue.
Purchase and financing options
In order to please the widest variety of customers, we make several options available to our customers. Both in
Often our offerings take advantage of local incentives. In
the United States, our financing arrangements are structured to optimize both federal and local incentives, including the ITC and accelerated depreciation. Internationally, our sales are made primarily to distributors who on-sell to, and install for, customers; these deals are also structured to use local incentives 42 --------------------------------------------------------------------------------
applicable to our energy servers. Increasingly, we use trusted installers and other sourcing collaborations in
Whichever option is selected by a customer in the Unites States or internationally, the contract structure will include obligations on our part to operate and maintain the Energy Server ("O&M Obligations"). The O&M Obligations may either be (i) for a one-year period, subject to annual renewal at the customer's option, which historically are almost always renewed year over year, or (ii) for a fixed term. In
the United States, the contract structure often includes obligations on our part to install the Energy Servers ("Installation Obligations"). Consequently, our transactions may generate revenue from the sale of Energy Servers and electricity, performance of O&M Obligations, and performance of Installation Obligations. In addition to customary workmanship and materials warranties, as part of the O&M Obligations we provide warranties and guaranties regarding the efficiency and output of our Energy Servers to the customer and, in certain financing structures, to the financing parties too. We refer to a "performance warranty" as an obligation to repair or replace the Energy Servers as necessary to return performance of an Energy Server to the warranted performance level. We refer to a "performance guaranty" as an obligation to make a payment to compensate for the failure of the Energy Server to meet the guaranteed performance level. Our obligation to make payments under the performance guaranty is always contractually capped.
Energy server sales
There are customers who purchase our Energy Servers directly from us pursuant to customary equipment sales contracts. In connection with the purchase of Energy Servers, the customers also enter into a contract with us for the O&M Obligations. The customer may elect to engage us to provide the Installation Obligations or engage a third-party provider. Internationally, sales often occur through distribution arrangements pursuant to which local construction services providers perform the Installation Obligations, as is the case in the
Republic of Koreawhere we contract directly with the customer to provide O&M Obligations. A customer may enter into a contract for the sale of our Energy Servers and finance that acquisition through a sale-leaseback with a financial institution. In most cases, the financial institution completes its purchase from us immediately after commissioning. We both (i) facilitate this financing arrangement between the financial institution and the customer and (ii) provide ongoing operations and maintenance services for the Energy Servers (such arrangement, a "Traditional Lease").
Customer financing options
With regard to third-party financing options in
Certain customer payments in a Managed Services Agreement are required regardless of the level of performance of the Energy Server; in some cases it may also include a variable payment based on the Energy Server's performance or a performance-related set-off. Managed Services Agreements are then financed pursuant to a sale-leaseback with a financial institution (a "Managed Services Financing").
PPAs are generally funded on a portfolio basis. We have funded portfolios through tax equity partnerships, acquisition financings and direct sales to investors (each, a “Portfolio Financing”).
the United States, our capacity to offer our Energy Servers through either of these financed arrangements depends in large part on the ability of financing parties to optimize the tax benefits associated with a fuel cell, such as the ITC or accelerated depreciation. Interest rate fluctuations, and internationally, currency exchanges fluctuations, may also impact the attractiveness of any financing offerings for our customers. Our ability to finance a Managed Services Agreement or a PPA is also related to, and may be limited by, the creditworthiness of the customer. Additionally, the Managed Services Financing option is limited by a customer's willingness to commit to making payments to a financing party regardless of the level of performance of the Energy Server. In each of our financing options, we typically perform the functions of a project developer, including identifying end customers and financiers, leading the negotiations of the 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. Increasingly, however, we are making sales to third-party developers.
Each of our financing transaction structures is described in more detail below.
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Funding for managed services
[[Image Removed: be-20220331_g2.jpg]] *Compensation received from customers is recorded as electricity revenue or service revenue, according to ASC 840 and ASC 842, as applicable. For additional information, see Note 2 - Summary of Significant Accounting Policies in Part 1, Item 1, Financial Statements. Under our Managed Services Financing option, we enter into a Managed Services Agreement with a customer for a certain term. The fixed capacity-based payments made by the customer under the Managed Services Agreement are applied toward our obligation to pay down our periodic rent liability under a sale-leaseback transaction with a financier. We assign all our rights to such fixed payments made by the customer to the financier, as lessor. Once we enter into a Managed Services Agreement with the customer, and a financier is identified, we sell the Energy Server to the financier, as lessor, who then leases it back to us, as lessee, pursuant to a sale-leaseback transaction. Certain of our sale-leaseback transactions failed to achieve all of the criteria for sale accounting. For such failed sale-and-leaseback transactions, the proceeds from the transaction are recognized as a financing obligation within our condensed consolidated balance sheet. For successful sale-and-leaseback transactions, the financier of a Managed Services Agreement typically pays the purchase price for an Energy Server at or around acceptance, and we recognize the fair value of the Energy Servers sold within product and install revenue and recognize a right-of-use ("ROU") asset and a lease liability on our condensed consolidated balance sheet. Any proceeds in excess of the fair value of the Energy Servers are recognized as a financing obligation.
The terms of our current managed service contract offerings range from five to ten years.
Our Managed Services Agreements typically provide for performance warranties of both the efficiency and output of the Energy Server and may include other warranties depending on the type of deployment. We often structure payments from the customer as a dollars per kilowatt-hour payment and our pricing assumes revenue at the 95% output level. This means that our 45 -------------------------------------------------------------------------------- revenue may be lower than expected if output is less than 95% and higher if output exceeds 95%. As of
March 31, 2022, we had incurred no liabilities due to failure to repair or replace our Energy Servers pursuant to these performance warranties and the fleet of our Energy Servers deployed pursuant to the Managed Services Financings was performing at a lifetime average output of approximately 84%. Portfolio Financings In the past, we financed the Energy Servers subject to our PPAs through two types of Portfolio Financings. In one type of transaction, we sold a portfolio of PPAs to a tax equity partnership in which we held a managing member interest (such partnership in which we hold an interest, a "PPA Entity"). In these transactions, we sold the portfolio of Energy Servers to a limited liability project company of which the PPA Entity was the sole member (such portfolio owner, a " Portfolio Company"). Whether an investor, a tax equity partnership, or a single member limited liability company, the Portfolio Companyis the entity that directly owns the portfolio. The Portfolio Companysells the electricity generated by the Energy Servers contemplated by the PPAs to the customers. We recognize revenue as the electricity is produced. Our current practices no longer contemplate these types of transactions. We also finance PPAs through a second type of Portfolio Financing pursuant to which we (i) directly sell a portfolio of PPAs and the Energy Servers or (ii) sell a Portfolio Company, in each case to an investor or tax equity partnership in which we do not have an equity interest (a "Third-Party PPA"). Like the other Portfolio Financing structure, the investor or tax equity partnership owns the Portfolio Companyor the Energy Servers directly, and in each case, sells the electricity generated by the Energy Servers contemplated by the PPAs to the customers. For further discussion, see Note 11 - Portfolio Financings in Part I, Item 1, Financial Statements. [[Image Removed: be-20220331_g3.jpg]] When we finance a portfolio of Energy Servers and PPAs through a Portfolio Financing, we typically enter into a sale, engineering and procurement and construction agreement ("EPC Agreement") and an O&M Agreement, with the Portfolio Company. As owner of the portfolio of PPAs and related Energy Servers, the Portfolio Companyreceives all customer payments generated under the PPAs, the benefits of the ITC and accelerated tax depreciation, and any other available state or local benefits arising out of the ownership or operation of the Energy Servers, to the extent not already allocated to the customer under the PPA. 46 -------------------------------------------------------------------------------- The sales of our Energy Servers in connection with a Portfolio Financing have many of the same terms and conditions as a direct sale. Payment of the purchase price is generally broken down into multiple installments, which may include payments prior to shipment, upon shipment or delivery of the Energy Server, and upon acceptance of the Energy Server. Under an O&M Agreement, a one-year service package is provided with the initial sale that includes performance warranties and performance guaranties. After the expiration of the initial standard one-year package, the Portfolio Companyhas the option to extend our services under the O&M Agreement on an annual basis at a price determined at the time of purchase of our Energy Server. After the standard one-year service package, the Portfolio Companyhas almost always exercised the option to renew our services under the O&M Agreement. As of March 31, 2022, we had incurred no liabilities to investors in Portfolio Financings due to failure to repair or replace Energy Servers pursuant to these performance warranties. Our obligation to make payments for underperformance against the performance guaranties was capped at an aggregate total of approximately $114.6 million(including payments both for low output and for low efficiency) and our aggregate remaining potential liability under this cap was approximately $97.2 million.
Obligations to portfolio companies
Our Portfolio Financings involve many obligations on our part to the
Portfolio Company. These obligations are set forth in the applicable EPC Agreement and O&M Agreement, and may include some or all of the following obligations:
• design, manufacture and install the energy servers, and sell these energy servers to the
•obtain all necessary permits and other government approvals required to install and operate the energy servers, and maintain such permits and approvals for the duration of the EPC agreements and O&M agreements;
•operating and maintaining the Energy Servers in accordance with all applicable laws, permits and regulations;
•meet performance warranties and warranties set forth in applicable operating and maintenance agreements; and
•comply with any other specific requirements contained in PPAs with customers.
In some cases, the EPC Agreement obligates us to repurchase the Energy Server in the event of certain IP Infringement claims. In others, a repurchase of the Energy Server is only one optional remedy we have to cure an IP Infringement claim. The O&M Agreement grants a
Portfolio Companythe right to obligate us to repurchase the Energy Servers in the event the Energy Servers fail to comply with the performance warranties and guaranties in the O&M Agreement and we do not cure such failure in the applicable time period, or that a PPA terminates as a result of any failure by us to perform the obligations in the O&M Agreement. In some of our Portfolio Financings, our obligation to repurchase Energy Servers under the O&M extends to the entire fleet of Energy Servers sold in the event a systemic failure that affects more than a specified number of Energy Servers. In some Portfolio Financings, we have also agreed to pay liquidated damages to the applicable Portfolio Companyin 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.
In each of our Portfolio Financings in which we hold an equity interest in the PPA Entity, we perform certain administrative services as managing member, including invoicing the end customers for amounts owed under the PPAs, administering the cash receipts of the
Portfolio Companyin 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. For those Portfolio Financings with project debt, the Portfolio Companyowned by each of our PPA Entities (with the exception of one PPA Entity) incurred debt in order to finance the acquisition of the Energy Servers. The lenders for these transactions are a combination of banks and/or institutional investors. In each case, the debt is secured by all of the assets of the applicable Portfolio Company, such assets being primarily comprised of the Energy Servers and a collateral assignment of each of the contracts to which the Portfolio Companyis a party, including the O&M Agreement and the PPAs. As further collateral, the lenders receive a security interest in 100% of the membership interest of the Portfolio Company. The lenders have no 47 --------------------------------------------------------------------------------
reliance on us or one of the other equity investors (the “
We have determined that we are the primary beneficiary in the PPA Entities, subject to reassessments performed as a result of upgrade transactions. Accordingly, we consolidate 100% of the assets, liabilities and operating results of these PPA Entities, including the Energy Servers and lease income, in our condensed consolidated financial statements. We recognize the
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 convertible preferred stock, redeemable noncontrolling interest, stockholders' (deficit) equity and noncontrolling interest. Our condensed consolidated statements of cash flows reflect cash received from the Equity Investorsas 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 Equity Investorsas 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 Corporationmay 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 rates of return to the Equity Investors, or otherwise.
For more information on our portfolio financings, see Note 11 – Portfolio financings in Part I, Item 1, Financial statements.
Delivery and installation
The transfer of control of our product to our customer based on the delivery and installations of our products has 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 contract 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, customer facility construction schedules, customers' operational considerations and the timing of financing. 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, such as, for sales contracts, 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.
India. In India, sales activities are currently conducted by Bloom Energy (India) Pvt. Ltd., our wholly-owned subsidiary; however, we continue to evaluate the Indian market to determine whether the use of channel partners would be a beneficial go-to-market strategy to grow our Indiamarket sales. Japan. In Japan, sales were previously conducted pursuant to a Japanese joint venture established between us and subsidiaries of SoftBank Corp., called Bloom Energy Japan Limited("Bloom Energy Japan"). Under this arrangement, we sold Energy Servers to Bloom Energy Japan and we recognized revenue once the Energy Servers left the port in the United States. Bloom Energy Japan then entered into the contract with the end customer and performed all installation work as well as some of the operations and maintenance work. As of July 1, 2021, we acquired Softbank Corp.'s interest in Bloom Energy Japan for a cash payment and are now the sole owner of Bloom Energy Japan. The Republic of Korea. In 2018, Bloom Energy Japan consummated a sale of Energy Servers in the Republic of Koreato Korea South-East Power Company. Following this sale, we entered into a Preferred Distributor Agreement in November 2018with SK ecoplant for the marketing and sale of Bloom Energy Servers for the stationary utility and commercial and industrial South Korean power market.
As part of our expanded strategic partnership with SK ecoplant, the parties executed the PDA Restatement in
48 -------------------------------------------------------------------------------- services; (iv) termination procedures for material breaches; and (v) procedures if there are material changes to the Republic of Korea Hydrogen Portfolio Standard. For additional details about the transaction with SK ecoplant, please see Note 18 - SK ecoplant
Strategic Investmentin Part I, Item 1, Financial Statements. Under the terms of the PDA Restatement, 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 ecoplant Joint Venture Agreement. In September 2019, we entered into a joint venture agreement with SK ecoplant to establish a light-assembly facility in the Republic of Koreafor sales of certain portions of our Energy Server for the stationary utility and commercial and industrial market in the Republic of Korea. The joint venture is majority controlled and managed by us, with the facility, which became operational in July 2020. Other than a nominal initial capital contribution by Bloom Energy, the joint venture will be funded by SK ecoplant. SK ecoplant, who currently acts as a distributor for our Energy Servers for the stationary utility and commercial and industrial market in the Republic of Korea, is our primary customer for the products assembled by the joint venture. In October 2021, as part of our expanded strategic partnership with SK ecoplant, the parties agreed to amend the JVA, which increases the scope of the assembly work done in the joint venture facility.
Distributed Generation Community Programs
July 2015, the state of New Yorkintroduced its Community Distributed Generation ("CDG") program, which extends New York'snet metering program in order to allow utility customers to receive net metering credits for electricity generated by distributed generation assets located on the utility's grid but not physically connected to the customer's facility. This program allows for the use of multiple generation technologies, including fuel cells. Since then other states have instituted similar programs and we expect that other states may do so as well in the future. In June 2020, the New York Public Service Commissionissued an Order that limited the CDG compensation structure for "high capacity factor resources," including fuel cells, in a way that will make the economics for these types of projects more challenging in the future. However, projects already under contract were grandfathered into the program under the previous compensation structure. We have entered into sales, installation, operations and maintenance agreements with three developers for the deployment of our Energy Servers pursuant to the New York CDG program for a total of 441 systems. As of March 31, 2022, we have recognized revenue associated with 271 systems. We continue to believe that these types of subscriber-based programs could be a source of future revenue and will continue to look to generate sales through these programs in the future. 49 --------------------------------------------------------------------------------
Key Operating Metrics – Three Months Ended Comparison
For a description of the key operating metrics we use to evaluate business activity, to measure performance, to develop financial forecasts and to make strategic decisions, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2021under the subheading "Key Operation Metrics".
100% of acceptances in three months ended
March 31, 2022were attributable to the direct pay option. The portion of revenue in the three months ended March 31, 2022attributable to each payment option was as follows: direct purchase 87%, traditional lease 1%, managed services 7% and Bloom Electrons 5%. The portion of acceptances in the three months ended March 31, 2021attributable to each payment option was as follows: direct purchase 98% and managed services 2%. The portion of revenue in the three months ended March 31, 2021attributable to each payment option was as follows: direct purchase 87%, traditional lease 1%, managed services 6% and Bloom Electrons 6%. Product Acceptances Three Months Ended Change March 31, 2022 2021 Amount % Product accepted during the period (in 100 kilowatt systems) 375 359 16 4.5 %
Product accepted increased approximately 16 systems, or 4.5%, for the three months ended
Megawatts accepted, net, increased approximately 179 megawatts, or 29.6%, for the three months ended
March 31, 2022compared to the three months ended March 31, 2021. Acceptances achieved from March 31, 2021to March 31, 2022were added to our installed base and therefore, increased our megawatts accepted, net, from 604 megawatts to 783 megawatts.
Costs related to our products
Total product related costs for the three Months Ended
March 31, 2022and 2021 was as follows: Three Months Ended Change March 31, 2022 2021 Amount % Product costs of product accepted in the period $2,561/kW $2,284/kW $277/kW 12.1 %
Period Costs of Manufacturing Expenses Not Included in Product Costs (000s)
$ 9,687 $ 5,428 $4,25978.5 % Installation costs on product accepted in the period $341/kW $129/kW $212/kW 164.3 % Product costs of product accepted increased approximately $277per kilowatt, or 12.1%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. This increase in cost is primarily driven by some of the cost pressures seen in the external environment with commodity pricing and logistics increasing significantly from one year ago. Our ongoing cost reduction efforts to reduce material costs, labor and overhead through improved automation of our manufacturing facilities, our better facility utilization and our ongoing material cost reduction programs with our vendors continued but were more than offset by the temporary increases that we experienced. Period costs of manufacturing related expenses increased approximately $4.3 million, or 78.5%, for the three months ended March 31, 2022compared to the three months ended March 31, 2021. Our period costs of manufacturing related expenses increased primarily as a result of costs incurred to support capacity expansion efforts which will be brought online in future periods. 50 -------------------------------------------------------------------------------- Installation costs on product accepted increased approximately $212per kilowatt, or 164.3%, for the three months ended March 31, 2022as compared to the three months ended March 31, 2021. This increase in cost is primarily driven by an increase in the mix of sites requiring Bloom installation. Each customer site is different and installation costs can vary due to a number of factors, including site complexity, size, location of gas, etc. As such, installation on a per kilowatt basis can vary significantly from period-to-period. In addition, some customers do their own installation for which we have little to no installation cost.
A discussion regarding the comparison of our financial condition and results of operations for the three months ended
March 31, 2022and 2021 is presented below. Revenue Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Product $ 133,547 $ 137,930 $ (4,383)(3.2) % Installation 13,553 2,659 10,894 409.7 % Service 35,239 36,417 (1,178) (3.2) % Electricity 18,700 17,001 1,699 10.0 % Total revenue $ 201,039 $ 194,007 $ 7,0323.6 % Total Revenue Total revenue increased by $7.0 million, or 3.6%, for the three months ended March 31, 2022as compared to the prior year period. This increase was primarily driven by a $10.9 millionincrease in installation revenue and a $1.7 millionincrease in electricity revenue partially offset by a $4.4 milliondecrease in product revenue and a $1.2 milliondecrease in service revenue.
Product revenue decreased by
$4.4 million, or 3.2%, for the three months ended March 31, 2022as compared to the prior year period. The product revenue decrease was driven primarily by price reductions to expand our addressable market, partially offset by a 4.5% increase in product acceptances resulting from expansion in existing markets.
Installation revenue increased by
$10.9 million, or 409.7%, for the three months ended March 31, 2022as compared to the prior year period. This increase in installation revenue was driven by an increase in the mix of product acceptances requiring installations by Bloom.
Service revenue decreased by
$1.2 million, or 3.2%, for the three months ended March 31, 2022as compared to the prior year period. This decrease was primarily due to delays in execution of long-term service agreements and the impact of product performance guarantees, partially offset by an increase in new acceptances and renewal of existing service contracts. We expect our service revenue growth as we continue to expand our install base.
Electricity revenue increased by
$1.7 million, or 10.0%, for the three months ended March 31, 2022as compared to the prior year period due to the increase in installed units as a result of the increase in Managed Services transactions recorded in the second half of fiscal year 2021. 51 --------------------------------------------------------------------------------
Cost of Revenue Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Product
$ 105,742 $ 87,294 $ 18,44821.1 % Installation 12,773 4,625 8,148 176.2 % Service 41,826 36,118 5,708 15.8 % Electricity 12,761 11,319 1,442 12.7 % Total cost of revenue $ 173,102 $ 139,356 $ 33,74624.2 % Total Cost of Revenue Total cost of revenue increased by $33.7 million, or 24.2%, for the three months ended March 31, 2022as compared to the prior year period primarily driven by a $18.4 millionincrease in cost of product revenue, $8.1 millionincrease in costs of installation revenue, $5.7 millionincrease in cost of service revenue, increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This increase was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities.
Product revenue cost
Cost of product revenue increased by
$18.4 million, or 21.1%, for the three months ended March 31, 2022as compared to the prior year period. The cost of product revenue increase was driven primarily by a 4.5% increase in product acceptances, increased freight charges and other supply chain-related pricing pressures and costs incurred in support of upcoming capacity expansion efforts which will be brought online in future periods. This increase was partially offset by our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities. Cost of Installation Revenue Cost of installation revenue increased by $8.1 million, or 176.2%, for the three months ended March 31, 2022as compared to the prior year period. This increase was driven by an increase in the mix of product acceptances requiring Bloom installations.
Service revenue cost
Cost of service revenue increased by
$5.7 million, or 15.8%, for the three months ended March 31, 2022as compared to the prior year period. This increase was primarily due to the 4.5% increase in acceptances plus the maintenance contract renewals associated with the increase in our fleet of Energy Servers, partially offset by the significant improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Electricity revenue cost
Cost of electricity revenue increased by
$1.4 million, or 12.7%, for the three months ended March 31, 2022as compared to the prior year period, primarily due to the increase in installed units as a result of the increase in Managed Services recorded in the second half of fiscal year 2021. 52 --------------------------------------------------------------------------------
Gross profit and gross margin
Three Months Ended March 31, 2022 2021 Change (dollars in thousands) Gross profit: Product $ 27,805
$ 50,636 $ (22,831)Installation 780 (1,966) 2,746 Service (6,587) 299 (6,886) Electricity 5,939 5,682 257 Total gross profit $ 27,937 $ 54,651 $ (26,714)Gross margin: Product 21 % 37 % Installation 6 % (74) % Service (19) % 1 % Electricity 32 % 33 % Total gross margin 14 % 28 %
Total gross profit
Gross profit decreased by
$26.7 millionin the three months ended March 31, 2022as compared to the prior year period primarily driven by the $22.8 milliondecrease in product gross profit resulting from price reductions to expand our addressable market, increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This decrease was partially offset by the 4.5% increase in acceptances and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities.
Gross profit of product
Product gross profit decreased by
$22.8 millionin the three months ended March 31, 2022as compared to the prior year period. The decrease is primarily driven by price reductions to expand our addressable market, increased freight charges and other supply chain-related pricing pressures and costs incurred to support capacity expansion efforts which will be brought online in future periods. This decrease was partially offset by a 4.5% increase in product acceptances and our ongoing cost reduction efforts to reduce material costs in conjunction with our suppliers and our reduction in labor and overhead costs through increased volume, improved processes and automation at our manufacturing facilities.
Gross installation profit (loss)
Installation gross profit improved by
$2.7 millionin the three months ended March 31, 2022as compared to the prior year period driven by the site mix, as more of the acceptances required installation in the current time period, and other site related factors such as site complexity, size, local ordinance requirements and location of the utility interconnect.
Gross service profit (loss)
Service gross loss worsened by
$6.9 millionin the three months ended March 31, 2022as compared to the prior year period. This was primarily due to unfavorable timing of long-term service agreement and impact of product performance guarantees offset by improvements in power module life, cost reductions and our actions to proactively manage fleet optimizations.
Gross electricity profit
Electricity gross profit increased by
$0.3 millionin the three months ended March 31, 2022as compared to the prior year period mainly due to the increase in Managed Services transactions recorded in the second half of fiscal year 2021. 53 --------------------------------------------------------------------------------
Operating Expenses Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Research and development
$ 34,526 $ 23,295 $ 11,23148.2 % Sales and marketing 21,334 19,952 1,382 6.9 % General and administrative 37,736 25,801 11,935 46.3 % Total operating expenses $ 93,596 $ 69,048 $ 24,54835.6 % Total Operating Expenses Total operating expenses increased by $24.5 millionin the three months ended March 31, 2022as compared to the prior year period. This increase was primarily attributable to our investment in business development and front-end sales both in the United Statesand internationally, investment in brand and product management, and our continued investment in our R&D capabilities to support our technology roadmap. Research and Development Research and development expenses increased by $11.2 millionin the three months ended March 31, 2022as compared to the prior year period. This increase was primarily driven by increases in employee compensation and benefits to expand our employee base in order to support our technology roadmap, including our hydrogen, electrolyzer, carbon capture, marine and biogas solutions.
Sales and Marketing
Sales and marketing expenses increased by
$1.4 millionin the three months ended March 31, 2022as compared to the prior year period. This increase was primarily driven by increases in employee compensation and benefits to expand our U.S.and international sales force, as well as increased investment in brand and product management, partially offset by a decrease in outside services.
General and administrative
General and administrative expenses increased by
$11.9 millionin the three months ended March 31, 2022as compared to the prior year period. This increase was primarily driven by increases in employee compensation and benefits and outside services. Stock-Based Compensation Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Cost of revenue $ 3,860 $ 2,999 $ 86128.7 % Research and development 7,082 4,908 2,174 44.3 % Sales and marketing 4,775 4,085 690 16.9 % General and administrative 10,591 5,218 5,373 103.0 % Total stock-based compensation $ 26,308 $ 17,210 $ 9,09852.9 % 54
-------------------------------------------------------------------------------- Total stock-based compensation for the three months ended
March 31, 2022compared to the prior year period increased by $9.1 millionprimarily driven by the efforts to expand our employee base across all of the Company's functions. Other Income and Expense Three Months Ended March 31, 2022 2021 Change (in thousands) Interest income $ 59 $ 74 $ (15)Interest expense (14,087) (14,731) 644 Other income (expense), net (3,027) (85) (2,942) Gain (loss) on revaluation of embedded derivatives 531 (518) 1,049 Total $ (16,524) $ (15,260) $ (1,264)Interest Income
Interest income is derived from investment income on our cash balances primarily from money market funds.
Interest income for the three months ended
Interest expense is from our debt held by third parties. Interest expense for the three months ended
March 31, 2022as compared to the prior year period decreased by $0.6 million. This decrease was primarily due to lower interest expense as a result of refinancing our notes at a lower interest rate, and the elimination of the amortization of the debt discount associated with notes that have been converted to equity.
Other income (expenses), net
Other income (expense), net, is primarily derived from investments in joint ventures, the impact of foreign currency translation, and adjustments to fair value for derivatives. Other income (expense), net for the three months ended
March 31, 2022as compared to the prior year period was less by $2.9 milliondue primarily as a result of the revaluation of the Option to purchase Class A common stock.
Gain (loss) on revaluation of embedded derivatives
Gain (loss) on revaluation of embedded derivatives is derived from the change in fair value of our sales contracts of embedded EPP derivatives valued using historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. Gain (loss) on revaluation of embedded derivatives for the three months ended
March 31, 2022as compared to the prior year period improved by $1.0 milliondue to the change in fair value of our embedded EPP derivatives in our sales contracts.
Provision for income taxes
Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Income tax provision
$ 564 $ 124 $ 440354.8 %
The provision for income taxes primarily includes income taxes in the foreign jurisdictions where we operate. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss and certain tax credit carryforwards.
Increase in provision for income taxes for the three months ended
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests Three Months Ended March 31, Change 2022 2021 Amount %
(in thousands of dollars) Net loss attributable to non-controlling interests and refundable non-controlling interests
$ (4,388) $ (4,892) $ 50410.3 % Net loss attributable to noncontrolling interests is the result of allocating profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of the PPA Entities. Net loss attributable to noncontrolling interests and redeemable noncontrolling interests for the three months ended March 31, 2022as compared to the prior year period changed by $0.5 milliondue to decreased losses in our PPA Entities, which are allocated to our noncontrolling interests.
Cash and capital resources
March 31, 2022, we had cash and cash equivalents of $286.0 million. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with high credit quality counterparties, continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk. As of March 31, 2022, we had $292.4 millionof total outstanding recourse debt, $230.4 millionof non-recourse debt and $18.4 millionof other long-term liabilities. For a complete description of our outstanding debt, please see Note 7 - Outstanding Loans and Security Agreements in Part I, Item 1, Financial Statements. The combination of our existing cash and cash equivalents is expected to be sufficient to meet our anticipated cash flow needs for the next 12 months and thereafter for the foreseeable future. If these sources of cash are insufficient to satisfy our near-term or future cash needs, we may require additional capital from equity or debt financings to fund our operations, in particular, our manufacturing capacity, product development and market expansion requirements, to timely respond to competitive market pressures or strategic opportunities, or otherwise. We may, from time to time, engage in a variety of financing transactions for such purposes, including factoring our accounts receivable. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the rate of growth in the volume of system builds and the need for additional manufacturing space, the expansion of sales and marketing activities both in domestic and international markets, market acceptance of our products, our ability to secure financing for customer use of our Energy Servers, the timing of installations, and overall economic conditions including the impact of COVID-19 on our ongoing and future operations. In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through an equity or debt financing. Failure to obtain this financing or financing in future quarters will affect our results of operations, including revenue and cash flows. 56 -------------------------------------------------------------------------------- As of March 31, 2022, the current portion of our total debt is $30.3 million, of which $17.9 millionis outstanding non-recourse debt. We expect a certain portion of the non-recourse debt will be refinanced by the applicable PPA Entity prior to maturity.
The following is a summary of our consolidated sources and uses of cash, cash equivalents and restricted cash (in thousands):
Three Months Ended March 31, 2022 2021 Net cash provided by (used in): Operating activities
$ (92,443) $ (89,035)Investing activities (18,510) (12,932) Financing activities (10,112) 51,150 Net cash provided by (used in) our PPA Entities, which are incorporated into the condensed consolidated statements of cash flows, was as follows (in thousands): Three Months Ended March 31, 2022 2021 PPA Entities ¹ Net cash provided by PPA operating activities $ 7,658
Net cash provided by (used in) PPA financing activities (8,114)
1 The PPA Entities' operating and financing cash flows are a subset of our consolidated cash flows and represent the stand-alone cash flows prepared in accordance with
U.S.GAAP. Operating activities consist principally of cash used to run the operations of the PPA Entities, the purchase of Energy Servers from us and principal reductions in loan balances. Financing activities consist primarily of changes in debt carried by our PPAs, and payments from and distributions to noncontrolling partnership interests. We believe this presentation of net cash provided by (used in) PPA activities is useful to provide the reader with the impact to consolidated cash flows of the PPA Entities in which we have only a minority interest.
Our operating activities have consisted of net loss adjusted for certain non-cash items plus changes in our operating assets and liabilities or working capital. The increase in cash used in operating activities during the three months ended
March 31, 2022as compared to the prior year period was primarily the result of an increase in our net loss and an increase in our net working capital of $56.0 millionin the three months ended March 31, 2022due to the timing of revenue transactions and corresponding collections and the increase in inventory levels to support future demand.
Our investing activities have consisted of capital expenditures that include investment to increase our production capacity. We expect to continue such activities as our business grows. Cash used in investing activities of
$18.5 millionduring the three months ended March 31, 2022was primarily the result of expenditures on tenant improvements for a newly leased engineering building in Fremont, California. We expect to continue to make capital expenditures over the next few quarters to prepare our new manufacturing facility in Fremont, Californiafor production, which includes the purchase of new equipment and other tenant improvements. We intend to fund these capital expenditures from cash on hand as well as cash flow to be generated from operations. We may also evaluate and arrange equipment lease financing to fund these capital expenditures. 57 --------------------------------------------------------------------------------
Historically, our financing activities have consisted of borrowings and repayments of debt including to related parties, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests and redeemable noncontrolling interests, and the proceeds from the issuance of our common stock. Net cash used in financing activities during the three months ended
March 31, 2022was $(10.1) million, an increase of $61.3 millioncompared to the prior year period, primarily due to the proceeds in 2022 from stock option exercises and the sale of shares under our 2018 Employee Stock Purchase Plan.
Off-balance sheet arrangements
We include in our condensed consolidated financial statements all assets and liabilities and results of operations of our PPA Entities that we have entered into and over which we have substantial control. For additional information, see Note 13 - Portfolio Financings in Part II, Item 8, Financial Statements and Supplementary Data.
We have not entered into any other transactions that have generated relationships with non-consolidated entities or financial partnerships or special purpose entities. Consequently, from
Significant Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in
the United States(" U.S.GAAP") The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our discussion and analysis of our financial results under Results of Operations above are based on our audited results of operations, which we have prepared in accordance with U.S.GAAP. In preparing these condensed consolidated financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are representative of estimation uncertainty, and are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating the consolidated financial condition and results of operations. The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, include:
• Discussion on the first year of changes in financial position and results of operations;
• Leases: incremental borrowing rate;
•Assessment of escalator protection plan (“PPE”) agreements;
•Valuation of certain financial instruments and customer financing receivables;
• Valuation of the assets and liabilities of the SK eco-factory
• Incremental Borrowing Rate (“IBR”) by rental class;
•Principles of Consolidation; and
•Allocation of profits and losses of consolidated entities to non-controlling interests and refundable non-controlling interests.
Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended
December 31, 2021provides a more complete discussion of our critical accounting policies and estimates. During the three months ended March 31, 2022, there were no significant changes to our critical accounting policies and estimates.
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