Bloom Energy Corp: Form 10-Q for the period ended Sep 30, 2024

OPERATIONS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are not limited to, our expectations regarding our products 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, armed conflict in the Middle East, 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 events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

Description of Bloom Energy

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 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.

We continue to innovate our products to offer energy solutions to our customers. In February 2024, we announced our Be FlexibleTM offering which introduced load following capabilities to enable customers and utilities to meet variable electricity load and demand. Our Bloom Energy Servers allow us to provide energy solutions for customers, as our products are designed to work with existing carbon capture utilization and storage (“CCUS”) and combined heat and power (“CHP”) technologies. CCUS can mitigate emissions from natural gas as the Energy Server generates a relatively pure stream of CO2 that can be used or sequestered. CHP allows the exhaust heat generated by the Energy Server to be channeled and made available for use, further increasing the efficiency of the system.

For further information about Bloom Energy, see Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Overview — Description of Bloom Energy section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Energy Market Conditions

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.

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.

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. The rising cost of natural gas, increases in gas distribution rates, limited availability of natural gas supply, as well as disruptions to the world’s 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 prevent the use of our power solutions unless alternative fuels are available.

In addition, many of our potential data center and industrial customers are pursuing greenfield opportunities where the development cycle is long and laden with permitting requirements, and the uncertainty of these factors is leading to a more difficult customer decision-making process and longer sales cycles. Data center greenfield projects require significant investments in real estate, facility costs, and technology, among other elements, in addition to the investment in our power solutions, and the timing and sequencing of those investments is largely outside of our control.

Key Macro Trends

Increases in Demand for Power, Driven by Data Centers and Artificial Intelligence (AI)

Demand for power has continued to significantly outpace available power generation supply from the grid, with the need for power becoming more acute in 2024. The transition towards the electrification of everything, including in a wide range of commercial and consumer products, has strained aging and unreliable power grids across the globe. The expanding use of AI has led to the expansion of existing data centers and plans for new greenfield data centers. The resulting increase in demand for power from Al-related companies has further reduced available supply from the grid and has led non-AI-related companies to consider on-site distributed power, including Bloom Energy Servers, to meet their power needs.

Time to Power Increases as Power Demand/Supply Mismatch Grows

In part because of the increases in demand for power, time to power has increased for companies seeking to connect new projects to the grid. According to the Lawrence Berkeley National Lab, U.S. interconnection queue delays have experienced significant growth, 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. Bloom Energy Servers can be configured as fully-islanded, microgrid solutions that are not interconnected to the grid, which can often provide a customer power in months instead of years. Our fully-islanded microgrid solutions can provide power on-site, without the need for costly transmission and distribution systems required by electrical grids. We are seeing greater interest in fully-islanded microgrid solutions among data center customers because of these interconnection-related delays. 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.

Impact of Climate Change and Sustainability Goals

The impacts of climate change, including more severe and unpredictable weather events, have placed further strain on aging utility grids and led to periods of power outages for those reliant on the grid. In addition, the recognition of the threat of climate change has led companies and governments to set ambitious emissions goals to reduce their carbon footprints. These emissions goals are expected to be difficult to meet using currently available renewable energy technologies such as wind and solar power. As the world transitions to lower-carbon energy sources, natural gas has been increasingly recognized as a necessary bridge fuel. Using natural gas, Bloom Energy Server can produce electricity efficiently without combustion. CCUS and CHP can further improve efficiency and lower carbon emissions of using Bloom Energy Servers compared to marginal generation resources on the grid.

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 customer desire for zero-carbon solutions today, combined with the current lack of availability of zero-carbon fuels, is adversely impacting our power solution selling opportunities.

Other Factors Affecting our Performance

Delayed Project

In the fourth quarter of 2022, we entered into a Power Purchase Agreement (“PPA”) contract for the sale of electricity to a customer for three greenfield sites that were at various stages of development (the “Project”). The first site was expected to be operational with power by the third quarter of 2024. We sold 73 megawatts of the Energy Servers to a distributor with the expectation that the distributor would support installation on the Project and install the Energy Servers at the three Project sites. For site specific reasons, in the first quarter of 2024, the end customer decided not to deploy the Energy Servers at the originally selected sites and is looking at alternative sites for deployment. In the interim, the end customer has commenced payments under the PPA and has agreed to continue such payments for the earlier of the full term of the PPA or deployment of the Energy Servers. We will continue to assist the distributor in its efforts to deploy the Energy Servers at the alternative installation sites selected by the end customer. Notwithstanding this, depending on the length of the installation delay, the distributor may decide to reduce future orders or cancel existing orders until the Energy Servers are deployed, and either action could materially and adversely affect our product revenue and the timing of the associated cash flows in 2024.

Shifting Regulatory Environment

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 megawatts, 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.

Working with Utilities

The imbalance between power demand and supply has contributed to utilities seeking alternative sources of power to supply to their end customers. Utilities have been unable to meet this demand through the deployment of renewable sources of energy such as solar and wind power. Bloom Energy Servers can be installed at the utility’s point of distribution or directly on the customer’s site. The energy produced by Bloom Energy Servers can be utilized by utilities to provide power to a specific customer or customers or may be used by customers generally. Increasing the supply of available power can allow utilities to encourage end customers to remain in their current locations rather than relocating to areas where power is more available.

Hydrogen Market Developments

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.

Lengthening Sales Cycles

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.

Supply Chain Constraints

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 armed conflict in Israel and neighboring areas. 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 or escalation of current military conflicts or trade tensions. 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.

Installations and Maintenance of Energy Servers

In the third 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. 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. As we seek larger projects with sophisticated counterparties, customers have sought to impose more stringent performance requirements on us. If we experience a significant increase of product failure in the future, our service expense may increase and we may fail to achieve the performance commitments to our customers, which could result in warranty and/or guaranty claims. Additionally, product failure and service costs may increase as we initially deploy new applications for our Energy Server, including Be Flexible load following, CCUS, and CHP. 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 nine months ended September 30, 2024, we experienced no significant delays in servicing our Energy Servers.

For information on other factors affecting our performance, including:

• Customer Financing Constraints, and
• Manufacturing and Labor Market Constraints,

see Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Overview — Certain Factors Affecting our Performance section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Strategic Investment

For information on the strategic investment with SK ecoplant Co., Ltd. (“SK ecoplant”, formerly known as SK Engineering & Construction Co., Ltd.), a subsidiary of the SK Group, see Part II, Item 8, Note 1 — Nature of Business, Liquidity and Basis of Presentation, Liquidity section and Note 17 — SK ecoplant Strategic Investment in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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, as amended (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.

Sustainability

In April 2024, we released our 2023 Sustainability Report, Transforming Energy for the Digital Age (the “Sustainability Report”), using generally accepted sustainability frameworks and standards, including alignment with Sustainability Accounting Standards Board standards and the Task Force on Climate-related Financial Disclosures recommendations. In addition, the Sustainability Report also utilized certain Global Reporting Initiative standards and was mapped against the United Nations Sustainable Development Goals. We plan to issue a sustainability report on an annual basis.

The Sustainability Report can be found on our website at https://www.bloomenergy.com/sustainibility. Website references throughout this document are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this report.

For information about our sustainability initiatives, see Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Overview — Environmental, Social and Governance (“ESG”) section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Inflation Reduction Act of 2022

On March 29, 2024, we received notification from the Internal Revenue Service (the “IRS”) of the acceptance of our application for a Qualifying Advanced Energy Project Credit of up to $75.3 million. The application for qualifying advanced energy project credit allocation under Internal Revenue Code Section 48C(e) for the manufacturing facility in Fremont, California (the “Facility”), was submitted by Bloom on December 21, 2023. After a technical review of Bloom’s Section 48C(e) application, the Department of Energy provided a recommendation to the IRS to grant a $75.3 million credit allocation for the Facility. The approval is subject to satisfaction of the underlying certification requirements, including the prevailing wage and apprenticeship requirements, within two years from the date of the application acceptance.

For information on the IRA, which was signed into law on August 16, 2022, and its impact on our business, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Inflation Reduction Act of 2022 section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Liquidity and Capital Resources

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.

On May 29, 2024, we issued the 3% Green Notes due June 2029 in an aggregate principal amount of $402.5 million due June 2029, unless earlier repurchased, redeemed or converted, less the initial purchasers’ discount of $12.1 million and other issuance costs of $0.7 million, resulting in net proceeds of $389.7 million. On May 29, 2024, we used approximately $141.8 million of the net proceeds from this issuance to repurchase $115.0 million, or 50%, of the outstanding principal amount of our 2.5% Green Convertible Senior Notes due August 2025 (the “2.5% Green Notes”) in privately negotiated transactions. The repurchase amount equaled 122.6% of the principal amount repurchased plus related accrued and unpaid interest.

For further information on issuance of 3% Green Notes due June 2029 and partial repurchase of our 2.5% Green Notes, please see Part I, Item 1, Note 7 — Outstanding Loans and Security Agreements.

As of September 30, 2024, we had cash and cash equivalents of $495.7 million. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds of $466.7 million. We seek to maintain these balances with high credit quality counterparties, regularly monitor the amount of our credit exposure to any one issuer and diversify our investments in order to minimize our exposure.

As of September 30, 2024, we had $1,122.9 million of recourse debt, $4.6 million of non-recourse debt, and $8.8 million of other long-term liabilities. As of September 30, 2024, $114.1 million and $1,013.3 million of our debt was classified as short-term and long-term, respectively. For a complete description of our outstanding debt, please see Part I, Item 1, Note 7 — Outstanding Loans and Security Agreements.

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 nine months ended September 30, 2024, we factored $184.2 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.

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.

A summary of our consolidated sources and uses of cash, cash equivalents, and restricted cash was as follows (in thousands):

Operating Activities

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 for the nine months ended September 30, 2024 related primarily to the changes in our working capital of $398.5 million predominantly due to (1) an increase in accounts receivable and contract assets by $250.3 million and $79.7 million, respectively, triggered by the timing of revenue transactions, corresponding collections and billing milestones, (2) an increase in inventory levels by $83.2 million to support future demand, and (3) the timing of payments to vendors.

Net cash used in operating activities during the nine months ended September 30, 2024, was $392.2 million, an improvement of $102.1 million compared to the prior year period. The change in cash used in operating activities during the nine months ended September 30, 2024, as compared to the prior year period, was primarily driven by an increase of $166.5 million attributable to accounts receivable, partially offset by decreases of $123.1 million, $85.8 million, and $31.5 million attributable to inventories, deferred revenue and customer deposits, and accrued expenses and other current liabilities, respectively.

Investing Activities

Our investing activities have consisted of capital expenditures, including investments to increase our production capacity. Cash used in investing activities during the nine months ended September 30, 2024, was $47.7 million, a decrease of $19.8 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.

Financing Activities

Our financing activities consist of borrowings and repayments of debt, proceeds and repayments of financing obligations, distributions paid to noncontrolling interests, contributions from noncontrolling interests, payments of dividends, proceeds from the issuances of our common stock, and other financing activities. Net cash provided by financing activities during the nine months ended September 30, 2024 was $244.4 million, a decrease of $437.8 million compared to the prior year period, predominantly due to (1) a decrease in the proceeds from issuance of redeemable convertible preferred stock of $310.6 million, net of paid issuance costs of $0.4 million, as a result of the SK ecoplant Second Tranche Closing in the nine months ended September 30, 2023 (please refer to Part II, Item 8, Note 17 — SK ecoplant Strategic Investment in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023), and (2) a decrease in proceeds from the issuance of debt by $231.5 million. The decrease was partially offset by (1) the purchase in fiscal year 2023 of the capped call of $54.5 million related to the 3% Green Notes due June 2028 issued in the second quarter of fiscal year 2023, and (2) a decrease in the repayment of debt by $50.4 million.

Net cash provided by financing activities for the nine months ended September 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 $11.1 million, (3) the contribution from a noncontrolling interest of $4.0 million, (4) the proceeds from financing obligations of $1.8 million, (5) the partial repurchase of the 2.5% Green Notes of $141.0 million, (6) the repayment of financing obligations of $19.8 million, (7) the repayment of debt issuance costs of $12.8 million pertaining to the 3% Green Notes due June 2029, 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.

Purchase and Financing Options

For information about our purchase and financing options, see Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations, Purchase and Financing Options section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Purchase Alternatives

Our customers have several purchase alternatives for our Energy Servers. The portion of total revenue attributable to each purchase option in the three and nine months ended September 30, 2024, and 2023 was as follows:

The portion of acceptances attributable to each purchase alternative in the three and nine months ended September 30, 2024, and 2023 was as follows:

Performance Guarantees

As of September 30, 2024, we had incurred no liabilities due to failure to repair or replace Energy Servers pursuant to any performance warranties made under operations and maintenance agreements (“O&M Agreements”).

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 $583.4 million (including $456.1 million related to portfolio financing entities and $127.3 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 $491.1 million as of September 30, 2024. For the nine months ended September 30, 2024, we made performance guarantee payments of $18.8 million.

International Channel Partners

There were no significant changes in our international channel partners during the nine months ended September 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.

Key Operating Metrics

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, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Key Operating Metrics section in our Annual Report on Form 10-K for the year ended December 31, 2023.

Product Acceptances

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

Product accepted decreased approximately by 76 systems, or 9.3%, for the three months ended September 30, 2024, as compared to the prior year period, which is equivalent to 7 megawatts. Acceptance volume decrease was driven by the repowering of 2015 ESA Project Company, LLC (“PPA V”), which was sold in the third quarter of fiscal year 2023.

Product accepted decreased approximately by 43 systems, or 2.2%, for the nine months ended September 30, 2024, as compared to the prior year period, which is equivalent to 4 megawatts. Acceptance volume decrease was driven by (1) the repowering of PPA V, which was sold in the third quarter of fiscal year 2023, and (2) the effect of a large transaction in the first and the second quarter of fiscal year 2023 that did not repeat in fiscal year 2024.

The increase in acceptances of 189 megawatts achieved for the nine months ended September 30, 2024, was added to our installed base and, therefore, increased our total megawatts accepted, net, from 1,241 megawatts as of December 31, 2023, to 1,430 megawatts as of September 30, 2024.

Costs Related to Our Products

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

Product costs of product accepted decreased by $58 per kilowatt, or 2.8%, and by $55 per kilowatt, or 2.6%, for the three and nine months ended September 30, 2024, respectively, 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, 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 the mix of the solutions delivered.

Period costs of manufacturing related expenses decreased by $8.1 million, or 47.2%, and by $5.6 million, or 11.9%, for the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. Our period costs of manufacturing-related expenses decreased primarily as a result of ongoing cost reduction efforts and manufacturing efficiencies.

Installation costs on product accepted increased by $165 per kilowatt, or 51.7%, and by $102 per kilowatt, or 25.3%, for the three and nine months ended September 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 nine months ended September 30, 2024, this increase in cost was primarily driven by the change in the mix of sites requiring Bloom installation.

Our Business Evolution and Key Operating Metrics

We are in the process of re-evaluating the key operating metrics we have historically used to measure our operating performance, and we expect this re-evaluation to be completed by the time we file our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

We are increasingly transitioning from selling our Energy Server as a standalone product to offering energy and hydrogen solutions to our customers. This trend is occurring across our offerings, as we find ways to deliver additional value to customers. We are solving critical problems for our customers and bringing new technologies to the market. This requires us to expand the scope of what is delivered beyond our conventional “electricity-only” solution to electricity, heat, carbon capture, storage, and molecules solutions. As a result of these developments, our Energy Server product (electricity-only power module) cost is becoming a widely varying fraction of the overall value of the energy solution we provide, and trends in costs and selling prices per kilowatt are less representative of our overall business performance. In management’s view, this trend will only continue to get stronger in the future. Specific highlights of our business evolution to offering energy and hydrogen solutions include:

• Time to power. Customers are looking for energy solutions that can enable their business in a timely manner. In order to speed up installation and quickly get sites powered, we are now shipping solutions that are pre-packaged Energy Servers mounted on pre-fabricated skids in the factory. This minimizes the sitework that is needed and allows us to deploy the solution quickly, giving the customer a faster path to power. This effort requires more factory costs, but it reduces installation costs and increases value delivered to the customer.
• Power Density solutions. We have improved our power density for certain customer sites by factory building pre-packaged stackable Energy Servers. This increases costs and requires us to add more hardware at the factory but delivers more value to customers who have space constraints.
• Bloom Electrolyzer. In addition to our energy solutions, we have begun offering hydrogen solutions that feature our Bloom Electrolyzer. The Bloom Electrolyzer is designed to provide scalable and cost-effective hydrogen solutions based on the same solid oxide platform as our Energy Servers. The Bloom Electrolyzer produces hydrogen rather than electricity, and a kilowatt measure attributable to an electrolyzer is not equivalent to a kilowatt measure attributable to a solid oxide fuel cell. Costs of solutions designed to produce hydrogen could vary widely depending on project specifics.
• Combined heat and power. The CHP solution allows customers to take advantage of waste heat, boosting the efficiency and economic return of the project. The CHP solution, however, requires significant infrastructure to deliver the waste heat from the Energy Server to the customer. This infrastructure cost is additive to reported product costs but allows us to deliver more value to customers. Moreover, a kilowatt of heat does not have the same cost or value as a kilowatt of electricity. We optimize our solutions depending on the relevant project requirements, and as a result our cost structure can vary widely depending on the solution provided.
• Carbon Capture solutions. Our technology is well-suited to carbon capture when running on natural gas, the exhaust is a concentrated stream of CO2 relative to other energy generation technologies. This means our solution requires less energy and hardware to separate out the CO2 for capture and sequestration. However, this does require additional infrastructure onsite to separate the CO2 from the rest of the exhaust and to condition it appropriately for the application. This infrastructure cost is additive to reported product costs but allows us to deliver more value to customers by delivering low carbon power.
• Microgrid solutions. As the reliability of the electrical grid becomes more challenging in multiple geographies, many of our customers desire to rely primarily or solely on Bloom solutions, in the form of grid-connected or islanded microgrids. The cost of the ancillary equipment associated with establishing a microgrid is significant, and thus further skews cost metrics measured on a per kilowatt basis.

As our business has evolved to meet the energy needs of the market, ‘product accepted’ is less relevant as an operating metric for our business due to the nature of the complexity in the solutions offered. For example, a solution offered to a customer who wants islanded power, which creates additional reliability, would carry additional costs due to the microgrids and other ancillary equipment needed to provide the solution. Similarly, a customer utilizing our Be FlexibleTM solution would need ancillary equipment such as storage. These factors can distort the cost or revenue per kilowatt metrics.

Results of Operations

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

Revenue

(dollars in thousands)

(dollars in thousands)

PPA V Repowering

On August 25, 2023, we sold PPA V and simultaneously entered into a repowering agreement to upgrade the old Energy Servers by replacing them with the new Energy Servers and to provide related installation services. This transaction had a material impact on our financial results for the three and nine months ended September 30, 2023 (see Part II, Item 8, Note 10 — Portfolio Financings in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023) but did not repeat in the three and nine months ended September 30, 2024.

Total Revenue

Total revenue decreased by $69.9 million, or 17.5%, for the three months ended September 30, 2024, as compared to the prior year period. This decrease was driven by a $71.2 million decrease in product revenue, and a $12.0 million decrease in electricity revenue, partially offset by a $10.1 million increase in installation revenue, and a $3.2 million increase in service revenue.

Total revenue decreased by $75.1 million, or 7.7%, for the nine months ended September 30, 2024, as compared to the prior year period. This decrease was driven by a $100.0 million decrease in product revenue, and a $23.8 million decrease in electricity revenue, partially offset by a $29.3 million increase in service revenue, and a $19.5 million increase in installation revenue.

Product Revenue

Product revenue decreased by $71.2 million, or 23.3%, for the three months ended September 30, 2024, as compared to the prior year period. This decrease was primarily due to lower volume and pricing resulting from the PPA V repowering, which commenced in the third quarter of fiscal year 2023. Pricing to the end customer is dependent on various factors, including geographical location of the site and the solution delivered.

Product revenue decreased by $100.0 million, or 14.0%, for the nine months ended September 30, 2024, as compared to the prior year period. This decrease was primarily due to lower volume and pricing resulting from the PPA V repowering, which commenced in the third quarter of fiscal year 2023, and a large transaction in the first and second quarters of fiscal year 2023 that did not repeat in fiscal year 2024. Pricing to the end customer is dependent on various factors, including geographical location of the site and the solution delivered.

Installation Revenue

Installation revenue increased by $10.1 million, or 46.2%, and by $19.5 million, or 29.2%, for the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. The increase for each period was primarily driven by the timing of achieving key project milestones on sites requiring installations by us in the three and nine months ended September 30, 2024.

Service Revenue

Service revenue increased by $3.2 million, or 6.8%, and by $29.3 million, or 22.4%, for the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. The increase for each period was primarily driven by (1) a $1.4 million and a $19.8 million increase in revenue from maintenance contracts associated with our fleet of Energy Servers, and (2) a decrease of $2.3 million and $10.1 million in product performance guarantees that resulted from a one-time accrual release of $1.1 million from change in estimate and improved fleet performance, respectively. The overall increase was partially offset by the timing of revenue recognition on certain contracts.

Electricity Revenue

Electricity revenue includes both revenue from contracts with customers and revenue from contracts that contain leases.

Electricity revenue decreased by $12.0 million, or 46.5%, and by $23.8 million, or 36.2%, for the three and nine months ended September 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 PPA V repowering, which commenced in the third quarter of fiscal year 2023.

Cost of Revenue

(dollars in thousands)

(dollars in thousands)

Total Cost of Revenue

Total cost of revenue decreased by $153.8 million, or 37.9%, for the three months ended September 30, 2024, as compared to the prior year period. The decrease was driven by a $129.9 million decrease in cost of electricity revenue, a $27.7 million decrease in cost of product revenue, and a $6.0 million decrease in cost of service revenue, partially offset by a $9.8 million increase in costs of installation revenue.

Total cost of revenue decreased by $155.0 million, or 17.8%, for the nine months ended September 30, 2024, as compared to the prior year period. The decrease was driven by a $141.5 million decrease in cost of electricity revenue, a $25.4 million decrease in cost of product revenue, and a $5.6 million decrease in cost of service revenue, partially offset by a $17.5 million increase in costs of installation revenue.

Cost of Product Revenue

Cost of product revenue decreased by $27.7 million, or 15.2%, for the three months ended September 30, 2024, as compared to the prior year period. The decrease in cost of product revenue was primarily due to (1) lower volume resulting from the PPA V repowering of $62.6 million, which commenced in the third quarter of fiscal year 2023, (2) our ongoing efforts to reduce material costs, (3) reduced labor and overhead costs through restructuring programs executed in fiscal year 2023, and (4) improved processes and automation at our manufacturing facilities. The decrease was partially offset by the one-off release of $3.1 million of grant liability recognized against payroll related costs incurred in the third quarter of fiscal year 2023.

Cost of product revenue decreased by $25.4 million, or 5.5%, for the nine months ended September 30, 2024, as compared to the prior year period. The decrease in cost of product revenue was primarily due to (1) (i) lower volume resulting from the PPA V repowering of $62.6 million, which commenced in the third quarter of fiscal year 2023, and (ii) the effect of a large transaction in the first and second quarters of fiscal year 2023 that did not repeat in fiscal year 2024, (2) our ongoing efforts to reduce material costs, (3) reduced labor and overhead costs through restructuring programs executed in fiscal year 2023, and (4) improved processes and automation at our manufacturing facilities. The decrease was partially offset by the one- off release of $3.1 million of grant liability recognized against payroll related costs incurred in the third quarter of fiscal year 2023.

Cost of Installation Revenue

Cost of installation revenue increased by $9.8 million, or 37.8%, and by $17.5 million, or 22.4%, for the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. The increase for each period was primarily driven by the timing of achieving key project milestones on sites requiring installations by us in the three and nine months ended September 30, 2024. 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.

Cost of Service Revenue

Cost of service revenue decreased by $6.0 million, or 10.5%, for the three months ended September 30, 2024, as compared to the prior year period. This decrease was primarily due to (1) a decrease in the deployment of field replacement units, contributing a decrease of $4.8 million, (2) repair and overhaul cost reductions of $4.0 million, and (3) our cost reduction efforts to proactively manage fleet optimizations. The decrease was partially offset by an increase in maintenance material and labor and overhead costs of $3.3 million.

Cost of service revenue decreased by $5.6 million, or 3.4%, for the nine months ended September 30, 2024, as compared to the prior year period. This decrease was primarily due to (1) repair and overhaul cost reductions of $10.1 million, and (2) our cost reduction efforts to proactively manage fleet optimizations. The decrease was partially offset by an increase in maintenance material and labor and overhead costs of $8.7 million.

Cost of Electricity Revenue

Cost of electricity revenue includes both cost of revenue from contracts with customers and cost of revenue from contracts that contain leases.

Cost of electricity revenue decreased by $129.9 million, or 93.2%, and by $141.5 million, or 83.3%, for the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. This decrease was predominantly due to a decrease in installed units, driven primarily by a $123.7 million impairment of the Energy Servers as a result of the PPA V repowering, which commenced in the third quarter of fiscal year 2023.

Gross Profit (Loss) and Gross Margin

(dollars in thousands)

Total Gross Profit (Loss)

Total gross profit (loss) improved by $83.9 million in the three months ended September 30, 2024, as compared to the prior year period. This change was predominantly driven by (1) a $117.9 million improvement of electricity gross profit (loss), primarily due to a $123.7 million impairment charge that resulted from the PPA V repowering, which commenced in the third quarter of fiscal year 2023, and (2) a $9.2 million improvement in service gross loss, due to our efforts to proactively manage fleet optimizations, and our ongoing efforts to reduce product costs. Total gross profit (loss) improvement was partially offset by a $43.5 million decrease in product gross profit, predominantly driven by lower pricing and volume attributable to the PPA V repowering, which commenced in the third quarter of fiscal year 2023.

Total gross profit increased by $79.9 million in the nine months ended September 30, 2024, as compared to the prior year period. This increase was predominantly driven by (1) a $117.7 million improvement of electricity gross profit (loss), primarily due to a $123.7 million impairment charge that resulted from the PPA V repowering, which commenced in the third quarter of fiscal year 2023, (2) a $34.9 million improvement in service gross loss, due to our efforts to proactively manage fleet optimizations, and our ongoing efforts to reduce product costs. and (3) a $2.0 million improvement in installation gross loss. The increase was partially offset by a $74.6 million decrease in product gross profit, predominantly driven by lower pricing and volume attributable to the PPA V repowering, which commenced in the third quarter of fiscal year 2023, and a large transaction in the first and second quarters of fiscal year 2023 that did not repeat in fiscal year 2024.

Product Gross Profit

Product gross profit decreased by $43.5 million in the three months ended September 30, 2024, as compared to the prior year period. The decrease was primarily driven by (1) lower pricing and volume attributable to the PPA V repowering, which commenced in the third quarter of fiscal year 2023, contributing a decrease of $89.0 million, and (2) the one-off release of $3.1 million of grant liability recognized against payroll related costs incurred in the third quarter of fiscal year 2023. The overall decrease was partially offset by (1) reduced labor and overhead costs through restructuring programs executed in fiscal year 2023, and (2) improved processes and automation at our manufacturing facilities.

Product gross profit decreased by $74.6 million in the nine months ended September 30, 2024, as compared to the prior year period. The decrease was primarily driven by (1) lower pricing and volume attributable to the PPA V repowering, which commenced in the third quarter of fiscal year 2023, contributing a decrease of $89.0 million, and (ii) the effect of a large transaction in the first and second quarters of fiscal year 2023 that did not repeat in fiscal year 2024, and (2) the one-off release of $3.1 million of grant liability recognized against payroll related costs incurred in the third quarter of fiscal year 2023. The overall decrease was partially offset by (1) reduced labor and overhead costs through restructuring programs executed in fiscal year 2023, and (2) improved processes and automation at our manufacturing facilities.

Installation Gross Loss

Installation gross loss improved by $0.4 million and $2.0 million in the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. The change for each period was primarily driven by (1) the timing of achieving key project milestones on sites requiring installations by us in the three and nine months ended September 30, 2024, and (2) other site related factors such as site complexity, size, local ordinance requirements, and location of the utility interconnect.

Service Gross Loss

Service gross loss improved by $9.2 million in the three months ended September 30, 2024, as compared to the prior year period. This was primarily due to (1) a decrease in the deployment of field replacement units, contributing a decrease of $4.8 million, (2) repair and overhaul cost reductions of $4.0 million, (3) a decrease of $2.3 million in product performance guarantees that resulted from improved fleet performance, (4) a $1.4 million increase in revenue from maintenance contracts associated with our fleet of Energy Servers, and (5) our cost reduction efforts to proactively manage fleet optimizations. The improvement was partially offset by an increase in maintenance material and labor and overhead costs of $3.3 million.

Service gross loss improved by $34.9 million in the nine months ended September 30, 2024, as compared to the prior year period. This was primarily driven by (1) a $19.8 million increase in revenue from maintenance contracts associated with our fleet of Energy Servers, (2) a decrease of $10.1 million in product performance guarantees that resulted from improved fleet performance, (3) repair and overhaul cost reductions of $10.1 million, and (4) our cost reduction efforts to proactively manage fleet optimizations. The improvement was partially offset by an increase in maintenance material and labor and overhead costs of $8.7 million.

Electricity Gross (Loss) Profit

Electricity gross (loss) profit improved by $117.9 million and $117.7 million in the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. The improvement for each period was predominantly driven by a $123.7 million impairment charge as a result of the PPA V repowering, which commenced in the third quarter of fiscal year 2023.

Operating Expenses

(dollars in thousands)

(dollars in thousands)

Total Operating Expenses

Total operating expenses decreased by $10.1 million in the three months ended September 30, 2024, as compared to the prior year period. This decrease was primarily attributable to (1) a decrease in office expenses of $6.6 million, (2) a decrease in employee compensation and benefits of $2.5 million, predominantly as a consequence of the restructuring efforts in the second half of fiscal year 2023, as well as the voluntary resignation of certain of our executives in the second half of fiscal year 2023, partially offset by an increase in employee compensation for executive new hires, (3) a decrease in consulting, advisory and other professional services costs of $2.3 million, and (4) a decrease in consumable laboratory supplies and other laboratory related costs of $0.9 million. The overall decrease was partially offset by (1) an increase in depreciation expenses of $0.8 million, and (2) an increase in other operating expenses of $0.8 million.

Total operating expenses decreased by $60.1 million in the nine months ended September 30, 2024, as compared to the prior year period. This decrease was primarily attributable to (1) a decrease in employee compensation and benefits of $34.1 million, predominantly as a consequence of the restructuring efforts in the second half of fiscal year 2023, as well as the voluntary resignation of certain of our executives in the second half of fiscal year 2023, partially offset by an increase in employee compensation for executive new hires, (2) a decrease in consulting, advisory and other professional services costs of $14.1 million, (3) a decrease in consumable laboratory supplies and other laboratory related costs of $9.0 million, (4) a decrease in office expenses of $5.3 million, and (5) a decrease in facility costs of $3.6 million, primarily due to reduction in rent and utility costs. The overall decrease was partially offset by an increase in (1) depreciation expenses of $3.1 million, (2) computer equipment maintenance expenses of $2.0 million, and (3) other operating expenses of $1.3 million.

Research and Development

Research and development expenses increased by $1.2 million in the three months ended September 30, 2024, as compared to the prior year period. This increase was primarily driven by (1) an increase in employee compensation and benefits of $0.7 million, and (2) an increase in other research and development expenses of $1.0 million. The overall increase was partially offset by a decrease in consumable laboratory supplies and other laboratory related costs of $0.8 million as a result of our cost reduction efforts initiated in fiscal year 2023.

Research and development expenses decreased by $13.1 million in the nine months ended September 30, 2024, as compared to the prior year period. This overall decrease was primarily driven by (1) a decrease in consumable laboratory supplies and other laboratory related costs of $8.8 million as a result of our cost reduction efforts initiated in fiscal year 2023, and (2) a decrease in employee compensation and benefits of $6.1 million, predominantly as a consequence of the restructuring efforts in the second half of fiscal year 2023. The decrease was partially offset by an increase in depreciation and amortization expenses and other research and development expenses of $0.4 million and $1.6 million, respectively.

Sales and Marketing

Sales and marketing expenses decreased by $5.3 million and $27.8 million in the three and nine months ended September 30, 2024, respectively, as compared to the prior year period. The decrease in the three and nine months ended

September 30, 2024, was primarily driven by (1) a decrease in employee compensation and benefits of $2.5 million and $17.6 million, respectively, predominantly as a consequence of the restructuring efforts in the second half of fiscal year 2023, as well as the voluntary resignation of our Executive Vice President and Chief Business Development and Marketing Officer on September 1, 2023, and (2) a decrease in consulting, advisory and other professional services costs of $2.6 million and $8.2 million, respectively, as a result of our cost reduction efforts initiated in fiscal year 2023.

General and Administrative

General and administrative expenses decreased by $6.0 million in the three months ended September 30, 2024, as compared to the prior year period. This decrease was primarily driven by (1) a decrease in office expenses of $6.5 million, and (2) a decrease in employee compensation and benefits of $0.7 million, primarily as a consequence of the restructuring efforts in the second half of fiscal year 2023, as well as the voluntary resignation of certain of our executives in the second half of fiscal 2023, offset by an increase in employee compensation for executive new hires. The overall decrease was partially offset by an increase in depreciation expenses of $0.7 million.

General and administrative expenses decreased by $19.2 million in the nine months ended September 30, 2024, as compared to the prior year period. This decrease was primarily driven by (1) a decrease in employee compensation and benefits of $10.4 million, predominantly as a consequence of the restructuring efforts in the second half of fiscal year 2023, as well as the voluntary resignation of certain of our executives in the second half of fiscal 2023, partially offset by an increase in employee compensation for executive new hires, (2) a decrease in consulting, advisory and other professional services costs of $5.5 million as a result of our cost reduction efforts initiated in fiscal year 2023, (3) a decrease in office expenses of $5.0 million, and (4) a decrease in facility costs of $3.4 million, primarily due to reduction in rent and utility costs. The overall decrease was partially offset by an increase in depreciation expenses of $2.7 million, computer equipment maintenance expenses of $2.1 million, and other operating expenses of $0.4 million.

Stock-Based Compensation

(dollars in thousands)

(dollars in thousands)

Total stock-based compensation for the three months ended September 30, 2024, decreased by $4.5 million as compared to the prior year period, and the decrease was predominantly related to a decrease in stock-based compensation related to PSUs and RSUs of $5.9 million, partially offset by an increase of stock-based compensation costs related to the 2018 ESPP of $2.6 million, and an increase of stock-based compensation costs related to stock option awards of $0.8 million. The decrease was primarily driven by (1) the separation of full-time employees holding equity awards as a result of the restructuring in the second half of fiscal year 2023, (2) the change in the mix of award types, (3) a change in PSUs and performance-based stock option awards metrics achievement percentage based on approved short-term and long-term forecasts, and (4) the voluntary resignation of certain executives holding equity awards in fiscal 2023 and the third quarter of fiscal year 2024. The decrease was partially offset by (1) stock-based compensation expense related to awards granted to new executive hires, and (2) an increase in contributions to 2018 ESPP.

Total stock-based compensation for the nine months ended September 30, 2024, decreased by $24.3 million as compared to the prior year period, and the decrease was predominantly related to a decrease in stock-based compensation related to PSUs and RSUs of $18.2 million and a decrease of stock-based compensation costs related to the 2018 ESPP of $8.5 million, partially offset by an increase of stock-based compensation costs related to stock options of $1.8 million. The decrease was primarily driven by (1) the separation of full-time employees holding equity awards as a result of the restructuring in the second half of fiscal year 2023, (2) the change in the mix of award types, (3) a change in PSUs and performance-based stock option awards metrics achievement percentage based on approved short-term and long-term forecasts, (4) a decrease in contributions to 2018 ESPP, (5) the voluntary resignation of certain executives in fiscal years 2023 and 2024, and (6) the voluntary resignation of the former CFO holding equity awards in June 2024. The decrease was partially offset by (1) stock-based compensation expenses related to granted RSUs, PSUs and the stock option awards (the “2024 Executive Awards”) in March, May and August 2024, and (2) stock-based compensation expense related to granted awards to new executive hires.

Other Income and Expense

(in thousands)

Interest Income

Interest income is derived from investment earnings on our cash balances, primarily from money market funds. The (decrease)/increase in interest income of $(1.0) million and $6.6 million for the three and nine months ended September 30, 2024, respectively, was primarily due to a (decrease)/increase in average cash balance in our money market funds for the respective period, as compared to the prior year period.

Interest Expense

Interest expense for the three months ended September 30, 2024, decreased by $51.3 million, as compared to the prior year period. The decrease was primarily due to the repayment of the 3.04% Senior Secured Notes due June 2031, on August 24, 2023, and the partial repurchase of the 2.5% Green Notes, on May 29, 2024. The decrease was partially offset by an increase in interest expense related to the 3% Green Notes due June 2029, issued on May 29, 2024.

Interest expense for the nine months ended September 30, 2024, decreased by $47.1 million, as compared to the prior year period. The decrease was primarily as a result of the redemption on June 1, 2023, of the 10.25% Senior Secured Notes due March 2027, the repayment of the 3.04% Senior Secured Notes due June 2031, on August 24, 2023, and the partial repurchase of the 2.5% Green Notes, on May 29, 2024. The decrease was partially offset by an increase in interest expense related to the 3% Green Notes due June 2028, and the 3% Green Notes due June 2029, issued on May 16, 2023, and May 29, 2024, respectively.

Other Income (Expense), net

Other income (expense), net is primarily derived from gain on failed sale-and-leaseback transactions and foreign currency transactions. Other income (expense), net for the three and nine months ended September 30, 2024, improved by $7.4 million and $7.3 million, respectively, as compared to the prior year period, primarily as a result of a $5.0 million gain on failed sale-and-leaseback transactions for each period and foreign currency transactions of $2.5 million and $2.1 million, respectively.

Loss on Extinguishment of Debt

Loss on extinguishment of debt for the nine months ended September 30, 2024, was $27.2 million, which was recognized as a result of partial repurchase on May 29, 2024 of the 2.5% Green Notes, and consisted of repayment of the 22.6% premium of $26.0 million and the write off of $1.2 million in debt issuance costs. There was no loss on extinguishment of debt for the three months ended September 30, 2024.

Loss on extinguishment of debt for the three months ended September 30, 2023, was $1.4 million, which was recognized as a result of the repayment of 3.04% Senior Secured Notes due June 2031, on August 24, 2023, as part of the PPA V repowering, and comprised in its entirety of debt issuance costs derecognition. Loss on extinguishment of debt for the nine months ended September 30, 2023 was $4.3 million, which was recognized as a result of the redemption of the 10.25% Senior Secured Notes due March 2027, on June 1, 2023, and the repayment of the 3.04% Senior Secured Notes due June 2031, on August 24, 2023, as part of the PPA V repowering, and included the repayment of the 4% premium upon redemption of the 10.25% Senior Secured Notes due March 2027, of $2.3 million and derecognition of debt issuance costs of $2.0 million.

Loss on Revaluation of Embedded Derivatives

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. Loss on revaluation of embedded derivatives for the three and nine months ended September 30, 2024, as compared to the prior year period, was immaterial.

Income Tax Provision

(dollars in thousands)

Income tax provision consists primarily of income taxes in foreign jurisdictions in which we conduct business. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss and certain tax credit carryforwards. The income tax provision for the three and nine months ended September 30, 2024, decreased by $0.5 million and $0.6 million, respectively, as compared to the prior year period. The changes were primarily due to fluctuations in the effective tax rates on income earned by international entities.

Net Income (Loss) Attributable to Noncontrolling Interests

(dollars in thousands)

Net income (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.

Net income attributable to noncontrolling interests for the three months ended September 30, 2024, as compared to the prior year period, decreased by $0.8 million due to a $1.9 million decrease in income related to Korean JV, which is allocated to our noncontrolling interest, partially offset by a $1.0 million decrease in losses attributable to PPA V, which was sold in the third quarter of fiscal year 2023.

Net income attributable to noncontrolling interests for the nine months ended September 30, 2024, as compared to the prior year period, improved by $7.1 million due to a $6.9 million decrease in losses attributable to PPA V, which was sold in the third quarter of fiscal year 2023, and a $0.2 million increase in income related to Korean JV, which is allocated to our noncontrolling interest.

Critical Accounting Policies and Estimates

The unaudited 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 unaudited 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 results of operations, which we have prepared in accordance with U.S. GAAP. In preparing these unaudited 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:

• Revenue Recognition;
• Valuation of Assets and Liabilities of the SK ecoplant Strategic Investment;
• Income Taxes; and
• Principles of Consolidation.

Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, provides a more complete discussion of our critical accounting policies and estimates. During the nine months ended September 30, 2024, there were no significant changes to our critical accounting policies and estimates.

There were no significant changes to our quantitative and qualitative disclosures about market risk during the nine months ended September 30, 2024. Please refer to Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2023, for a more complete discussion of the market risks we consider.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our Principal Executive Officer) and Chief Financial Officer (our Principal Financial Officer) as appropriate, to allow for timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of September 30, 2024. Based on such an evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2024, there were no changes in our internal control over financial reporting, which were identified in connection with management’s evaluation required by paragraphs (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For further information on inherent limitations on effectiveness of internal controls and management’s report on internal control over financial reporting, see Part II, Item 9A, Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

There were no material changes in risk factors as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.