Portfolio Financings

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Overview

We have developed various financing options that enable customers' use of the Energy Servers through third-party ownership financing arrangements. For additional information on these financing options, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

PPA IIIa Repowering of Energy Servers

PPA IIIa was established in 2012 and we, through a special purpose subsidiary (the “Project Company”), had previously entered into certain agreements for the purpose of developing, financing, owning, operating, maintaining and managing a portfolio of 9.8 megawatts of Energy Servers.

On March 31, 2022, we entered into a Membership Interest Purchase Agreement where we bought out the equity interest of the third-party investor, wherein the PPA IIIa became wholly owned by us (the “Buyout”).

Following the Buyout and prior to June 14, 2022, we repaid all outstanding debt of the Project Company of $30.6 million, and recognized loss on extinguishment of debt in an amount of $4.2 million, which includes the write-off of the debt discount related to warrants of $1.8 million and a make-whole payment of $2.4 million associated with the debt extinguishment. Refer to Note 7 - Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section.

On June 14, 2022, we sold our 100% interest in the Project Company to Generate C&I Warehouse, LLC (“Generate”) through a Membership Interest Purchase Agreement (“MIPA”). Simultaneously, we entered into an agreement with the Project Company to upgrade the old 9.8 megawatts of Energy Servers (the “old Energy Servers”) by replacing them with a newer generation of Energy Servers (“new Energy Servers”) and providing related installation services, which was financed by Generate (the “EPC Agreement”). The old Energy Servers will be removed prior to installing the new Energy Servers, whereby upon completion of installation the old Energy Servers will be returned to Bloom. We also amended and restated our operations and maintenance agreement with the Project Company to cover all new Energy Servers and old Energy Servers prior to their upgrade (“the O&M Agreement”). The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.

Certain power purchase agreements within the PPA IIIa portfolio were classified as sales-type leases under ASC 840, while some were classified as operating leases. The Company elected the practical expedient package with the adoption of ASC 842, which allowed the Company to carry forward the lease classification upon adoption of ASC 842 on January 1, 2020. The leases were modified prior to the sale of the PPA IIIa to Generate. Such modified leases were reassessed and determined to not be leases under ASC 842 because customers have no control over the identified assets. Accordingly, on the date of modification, the customer financing receivables were derecognized and recognized as property, plant, and equipment (“PPA IIIa PP&E”).

Due to our repurchase option on the old Energy Servers, the Company concluded there was no transfer of control of the old Energy Servers upon sale of the membership interest to Generate. Accordingly, the Company continued to recognize the old Energy Servers, despite the legal ownership of such assets under the MIPA. Upon reclassification of the lease assets to PP&E, the Company assessed the recorded assets for impairment. The carrying amount of the PPA IIIa PP&E was determined to be not recoverable as the net undiscounted cash flows are less than the carrying amounts for PPA IIIa PP&E. Therefore, we recognized the asset impairment charge as electricity cost, consistent with depreciation expense classification for property, plant and equipment under leases.

The PPA IIIa Upgrade was in progress as of September 30, 2022 and resulted in the following summarized impacts on our condensed consolidated balance sheet as of September 30, 2022: (i) cash and cash equivalents increased by $17.7 million mainly due to $54.7 million cash receipts from the sale of new Energy Servers to the Project Company, offset by $30.6 million for the repayment of outstanding debt, (ii) both customer financing receivables, current and non-current, and property plant and equipment, net decreased by $5.9 million, $36.9 million and $2.2 million, respectively, due to the impairment of $44.8 million and accelerated depreciation of $0.2 million of the existing old Energy Servers (we revised the expected useful life of the old Energy Servers from 15 years to approximately 0.5 years which resulted in recognized accelerated depreciation of $0.2 million in electricity cost of revenue (see Note 6)), (iii) contract assets increased by $5.0 million, (iv) inventories and deferred cost of revenue decreased by $24.1 million, and (v) other liabilities increased by $4.7 million. Impacts on our condensed consolidated statements of operations for the three and nine months ended September 30, 2022 are summarized as follows: (i) net product and installation revenue recognized of $12.7 million and $2.1 million and $49.6 million and $3.2 million, respectively, as a

result of the sale of new Energy Servers; (ii) cost of electricity revenue of nil and $45.0 million, respectively, including the write-off of old Energy Servers of nil and $44.8 million, respectively, accelerated depreciation of nil and $0.2 million, respectively, prior to the completion of installation; (iii) cost of product and installation revenue of $5.7 million and $1.7 million and $21.6 million and $2.5 million, respectively, due to the sale of new Energy Servers; and (iv) nil and $4.2 million, respectively, of loss on extinguishment of debt.

Impacts on our condensed consolidated statements of cash flows for the nine months ended September 30, 2022 are summarized as follows: net cash provided by financing activities decreased by $32.6 million due to the repayment of debt of $30.2 million and cash fee of $2.4 million associated with debt extinguishment.

PPA Entities’ Aggregate Assets and Liabilities

Generally, the assets of an operating company owned by an investment company can be used to settle only the operating company obligations, and the operating company creditors do not have recourse to us. The following are the aggregate carrying values of our VIEs' assets and liabilities in our condensed consolidated balance sheets, after eliminations of intercompany transactions and balances, including as of September 30, 2022 each of the PPA Entities in the PPA IV transaction and the PPA V transaction, and as of December 31, 2021 each of the PPA Entities in the PPA IIIa transaction, the PPA IV transaction and the PPA V transaction (in thousands):



	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	1,265	$	1,541
Restricted cash	980		3,078
Accounts receivable	3,170		5,112
Customer financing receivable	—		5,784
Prepaid expenses and other current assets	2,766		3,071
Total current assets	8,181		18,586
Property, plant and equipment, net	208,208		228,546
Customer financing receivable	—		39,484
Restricted cash	17,508		23,239
Other long-term assets	1,994		2,362
Total assets	$	235,891	$	312,217

Liabilities
Current liabilities:

Accrued expenses and other current liabilities	$	111	$	194
Deferred revenue and customer deposits	662		662
Non-recourse debt	15,943		17,483
Total current liabilities	16,716		18,339
Deferred revenue and customer deposits	4,915		5,410
Non-recourse debt	179,955		217,417

Total liabilities	$	201,586	$	241,166

We consolidated each PPA Entity as VIEs in the PPA IV transaction and the PPA V transaction, as we remain the minority shareholder in each of these transactions but have determined that we are the primary beneficiary of these VIEs. These PPA Entities contain debt that is non-recourse to us and own Energy Server assets for which we do not have title.