Nature of Business, Liquidity and Basis of Presentation

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business, Liquidity and Basis of Presentation

Nature of Business, Liquidity and Basis of Presentation

Nature of Business

For information on the nature of our business, see Part II, Item 8, Note 1 - Nature of Business, Liquidity and Basis of Presentation, Nature of Business section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

We have not experienced any supply chain disruptions as a result of the invasion by the Russian Federation in Ukraine on February 24, 2022.

Liquidity

We have generally incurred operating losses and negative cash flows from operations since our inception. With the series of new debt offerings, debt extensions and conversions to equity that we completed during 2020 and 2021, we had $287.5 million of total outstanding recourse debt as of September 30, 2022, $274.7 million of which is classified as long-term debt. Our recourse debt scheduled repayments commenced in June 2022.

On August 10, 2022, pursuant to the Securities Purchase Agreement (“the SPA”) SK ecoplant notified us of its intent to exercise its option to purchase additional shares of our Class A common stock, pursuant to a Second Tranche Exercise Notice (as defined in the SPA) electing to purchase 13,491,701 shares (the “Second Tranche Shares”) at a purchase price of $23.05 per share, calculated as a 15% premium to the volume-weighted average closing price of the 20 consecutive trading day period immediately preceding the exercise of the option (see Note 5 - Fair Value). The aggregate purchase price approximates cash proceeds to be received by us of $311.0 million, net of related incremental direct costs of $0.1 million. The payment for the Second Tranche Shares will be due the later of (i) December 6, 2022 and (ii) upon clearance under the Hart Scott Rodino (“HSR”) Act of the sale of the Second Tranche Shares as contemplated by the Second Tranche Exercise Notice.

On August 19, 2022, we completed an underwritten public offering (“the Offering”), pursuant to which we issued and sold 13,000,000 shares of Class A Common Stock at price of $26.00 per share. As a part of the Offering, the underwriters were provided a 30-day option to purchase an additional 1,950,000 shares of our Class A Common Stock at the same price, less underwriting discounts and commissions (“the Greenshoe”), which was exercised contemporaneously with the Offering. The aggregate net proceeds received by us from the Offering were $371.5 million after deducting underwriting discounts and commissions of $16.5 million and incremental costs directly attributable to the Offering of $0.7 million.

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 product, 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 and inflationary pressure in the US on our ongoing and future operations. The rising interest rate environment in the US has and will continue to adversely impact the cost of new capital deployment.

In the opinion of management, the combination of our existing cash and cash equivalents and operating cash flows is expected to be sufficient to meet our operational and capital cash flow requirements and other cash flow needs for the next 12 months from the date of issuance of this Quarterly Report on Form 10-Q.

Inflation Reduction Act

On August 7, 2022, the United States Senate passed the Inflation Reduction Act of 2022 (“the IRA”) under fiscal year 2022 budget reconciliation instructions. On August 16, 2022, the IRA was signed into law. This new bill is the U.S. federal government’s largest-ever investment to fight climate change. The IRA includes numerous investments in climate protection, including investments in clean energy production and tax credits aimed at reducing carbon emissions by roughly 40% by 2030. By implementing the IRA, the government aims to make an impact on energy markets so that cleaner options are more affordable to consumers.

The IRA contains several credits and incentive provisions that may be relevant to us:

Credit	Credit summary
Section 45 – Production Tax credit (“PTC”)	Provides a 10-year tax credit for a variety of renewable energy technologies to incentivize electricity generation to be sold to a third party.
Section 48 – Investment Tax Credit (“ITC”)	Provides a tax credit based on capital investment in a variety of renewable and conventional energy technologies to incentivize investment in new energy resources and more efficient use of fuel.
Section 45X – Advanced Manufacturing Production	Provides a PTC for the production of certain eligible components sold to an unrelated person (exceptions apply). The credit amount varies based on the eligible component, which includes solar components, wind energy components, inverters, qualifying battery components, and critical minerals.
Section 48C – Qualified Advanced Energy Project (reenacted)	Provides an ITC through a competitive application process administered through the Department of Energy equal to 6% or 30% of the investment with respect to advanced energy projects.
Section 45Y – Clean Electricity Production Credit	Provides a 10-year technology-neutral PTC, equal to the kWh of electricity produced by the taxpayer times an applicable amount (based of $0.003/kWh up to $0.015/kWh) for the production of clean electricity produced at a qualifying facility for which the GHG emission rate is not greater than zero and electricity is sold, consumed or stored.
Section 48E – Clean Electricity Investment Tax Credit	Provides a technology-neutral ITC of between 6% (or 2%) to 30% (or 10%) for qualified capital investments in an electric generating facility or energy storage for which GHG rate is not greater than zero.
Section 45V – Clean Hydrogen	Provides a PTC of up to $3 per kg of clean hydrogen over a 10-year credit period for the production of clean hydrogen at a qualified facility in the US.
Section 45Q – Carbon Capture Sequestration	Provides a credit ranging from $12-$17 or $60-$85 per metric ton based on the amount of carbon oxides captured from a qualified facility over a 12-year period.

We are currently assessing the impact of these provisions on our business beyond the third quarter of 2022.

Some of our existing contracts contemplated price adjustments due to changes to ITC rate at the inception of the contracts. As a result, we recognized $8.7 million product revenue and $1.3 million installation revenue for the three months ended September 30, 2022, due to a change in variable considerations for energy servers placed in service during the eligible periods from such existing contracts.

Basis of Presentation

We have prepared the condensed consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), and as permitted by those rules, including all disclosures required by generally accepted accounting principles as applied in the United States (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current period presentation.

Principles of Consolidation

For information on principles of consolidation, see Part II, Item 8, Note 1 - Nature of Business, Liquidity and Basis of Presentation, Principles of Consolidation section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of Estimates

For information on the use of accounting estimates, see Part II, Item 8, Note 1 - Nature of Business, Liquidity and Basis of Presentation, Use of Estimates section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Concentration of Risk

Geographic Risk - The majority of our revenue and long-lived assets are attributable to operations in the United States for all periods presented. In addition to shipments in the US, we also ship our Energy Servers to other countries, primarily to the Republic of Korea, Japan, and India (collectively, the “Asia Pacific region”). In the three and nine months ended September 30, 2022, total revenue in the Asia Pacific region was 58% and 61%, respectively, of our total revenue. In the three and nine months ended September 30, 2021, total revenue in the Asia Pacific region was 36% and 38%, respectively, of our total revenue.

Credit Risk - At September 30, 2022 and December 31, 2021, one customer accounted for approximately 23% and 60% of accounts receivable, respectively. To date, we have not experienced any credit losses.

Customer Risk - During the three months ended September 30, 2022, two customers represented approximately 54% and 26% of our total revenue, respectively. During the nine months ended September 30, 2022, two customers represented approximately 48% and 16% of our total revenue, respectively.

During the three months ended September 30, 2021, one customer represented 35% of our total revenue. During the nine months ended September 30, 2021, revenue from two customers represented 37% and 12% of our total revenue, respectively.