amsc20230930_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q

 


 

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____.

Commission File Number: 0-19672

 


American Superconductor Corporation

(Exact name of registrant as specified in its charter)

 


 

Delaware

04-2959321

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

114 East Main St. Ayer, Massachusetts

01432

(Address of principal executive offices)

(Zip Code)

 

(978) 842-3000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock,
$0.01 par value per share

AMSC

Nasdaq Global Select Market

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   ☒

Shares outstanding of the Registrant’s common stock:

 

Common Stock, par value $0.01 per share

 

30,318,511

Class

 

Outstanding as of October 27, 2023

 



 

 

 

 
 

AMERICAN SUPERCONDUCTOR CORPORATION

INDEX

 

 

 

Page No.

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

36

 

 

 

Item 3.

Defaults Upon Senior Securities

36

 

 

 

Item 4.

Mine Safety Disclosure

36

 

 

 

Item 5.

Other Information

36

 

 

 

Item 6.

Exhibits

37

 

 

 

Signature

 

38

 

2

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

   

September 30, 2023

   

March 31, 2023

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 22,818     $ 23,360  

Accounts receivable, net

    27,509       30,665  

Inventory, net

    47,835       36,986  

Prepaid expenses and other current assets

    5,398       13,429  

Restricted cash

    546       1,733  

Total current assets

    104,106       106,173  
                 

Property, plant and equipment, net

    11,583       12,309  

Intangibles, net

    7,445       8,527  

Right-of-use assets

    2,493       2,857  

Goodwill

    43,471       43,471  

Restricted cash

    616       582  

Deferred tax assets

    1,083       1,114  

Other assets

    530       528  

Total assets

  $ 171,327     $ 175,561  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 28,949     $ 38,383  

Lease liability, current portion

    696       808  

Debt, current portion

    57       75  

Contingent consideration

    3,470       1,270  

Deferred revenue, current portion

    52,093       43,572  

Total current liabilities

  $ 85,265       84,108  
                 

Deferred revenue, long-term portion

    6,953       7,188  

Lease liability, long-term portion

    1,929       2,184  

Deferred tax liabilities

    261       243  

Debt, long-term portion

    -       15  

Other liabilities

    25       26  

Total liabilities

    94,433       93,764  
                 

Commitments and Contingencies (Note 16)

               
                 

Stockholders' equity:

               

Common stock

    307       299  

Additional paid-in capital

    1,142,023       1,139,113  

Treasury stock

    (3,639 )     (3,639 )

Accumulated other comprehensive income

    1,633       1,571  

Accumulated deficit

    (1,063,430 )     (1,055,547 )

Total stockholders' equity

    76,894       81,797  

Total liabilities and stockholders' equity

  $ 171,327     $ 175,561  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

3

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(In thousands, except per share data)

 

   

Three Months Ended

   

Six Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenues

  $ 34,004     $ 27,680     $ 64,258     $ 50,360  
                                 

Cost of revenues

    25,418       25,710       49,390       46,169  
                                 

Gross margin

    8,586       1,970       14,868       4,191  
                                 

Operating expenses:

                               

Research and development

    1,641       2,314       3,493       4,992  

Selling, general and administrative

    7,946       7,350       15,815       14,911  

Amortization of acquisition-related intangibles

    538       688       1,076       1,369  

Change in fair value of contingent consideration

    850       (290 )     2,200       (120 )

Restructuring

    (20 )     -       (14 )     -  

Total operating expenses

    10,955       10,062       22,570       21,152  
                                 

Operating loss

    (2,369 )     (8,092 )     (7,702 )     (16,961 )
                                 

Interest income, net

    194       45       368       70  

China dissolution

    -       (1,921 )     -       (1,921 )

Other income (expense), net

    (204 )     73       (321 )     240  

Loss before income tax expense (benefit)

    (2,379 )     (9,895 )     (7,655 )     (18,572 )
                                 

Income tax expense (benefit)

    106       (14 )     228       18  
                                 

Net loss

  $ (2,485 )   $ (9,881 )   $ (7,883 )   $ (18,590 )
                                 

Net loss per common share

                               

Basic

  $ (0.09 )   $ (0.35 )   $ (0.28 )   $ (0.67 )

Diluted

  $ (0.09 )   $ (0.35 )   $ (0.28 )   $ (0.67 )
                                 

Weighted average number of common shares outstanding

                               

Basic

    28,828       27,867       28,545       27,714  

Diluted

    28,828       27,867       28,545       27,714  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(In thousands)

 

   

Three Months Ended

   

Six Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net loss

  $ (2,485 )   $ (9,881 )   $ (7,883 )   $ (18,590 )

Other comprehensive (loss) gain, net of tax:

                               

China dissolution

    -       1,921       -       1,921  

Foreign currency translation gain

    64       105       62       168  

Total other comprehensive gain, net of tax

    64       2,026       62       2,089  

Comprehensive loss

  $ (2,421 )   $ (7,855 )   $ (7,821 )   $ (16,501 )

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

5

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE Three and Six Months Ended September 30, 2023 AND 2022

 

(In thousands)

 

   

Common Stock

   

Additional

           

Accumulated Other

           

Total

 
   

Number of Shares

   

Par Value

   

Paid-in Capital

   

Treasury Stock

   

Comprehensive Income

   

Accumulated Deficit

   

Stockholders' Equity

 

Balance at March 31, 2023

    29,937     $ 299     $ 1,139,113     $ (3,639 )   $ 1,571     $ (1,055,547 )   $ 81,797  

Issuance of common stock - restricted shares

    699       7       (7 )                        

Stock-based compensation expense

                1,357                         1,357  

Issuance of stock for 401(k) match

    33       1       163                         164  

Cumulative translation adjustment

                            (2 )           (2 )

Net loss

                                  (5,398 )     (5,398 )

Balance at June 30, 2023

    30,669     $ 307     $ 1,140,626     $ (3,639 )   $ 1,569     $ (1,060,945 )   $ 77,918  

Issuance of common stock - ESPP

    21             136                         136  

Issuance of common stock - restricted shares

    9                                      

Stock-based compensation expense

                1,111                         1,111  

Issuance of stock for 401(k) match

    17             150                         150  

Cumulative translation adjustment

                            64             64  

Net loss

                                  (2,485 )     (2,485 )

Balance at September 30, 2023

    30,716     $ 307     $ 1,142,023     $ (3,639 )   $ 1,633     $ (1,063,430 )   $ 76,894  

 

6

 

   

Common Stock

   

Additional

            Accumulated Other            

Total

 
    Number of Shares     Par Value     Paid-in Capital     Treasury Stock     Comprehensive Loss     Accumulated Deficit     Stockholders' Equity  

Balance at March 31, 2022

    28,920     $ 289     $ 1,133,536     $ (3,639 )   $ (291 )   $ (1,020,506 )   $ 109,389  

Issuance of common stock - restricted shares, net of forfeited shares

    (9 )                                    

Stock-based compensation expense

                1,033                         1,033  

Issuance of stock for 401(k) match

    28             138                         138  

Cumulative translation adjustment

                            63             63  

Net loss

                                  (8,710 )     (8,710 )

Balance at June 30, 2022

    28,939     $ 289     $ 1,134,707     $ (3,639 )   $ (228 )   $ (1,029,216 )   $ 101,913  

Issuance of common stock - ESPP

    34             127                         127  

Issuance of common stock - restricted shares

    331       3       (3 )                        

Stock-based compensation expense

                1,019                         1,019  

Issuance of stock for 401(k) match

    33       1       178                         179  

Cumulative translation adjustment

                            2,026             2,026  

Net loss

                                  (9,881 )     (9,881 )

Balance at September 30, 2022

    29,337     $ 293     $ 1,136,028     $ (3,639 )   $ 1,798     $ (1,039,097 )   $ 95,383  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

7

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In thousands)

 

   

Six Months Ended September 30,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net loss

  $ (7,883 )   $ (18,590 )

Adjustments to reconcile net loss to net cash used in operations:

               

Depreciation and amortization

    2,234       2,799  

Stock-based compensation expense

    2,468       2,052  

Provision for excess and obsolete inventory

    1,070       1,015  

Deferred income taxes

    -       63  

Change in fair value of contingent consideration

    2,200       (120 )

China dissolution

    -       1,921  

Other non-cash items

    273       (137 )

Changes in operating asset and liability accounts:

               

Accounts receivable

    3,152       (92 )

Inventory

    (11,935 )     (13,749 )

Prepaid expenses and other assets

    8,378       211  

Accounts payable and accrued expenses

    (9,763 )     6,885  

Deferred revenue

    8,458       6,170  

Net cash used in operating activities

    (1,348 )     (11,572 )
                 

Cash flows from investing activities:

               

Purchase of property, plant and equipment

    (430 )     (560 )

Change in other assets

    (10 )     (99 )

Net cash used in investing activities

    (440 )     (659 )
                 

Cash flows from financing activities:

               

Repayment of debt

    (33 )     (33 )

Proceeds from exercise of employee stock options and ESPP

    136       128  

Net cash provided by financing activities

    103       95  
                 

Effect of exchange rate changes on cash

    (10 )     4  
                 

Net decrease in cash, cash equivalents and restricted cash

    (1,695 )     (12,132 )

Cash, cash equivalents and restricted cash at beginning of period

    25,675       49,486  

Cash, cash equivalents and restricted cash at end of period

  $ 23,980     $ 37,354  
                 

Supplemental schedule of cash flow information:

               

Cash paid for income taxes, net of refunds

  $ 171     $ 152  

Non-cash investing and financing activities

               

Issuance of common stock to settle liabilities

  $ 313     $ 317  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

8

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Nature of the Business and Operations and Liquidity

 

Nature of the Business and Operations

 

American Superconductor Corporation (together with its subsidiaries, “AMSC®” or the “Company”) was founded on April 9, 1987. The Company is a leading system provider of megawatt-scale power resiliency solutions that orchestrate the rhythm and harmony of power on the grid™ and that protect and expand the capability of the Navy’s fleet. The Company’s system level products leverage its proprietary “smart materials” and “smart software and controls” to provide enhanced resiliency and improved performance of megawatt-scale power flow.

 

These unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with United States generally accepted accounting principles (“GAAP”) and the Securities and Exchange Commission’s (“SEC”) instructions to Form 10-Q. The going concern basis of presentation assumes that the Company will continue operations and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods ended  September 30, 2023 and 2022 and the financial position at September 30, 2023; however, these results are not necessarily indicative of results which may be expected for the full year. The interim condensed consolidated financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended  March 31, 2023, and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended  March 31, 2023 filed with the SEC on May 31, 2023.

 

Liquidity

 

The Company has historically experienced recurring operating losses and as of September 30, 2023, the Company had an accumulated deficit of $1,063.4 million. In addition, the Company has historically experienced recurring negative operating cash flows. At September 30, 2023, the Company had cash and cash equivalents of $22.8 million. Cash used in operations for the six months ended  September 30, 2023 was $1.3 million.

 

In February 2021, the Company filed a shelf registration statement on Form S-3 that will expire in February 2024 (the “Form S-3”). The Form S-3 allows the Company to offer and sell from time-to-time up to $250 million of common stock, debt securities, warrants or units comprised of any combination of these securities. The Form S-3 is intended to provide the Company flexibility to conduct registered sales of the Company's securities, subject to market conditions, in order to fund the Company's future capital needs. The terms of any future offering under the Form S-3 will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

 

The Company continues to experience inflationary pressure in its supply chain and some delays in sourcing materials needed for its products resulting in some production disruption, both of which have increased the Company’s cost of revenues and decreased gross margin. While the impact of inflation has been challenging, the Company continues to take actions to limit this pressure, including adjusting the pricing of its products and services. Changes in macroeconomic conditions arising from the COVID-19 pandemic or for other reasons, such as the ongoing wars between Russia and Ukraine and Israel and Hamas, inflation, rising interest rates, labor force availability, sourcing, material delays and global supply chain disruptions could have a material adverse effect on the Company’s business, financial condition and results of operation.

 

9

 

From time-to-time the Company  may undertake restructuring activities in order to align the global organization in a manner that the Company believes will better position it to achieve its long-term goals. In January 2023, the Company undertook a reduction in force that involved approximately 5% of the global workforce. This restructuring is expected to incur $1.0 million of cash expenses, $0.8 million of which has been paid as of September 30, 2023, and to result in annualized cost savings of approximately $5.0 million, beginning in fiscal 2023.

 

The Company believes that based on the information presented above and its quarterly management assessment, it has sufficient liquidity to fund its operations and capital expenditures for the next twelve months following the issuance of the unaudited condensed consolidated financial statements for the six months ended September 30, 2023. The Company’s liquidity is highly dependent on its ability to increase revenues, its ability to control its operating costs, and its ability to raise additional capital, if necessary. The impact of the COVID-19 pandemic and other sources of instability, including the wars between Russia and Ukraine and Israel and Hamas, on the global financing markets may reduce the Company's ability to raise additional capital, if necessary, which could negatively impact the Company's liquidity.  There can be no assurance that the Company will be able to continue to raise additional capital, on favorable terms or at all, from other sources or execute on any other means of improving liquidity described above.

 

2. Revenue Recognition

 

The Company’s revenues in its Grid business segment are derived primarily through enabling the transmission and distribution of power, providing planning services that allow it to identify power grid needs and risks, and developing ship protection systems for the U.S. Navy. The Company’s revenues in its Wind business segment are derived primarily through supplying advanced power electronics and control systems, licensing its highly engineered wind turbine designs, and providing extensive customer support services to wind turbine manufacturers. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606. For its customer contracts, the Company identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) control of goods or services is transferred to the customer. In the three and six months ended September 30, 202379% and 78% of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time. In the three and six months ended September 30, 2022, 83% and 77% of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time.

 

In the Company's equipment and system product line, each contract with a customer summarizes each product sold to a customer, which typically represents distinct performance obligations. A contract's transaction price is allocated to each distinct performance obligation using the respective standalone selling price which is determined primarily using the cost-plus expected margin approach and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s product sales transfer control to the customer in line with the contracted delivery terms and revenue is recorded at the point in time when title and risk transfer to the customer, which is primarily upon delivery, as the Company has determined that this is the point in time that control transfers to the customer.

 

In the Company's service and technology development product line, there are several different types of transactions, and each begins with a contract with a customer that summarizes each product sold to a customer, which typically represents distinct performance obligations. The technology development transactions are primarily for activities that have no alternative use and for which a profit can be expected throughout the life of the contract. In these cases, the revenue is recognized over time, but in the instances where the profit cannot be assured throughout the entire contract then the revenue is recognized at a point in time. Each contract's transaction price is allocated to each distinct performance obligation using the respective standalone selling price which is determined primarily using the cost-plus expected margin approach. The ongoing service transactions are for service contracts that provide benefit to the customer simultaneously as the Company performs its obligations, and therefore this revenue is recognized ratably over time throughout the effective period of these contracts. The transaction prices on these contracts are allocated based on an adjusted market approach which is re-assessed annually for reasonableness. The field service transactions include contracts for delivery of goods and completion of services made at the customer's requests, which are not deemed satisfied until the work has been completed and/or the requested goods have been delivered, so all of this revenue is recognized at the point in time when the control changes, and at allocated prices based on the adjusted market approach driven by standard price lists. The royalty transactions are related to certain contract terms on transactions in the Company's equipment and systems product line based on activity as specified in the contracts. The transaction prices of these agreements are calculated based on an adjusted market approach as specified in the contract. The Company reports royalty revenue for usage-based royalties when the sales have occurred. In circumstances when collectability is not assured and a contract does not exist under ASC 606, revenue is deferred until a non-refundable payment has been received for substantially all the amount that is due and there are no further remaining performance obligations.

 

10

 

The Company's service contracts can include a purchase order from a customer for specific goods in which each item is a distinct performance obligation satisfied at a point in time at which control of the goods is transferred to the customer.  This transfer occurs based on the contracted delivery terms or when the requested service work has been completed. The transaction price for these goods is allocated based on the adjusted market approach considering similar transactions under similar circumstances. Service contracts are also derived from ongoing maintenance contracts and extended service-type warranty contracts. In these transactions, the Company is contracted to provide an ongoing service over a specified period of time. As the customer is consuming the benefits as the service is being provided, the revenue is recognized over time ratably.

 

The Company’s policy is not to accept volume discounts, product returns, or rebates and allowances within its contracts. In the event a contract was approved with any of these terms, it would be evaluated for variable consideration, estimated and recorded as a reduction of revenue in the same period the related product revenue was recorded.

 

The Company provides assurance-type warranties on all product sales for a term of typically one to three years, and extended service-type warranties are available for purchase at the customer's option for an additional term ranging up to four additional years. The Company accrues for the estimated warranty costs for assurance warranties at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. For all extended service-type warranties, the Company recognizes the revenue ratably over time during the effective period of the services.

 

The Company records revenue net of sales tax, value added tax, excise tax and other taxes collected concurrent with revenue-producing activities. The Company has elected to recognize the cost for freight and shipping when control over the products sold passes to customers and revenue is recognized. The Company has elected to recognize incremental costs of obtaining a contract as expense when incurred except in contracts where the amortization period would exceed twelve months; in such cases the long-term amount will be assessed for materiality. The Company has elected not to adjust the promised amount of consideration for the effects of a significant financing component if the period of financing is twelve months or less.  The Company has elected to recognize revenue based on the As Invoiced practical expedient if there is a right to consideration from a customer in an amount that corresponds directly with the value of the Company's performance.

 

The Company monitors costs to meet its obligations on its customer contracts. When it is evident that there is a loss expected on a contract, a contract loss is accrued in the period. Several long-term contracts that were acquired from Neeltran, Inc. (“Neeltran”) were impacted by higher than planned costs due to required design changes and inflation on material costs, resulting in an increase to the contract loss accrual of $1.0 million and $1.2 million in the three and six months ended  September 30, 2022, respectively, which negatively impacted the Company's gross margins. The contract loss accrual decreased by $0.9 million in each of the three and six months ended September 30, 2023, respectively, as projects have been completed.

 

The Company’s contracts with customers do not typically include extended payment terms and may include milestone billing over the life of the contract. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from delivery.  

 

11

 

The following tables disaggregate the Company’s revenue by product line and by shipment destination (in thousands):

 

  

Three Months Ended September 30, 2023

  

Six Months Ended September 30, 2023

 

Product Line:

 

Grid

  

Wind

  

Grid

  

Wind

 

Equipment and systems

 $22,682  $4,879  $45,808  $8,862 

Services and technology development

  5,833   610   8,443   1,145 

Total

 $28,515  $5,489  $54,251  $10,007 
                 

Region:

                

Americas

 $24,696  $27  $47,856  $57 

Asia Pacific

  3,418   5,462   5,129   9,928 

EMEA

  401      1,266   22 

Total

 $28,515  $5,489  $54,251  $10,007 

  

  

Three Months Ended September 30, 2022

  

Six Months Ended September 30, 2022

 

Product Line:

 

Grid

  

Wind

  

Grid

  

Wind

 

Equipment and systems

 $24,128  $1,330  $42,204  $3,302 

Services and technology development

  1,570   652   3,323   1,531 

Total

 $25,698  $1,982  $45,527  $4,833 
                 

Region:

                

Americas

 $18,021  $-  $34,923  $- 

Asia Pacific

  6,178   1,912   8,855   4,763 

EMEA

  1,499   70   1,749   70 

Total

 $25,698  $1,982  $45,527  $4,833 

 

As of September 30, 2023, and 2022, the Company’s contract assets and liabilities primarily relate to the timing differences between cash received from a customer in connection with contractual rights to invoicing and the timing of revenue recognition following completion of performance obligations. The Company's accounts receivable balance is made up entirely of customer contract related balances. Changes in the Company’s contract assets, which are included in “Unbilled accounts receivable” and “Deferred program costs” (see Note 7, “Accounts Receivable” and Note 8, “Inventory” for a reconciliation to the condensed consolidated balance sheets) and "Contract liabilities", which are included in the current portion and long-term portion of "Deferred revenue" in the Company’s condensed consolidated balance sheets, are as follows (in thousands):

 

  

Unbilled Accounts Receivable

  

Deferred Program Costs

  

Contract Liabilities

 

Beginning balance as of March 31, 2023

 $9,958  $2,136  $50,760 

Increases for costs incurred to fulfill performance obligations

     2,110    

Increase (decrease) due to customer billings

  (13,981)     34,284 

Decrease due to cost recognition on completed performance obligations

     (2,160)   

Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations

  10,351      (25,710)

Other changes and FX impact

  7   (11)  (288)

Ending balance as of September 30, 2023

 $6,335  $2,075  $59,046 

 

  

Unbilled Accounts Receivable

  

Deferred Program Costs

  

Contract Liabilities

 

Beginning balance as of March 31, 2022

 $6,492  $858  $30,034 

Increases for costs incurred to fulfill performance obligations

     782    

Increase (decrease) due to customer billings

  (7,322)     33,141 

Decrease due to cost recognition on completed performance obligations

     (697)   

Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations

  7,342      (26,857)

Other changes and FX impact

     (47)  (863)

Ending balance as of September 30, 2022

 $6,512  $896  $35,455 

 

12

 

The Company’s remaining performance obligations represent the unrecognized revenue value of the Company’s contractual commitments. The Company’s performance obligations may vary significantly each reporting period based on the timing of major new contractual commitments. As of September 30, 2023, the Company had outstanding performance obligations on existing contracts under ASC 606 to be recognized in the next twelve months of approximately $128.3 million. There are also approximately $43.2 million of outstanding performance obligations to be recognized over a period of thirteen to sixty months. The remaining performance obligations are subject to customer actions and therefore the timing of revenue recognition cannot be reasonably estimated. 

 

The following table sets forth customers who represented 10% or more of the Company’s total revenues for the three and six months ended September 30, 2023 and 2022:

 

   

Three Months Ended

  

Six Months Ended

 
 

Reportable

 

September 30,

  

September 30,

 
 

Segment

 

2023

  

2022

  

2023

  

2022

 

Inox Wind Limited

Wind

  12% 

<10%

   12% 

<10%

 

Fuji Bridex Pte Ltd

Grid

  <10%   17%  <10%   13%

Gray Construction, Inc.

Grid

  11%  <10%   <10%   <10% 

Ascend Performance Materials Ops LLC

Grid

  <10%   12%  <10%   <10% 

 

 

3. Stock-Based Compensation

 

The Company accounts for its stock-based compensation at fair value. The following table summarizes stock-based compensation expense by financial statement line item for the three and six months ended  September 30, 2023 and 2022 (in thousands):

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Cost of revenues

 $59  $78  $169  $107 

Research and development

  156   177   311   355 

Selling, general and administrative

  896   764   1,988   1,590 

Total

 $1,111  $1,019  $2,468  $2,052 

  

The Company issued 9,000 shares and 681,500 shares of restricted stock during the three and six months ended September 30, 2023, respectively. The Company issued no shares of immediately vested common stock during the three months ended September 30, 2023 and 53,675 shares of immediately vested common stock during the six months ended September 30, 2023. The Company issued 338,500 shares of restricted stock during the three and six months ended  September 30, 2022. The Company issued no shares of immediately vested common stock during the three months ended  September 30, 2022 and 25,806 shares of immediately vested common stock during the six months ended September 30, 2022. These restricted stock awards generally vest over 2-3 years. Awards for restricted stock include both time-based and performance-based awards. For options and restricted stock awards that vest upon the passage of time, expense is being recorded over the vesting period. Performance-based awards are expensed over the requisite service period based on probability of achievement.

 

The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The total unrecognized compensation cost for unvested stock options was less than $0.1 million for the six months ended  September 30, 2023. This expense will be recognized over a weighted average of approximately 0.7 years. The total unrecognized compensation cost for unvested outstanding restricted stock was $6.8 million for the six months ended September 30, 2023. This expense will be recognized over a weighted-average expense period of approximately 2.0 years.

 

13

 

The Company granted no stock options during the three and six months ended  September 30, 2023. The Company granted no stock options in the three months ended  September 30, 2022, and 20,564 stock options during the six months ended  September 30, 2022. The stock options granted during the six months ended September 30, 2022 will vest over 2 years. The weighted average assumptions used in the Black Scholes valuation model for stock options granted during the six months ended September 30, 2022 are as follows:

 

Expected volatility

  71.40%

Risk-free interest rate

  3.10%

Expected life (years)

  6.14 

Dividend yield

 

None

 

 

 

4. Computation of Net Loss per Common Share

 

Basic net loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Where applicable, diluted EPS is computed by dividing the net loss by the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period, calculated using the treasury stock method. Common equivalent shares include the effect of restricted stock, exercise of stock options and warrants and contingently issuable shares. Stock options and warrants that are out-of-the-money with exercise prices greater than the average market price of the underlying common shares and shares of performance-based restricted stock where the contingency was not met are excluded from the computation of diluted EPS as the effect of their inclusion would be anti-dilutive. For each of the three and six months ended September 30, 20231.0 million shares were not included in the calculation of diluted EPS. Of these, 1.0 million relate to shares tied to the contingent consideration derivative liability for which the contingency has not yet been met, and less than 0.1 million relate to outstanding stock options as they were considered anti-dilutiveFor each of the three and six months ended September 30, 20221.1 million shares were not included in the calculation of diluted EPS. Of these, 1.0 million relate to shares tied to the contingent consideration derivative liability for which the contingency has not yet been met, and 0.1 million relate to outstanding stock options as they were considered anti-dilutive. 

 

The following table reconciles the numerators and denominators of the earnings per share calculation for the three and six months ended  September 30, 2023 and 2022 (in thousands, except per share data):

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Numerator:

                

Net loss

 $(2,485) $(9,881) $(7,883) $(18,590)

Denominator:

                

Weighted-average shares of common stock outstanding

  30,283   28,775   29,996   28,648 

Weighted-average shares subject to repurchase

  (1,455)  (908)  (1,451)  (934)

Shares used in per-share calculation ― basic

  28,828   27,867   28,545   27,714 

Shares used in per-share calculation ― diluted

  28,828   27,867   28,545   27,714 

Net loss per share ― basic

 $(0.09) $(0.35) $(0.28) $(0.67)

Net loss per share ― diluted

 $(0.09) $(0.35) $(0.28) $(0.67)

 

 

5. Goodwill and Other Intangibles

 

Goodwill

 

Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized but reviewed for impairment. Goodwill is reviewed annually on February 28th and whenever events or changes in circumstances indicate that the carrying value of the goodwill might not be recoverable.

 

14

 

There were no changes to goodwill during the six months ended  September 30, 2023 or year ended March 31, 2023.

 

The Company did not identify any triggering events in the three and six months ended  September 30, 2023 that would require interim impairment testing of goodwill.

 

Other Intangibles

 

Intangible assets at  September 30, 2023 and  March 31, 2023 consisted of the following (in thousands):

 

  

September 30, 2023

  

March 31, 2023

     
  

Gross Amount

  

Accumulated Amortization

  

Net Book Value

  

Gross Amount

  

Accumulated Amortization

  

Net Book Value

  

Estimated Useful Life

 

Backlog

  681   (681)     681   (675) $6   2 

Trade name and trademarks

  1,800      1,800   1,800      1,800  

Indefinite

 

Customer relationships

  9,600   (5,815)  3,785   9,600   (4,980)  4,620   7 

Core technology and know-how

  5,970   (4,110)  1,860   5,970   (3,869)  2,101   5-10 

Intangible assets

 $18,051  $(10,606) $7,445  $18,051  $(9,524) $8,527     

 

The Company recorded intangible amortization expense related to customer relationship and core technology and know-how of $0.5 million and $1.1 million, in the three and six months ended  September 30, 2023, respectively, and $0.7 million and $1.4 million in the three and six months ended September 30, 2022, respectively. Additionally, the Company recorded no intangible amortization related to backlog that is reported in cost of revenues in the three months ended  September 30, 2023 and less than $0.1 million in the six months ended  September 30, 2023. The Company recorded no intangible amortization related to backlog in the three months ended  September 30, 2022 and the Company recorded less than $0.1 million related to backlog that is reported in cost of revenues in the six months ended  September 30, 2022, respectively.

 

Expected future amortization expense related to intangible assets is as follows (in thousands):

 

Years ending March 31,

 

Total

 

2024

  1,076 

2025

  1,648 

2026

  1,221 

2027

  1,085 

2028

  543 

Thereafter

  72 

Total

 $5,645 

 

The Company's intangible assets relate entirely to the Grid business segment operations in the United States.

 

15

 

6. Fair Value Measurements

 

A valuation hierarchy for disclosure of the inputs to valuation used to measure fair value has been established. This hierarchy prioritizes the inputs into three broad levels as follows:

 

Level 1 

-

Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

 

 

Level 2 

-

Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

 

 

Level 3 

-

Unobservable inputs that reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

 

The Company provides a gross presentation of activity within Level 3 measurement roll-forward and details of transfers in and out of Level 1 and 2 measurements. A change in the hierarchy of an investment from its current level is reflected in the period during which the pricing methodology of such investment changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 is made in the event that the related security is significant to total cash and investments. The Company did not have any transfers of assets and liabilities from Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the six months ended September 30, 2023.

 

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

Valuation Techniques

 

Cash Equivalents

 

Cash equivalents consist of highly liquid instruments with maturities of three months or less that are regarded as high quality, low risk investments, are measured using such inputs as quoted prices and are classified within Level 1 of the valuation hierarchy. Cash equivalents consist principally of certificates of deposits and money market accounts.

 

Contingent Consideration

 

Contingent consideration relates to the earnout payment set forth in the Stock Purchase Agreement governing the acquisition of Northeast Power Systems, Inc ("NEPSI") that provides that the selling stockholders may receive up to an additional 1,000,000 shares of common stock of the Company upon the achievement of certain specified revenue objectives over varying periods of up to four years following the NEPSI Acquisition Date. See Note 13, "Contingent Consideration" for further discussion. The Company relied on a Monte Carlo method to determine the fair value of the contingent consideration on the closing of the acquisition of NEPSI and continues to revalue the fair value of the contingent consideration using the same method at each subsequent balance sheet date until the contingencies are resolved and the shares to be issued are determined, with the change in fair value recorded in the current period operating loss.

 

16

 

The following table provides the assets and liabilities carried at fair value on a recurring basis, measured as of  September 30, 2023 and  March 31, 2023 (in thousands):

 

  

Total Carrying Value

  

Quoted Prices in Active Markets (Level 1)

  

Significant Other Observable Inputs (Level 2)

  

Significant Unobservable Inputs (Level 3)

 

September 30, 2023:

                

Assets:

                

Cash equivalents

 $5,157  $5,157  $  $ 

Derivative liabilities:

                

Contingent consideration

 $3,470  $  $  $3,470 

 

  Total Carrying Value  Quoted Prices in Active Markets (Level 1)  Significant Other Observable Inputs (Level 2)  Significant Unobservable Inputs (Level 3) 

March 31, 2023:

                

Assets:

                

Cash equivalents

 $7,913  $7,913  $  $ 

Derivative liabilities:

                

Contingent consideration

 $1,270  $  $  $1,270 

 

The table below reflects the activity for the Company’s contingent consideration derivative liability measured at fair value on a recurring basis (in thousands):

 

  

Acquisition Contingent Consideration

 

Balance at March 31, 2022

 $1,200 

Change in fair value

  70 

Balance at March 31, 2023

  1,270 

Change in fair value

  2,200 

Balance at September 30, 2023

 $3,470 

 

 

7. Accounts Receivable

 

Accounts receivable at  September 30, 2023 and  March 31, 2023 consisted of the following (in thousands):

 

  

September 30, 2023

  

March 31, 2023

 

Accounts receivable (billed)

 $21,174  $20,707 

Accounts receivable (unbilled)

  6,335   9,958 

Accounts receivable, net

 $27,509  $30,665 

 

17

 
 

8. Inventory

 

Inventory, net of reserves, at  September 30, 2023 and  March 31, 2023 consisted of the following (in thousands):

 

  

September 30, 2023

  

March 31, 2023

 

Raw materials

 $19,337  $16,654 

Work-in-process

  22,714   15,200 

Finished goods

  3,709   2,996 

Deferred program costs

  2,075   2,136 

Net inventory

 $47,835  $36,986 

 

The Company recorded inventory write-downs of $0.7 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively. The Company recorded inventory write-downs of $1.1 million and $1.0 million for the six months ended  September 30, 2023 and 2022, respectively. These write-downs were based on the Company's evaluation of its inventory on hand for excess quantities and obsolescence.

 

Deferred program costs as of  September 30, 2023 and  March 31, 2023, primarily represent costs incurred on programs where the Company needs to complete performance obligations before the related revenue and costs will be recognized.

 

 

9. Prepaid and Other Current Assets

 

During fiscal 2022, the Company conducted an analysis as to whether it was entitled to employee retention credits (“ERC”) under the CARES Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021.  Based on the analysis, the Company determined that it was entitled to an ERC of approximately $3.3 million related to payroll taxes paid in the first and second quarters of 2021 and the first quarter of 2020.  The Company determined it met all the criteria required under the gross receipts test of the applicable Internal Revenue Service regulations related to ERCs.

 

As accounting for payroll tax credits are not within the scope of ASC 740, Income Taxes, the Company has chosen to account for the ERCs by analogizing to the International Accounting Standards Board IAS 20, Accounting for Government Grants and Disclosure of Government Assistance.  In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received.  The  Company evaluated its eligibility for the ERC and determined that it met all the criteria to claim a refundable tax credit against the employer portion of Social Security taxes for up to 70% of the qualified wages the Company paid to  employees for the three month periods ended March 31, 2021 and June 30, 2021 and for up to 50%  of the qualified wages the Company paid to employees for the three month period ended March 31, 2020. 

 

The Company recorded a $3.3 million receivable in Prepaid expenses and other current assets and a benefit of $1.8 million to Cost of revenues, $0.8 million to SG&A and $0.7 million to Research and development in the fiscal year ended March 31, 2023 for the ERC that is expected to be received based on the amended filings. During the six months ended September 30, 2023, the Company received $3.0 million for the initial claims that were processed. The remaining balance is expected to be received during the remainder of fiscal 2023.

 

18

 

10. Property, Plant and Equipment

 

The cost and accumulated depreciation of property, plant and equipment at  September 30, 2023 and  March 31, 2023 are as follows (in thousands):

 

  

September 30, 2023

  

March 31, 2023

 

Land

 $980  $980 

Construction in progress - equipment

  342   748 

Buildings

  5,416   5,416 

Equipment and software

  43,915   43,156 

Finance lease - right of use asset

  1   1 

Furniture and fixtures

  1,531   1,535 

Leasehold improvements

  6,812   6,815 

Property, plant and equipment, gross

  58,997   58,651 

Less accumulated depreciation

  (47,414)  (46,342)

Property, plant and equipment, net

 $11,583  $12,309 

 

Depreciation expense was $0.6 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $1.2 million and $1.4 million for the six months ended  September 30, 2023 and 2022, respectively.

 

11. Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses at  September 30, 2023 and  March 31, 2023 consisted of the following (in thousands):

 

  

September 30, 2023

  

March 31, 2023

 

Accounts payable

 $11,393  $13,935 

Accrued inventories in-transit

  1,123   2,267 

Accrued other miscellaneous expenses

  4,237   3,870 

Accrued contract loss

  2,584   3,464 

Advanced deposits

  1,156   5,653 

Accrued compensation

  6,041   5,430 

Income taxes payable

  297   409 

Accrued product warranty

  1,892   2,638 

Accrued restructuring

  226   717 

Total

 $28,949  $38,383 

 

The Company generally provides a one to three year warranty on its products, commencing upon delivery or installation where applicable. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience.

 

19

 

Product warranty activity was as follows (in thousands):

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Balance at beginning of period

 $1,926  $1,942  $2,638  $2,066 

Provisions for warranties during the period

  644   479   852   656 

Settlements during the period

  (678)  (368)  (1,598)  (669)

Balance at end of period

 $1,892  $2,053  $1,892  $2,053 

 

 

12. Income Taxes

 

The Company recorded income tax expense of $0.1 million and $0.2 million in the three and six months ended September 30, 2023, respectively. The Company recorded an income tax benefit of less than $0.1 million and an income tax expense of less than $0.1 million in the three and six months ended September 30, 2022, respectively.

 

Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.  The Company re-evaluates these uncertain tax positions on a quarterly basis. The evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.  Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. The Company did not identify any uncertain tax positions in the six months ended  September 30, 2023 and did not have any gross unrecognized tax benefits as of September 30, 2023.

 

 

13. Contingent Consideration

 

Acquisition of NEPSI

 

On October 1, 2020 (the "NEPSI Acquisition Date"), the Company entered into a Stock Purchase Agreement (the "NEPSI Stock Purchase Agreement") with the selling stockholders named therein. Pursuant to the terms of the NEPSI Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding (i) shares of capital stock of NEPSI, and (ii) membership interests of Northeast Power Realty, LLC, a New York limited liability company, which holds the real property that serves as NEPSI's headquarters (the "NEPSI Acquisition"). NEPSI is a U.S.-based global provider of medium-voltage metal-enclosed power capacitor banks and harmonic filter banks for use on electric power systems. NEPSI is a wholly-owned subsidiary of the Company and is operated by its Grid business unit. The purchase price was $26.0 million in cash and 873,657 restricted shares of common stock of the Company. As part of the transaction, the selling stockholders  may receive up to an additional 1,000,000 shares of common stock of the Company upon the achievement of certain specified revenue objectives during varying periods of up to four years following closing of the NEPSI Acquisition.  NEPSI has recognized revenues in excess of $75.0 million during the three years after the NEPSI Acquisition Date. As a result, the Company expects to issue 400,000 shares of common stock of the Company to the selling stockholders during the quarter ending December 31, 2023, upon certification of the achievement of specified earnout revenue objectives.

 

Contingent Consideration

 

The Company evaluated the NEPSI Acquisition earnout payment set forth in the NEPSI Stock Purchase Agreement, which is expected to require settlement in the Company's common stock, and determined the contingent consideration qualified for liability classification and derivative treatment under ASC 815, Derivatives and Hedging. As a result, for each period, the fair value of the contingent consideration will be remeasured and the resulting gain or loss will be recognized in operating expenses until the share amount is fixed.

 

20

 

Following is a summary of the key assumptions used in a Monte Carlo simulation to calculate the fair value of the contingent consideration relat