f+
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer | |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
N/A | ||||
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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.
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).
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 ☐ | 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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
As of November 12, 2024, the registrant had
CAPSTONE GREEN ENERGY HOLDINGS, INC.
TABLE OF CONTENTS
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
| September 30, |
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2024 | 2024 | |||||
Assets | ||||||
Current Assets: | ||||||
Cash | $ | | $ | | ||
Accounts receivable, net of allowances of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, equipment and rental assets, net |
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Finance lease right-of-use assets | | | ||||
Operating lease right-of-use assets | | | ||||
Non-current portion of inventories |
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Other assets |
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Total assets | $ | | $ | | ||
Liabilities, Temporary Equity and Stockholders’ Deficiency | ||||||
Current Liabilities: | ||||||
Accounts payable and accrued expenses | $ | | $ | | ||
Accrued salaries and wages |
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Accrued warranty reserve |
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Deferred revenue, current |
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Finance lease liability, current | | | ||||
Operating lease liability, current | | | ||||
Factory protection plan liability | | | ||||
Exit new money notes, net of discount, current | — | | ||||
Total current liabilities |
| |
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Deferred revenue, non-current | | | ||||
Finance lease liability, non-current | | | ||||
Operating lease liability, non-current | | | ||||
Exit new money notes, net of discount, non-current |
| |
| — | ||
Other non-current liabilities |
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Total liabilities | | | ||||
Commitments and contingencies (Note 13) | ||||||
Temporary equity: | ||||||
Redeemable noncontrolling interests | | | ||||
Stockholders’ deficiency: | ||||||
Preferred stock, $ | ||||||
Common stock, $ |
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Non-voting common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ deficiency |
| ( |
| ( | ||
Total liabilities, temporary equity and stockholders' deficiency | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Revenue, net: | ||||||||||||
Product and accessories | $ | | $ | | $ | | $ | | ||||
Parts, services and rentals | | | | | ||||||||
Total revenue, net | | | | | ||||||||
Cost of goods sold: |
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Product and accessories | | | | | ||||||||
Parts, services and rentals | | | | | ||||||||
Total cost of goods sold | | |
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Gross profit |
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Operating expenses: | ||||||||||||
Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Income (loss) from operations |
| | ( |
| ( |
| ( | |||||
Other income (loss), net |
| |
| ( |
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Interest income |
| | |
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Interest expense |
| ( |
| ( |
| ( |
| ( | ||||
Reorganization items, net | — | | — | | ||||||||
Loss before provision (benefit) for income taxes |
| ( |
| ( |
| ( |
| ( | ||||
Provision (benefit) for income taxes |
| |
| ( |
| |
| | ||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per share of common stock and non-voting common stock—basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares used to calculate basic and diluted net loss per share of common stock and non-voting common stock |
| |
| |
| |
| |
See accompanying notes to condensed consolidated financial statements.
4
CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIENCY
(In thousands, except share amounts)
(Unaudited)
Temporary Equity | Permanent Equity | |||||||||||||||||||||||
Redeemable | Non-Voting | Additional | Total | |||||||||||||||||||||
Noncontrolling Interest | Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||
| LLC Units |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficiency | |||||||
Balance, March 31, 2024 | | $ | | | $ | | | $ | | $ | | $ | ( | $ | ( | |||||||||
Stock-based compensation | — | — | — | — | — | — | | — | | |||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||
Balance, June 30, 2024 | | | | | | | | ( | ( | |||||||||||||||
Stock-based compensation | — | — | — | — | — | — | | — | | |||||||||||||||
Net loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||
Balance, September 30, 2024 | | $ | | | $ | | | $ | | $ | | $ | ( | $ | ( |
Non-Voting | Additional | Total | ||||||||||||||||||||||
Common Stock | Common Stock | Paid-in | Accumulated | Treasury Stock | Stockholders’ | |||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Shares |
| Amount |
| Deficiency | |||||||
Balance, March 31, 2023 | | $ | | — | $ | — | $ | | $ | ( | | $ | ( | $ | ( | |||||||||
Vested restricted stock awards | | — | — | — | | — | | ( | — | |||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | — | | |||||||||||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||||||||
Balance, June 30, 2023 | | | — | — | | ( | | ( | ( | |||||||||||||||
Vested restricted stock awards | | — | — | — | | — | | ( | — | |||||||||||||||
Issuance of non-voting common stock | — | — | | | — | — | — | — | | |||||||||||||||
Stock awards to Board of Directors | | — | — | — | — | — | — | — | — | |||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | — | | |||||||||||||||
Net loss | — | — | — | — | — | ( | — | — | ( | |||||||||||||||
Balance, September 30, 2023 | | $ | | | $ | | $ | | $ | ( | | $ | ( | $ | ( |
See accompanying notes to condensed consolidated financial statements.
5
CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Cash Flows from Operating Activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization | | | ||||
Amortization of financing costs and discounts | | | ||||
Paid-in-kind interest expense | | | ||||
Non-cash lease expense | | | ||||
Provision for credit loss expense | | — | ||||
Inventory write-down | | | ||||
(Benefit) provision for warranty expenses | ( | | ||||
Stock-based compensation | | | ||||
Non-cash reorganization items, net | — | ( | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | ( | ( | ||||
Inventories | | | ||||
Prepaid expenses, other current assets and other assets | | | ||||
Accounts payable and accrued expenses | | | ||||
Operating lease liability, net | ( | ( | ||||
Accrued salaries and wages and long-term liabilities | ( | | ||||
Accrued warranty reserve | ( | ( | ||||
Deferred revenue | ( | ( | ||||
Factory protection plan liability | ( | ( | ||||
Net cash provided by (used in) operating activities | | ( | ||||
Cash Flows from Investing Activities: | ||||||
Expenditures for property, plant, equipment and rental assets | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Cash Flows from Financing Activities: | ||||||
Proceeds from three-year term note | — | | ||||
Repayment of finance lease obligations | ( | ( | ||||
Net cash provided by (used in) financing activities | ( | | ||||
Net increase (decrease) in Cash | | ( | ||||
Cash, Beginning of Period | | | ||||
Cash, End of Period | $ | | $ | | ||
Supplemental Disclosures of Non-Cash Information: | ||||||
Acquisition of property and equipment through accounts payable | $ | — | $ | | ||
Settlement of lease liabilities through accounts receivable | $ | | $ | — | ||
Right-of-use assets obtained in exchange for lease obligations | $ | — | $ | | ||
Rental assets transferred to inventory | $ | | $ | — |
See accompanying notes to condensed consolidated financial statements.
6
CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business and Organization
Capstone Green Energy Holdings, Inc. (f/k/a Capstone Turbine International, Inc.), along with its consolidated operating subsidiary Capstone Green Energy LLC (the “Operating Subsidiary”) is a provider of customized microgrid solutions, on-site resilient Energy-as-a-Service (“EaaS”) solutions, and on-site energy technology systems focused on helping customers around the globe solve the “Energy Trilemma” of resiliency, sustainability, and affordability. These solutions include stationary distributed power generation applications and distribution networks, including cogeneration (combined heat and power (“CHP”), integrated combined heat and power (“ICHP”), and combined cooling, heat and power (“CCHP”), renewable energy, natural resources, and critical power supply. The Company’s inverter-based technologies solve resiliency by being able to seamlessly connect to the electric grid or be the backbone of a localized microgrid. The Company’s Energy Conversion Products business line is driven by the Company’s industry-leading, highly efficient, low-emission, resilient microturbine energy systems offering scalable solutions in addition to a broad range of customer-tailored solutions. Through the EaaS business line the Company offers build, own, operate and maintain (“BOOM”) as well as energy rental solutions utilizing the Company’s microturbine energy systems. The Company offers comprehensive factory protection plan service contracts that limit life-cycle costs, as well as providing aftermarket spare parts. The Company’s emerging business line is Hydrogen Energy Solutions. Through the Hydrogen Energy Solutions business line, the Company offers customers the ability to run on hydrogen blended fuel source. Because this is still an emerging offering, Hydrogen Energy Solutions revenue has been immaterial to date.
Historically, the business described above was conducted by Capstone Green Energy Corporation, which was organized in 1988 and has been commercially producing its microturbine generators since 1998. In connection with the emergence from Chapter 11 Bankruptcy (the “Chapter 11 Bankruptcy”) on December 7, 2023 (the “Effective Date”), Capstone Green Energy Corporation was reorganized (the “Reorganization”) and became a privately-held company (“Reorganized PrivateCo”). Capstone Turbine International, Inc., a former wholly owned subsidiary of Capstone Green Energy Corporation, which was incorporated in Delaware on June 10, 2004, became a publicly-traded company and was renamed Capstone Green Energy Holdings, Inc. The Operating Subsidiary was also formed as part of the Reorganization.
As a result of the delay in filing the Company’s periodic reports with the Securities Exchange Commission (“SEC”) and the requirements relating to Market Value of Listed Securities (“MVLS”), the Company was unable to comply with the Nasdaq listing standards. The Company’s common stock was suspended from trading on the Nasdaq Capital Market effective October 5, 2023 and formally delisted effective October 23, 2023. The Company filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 on October 17, 2024, and with the filing, the Company became current with all of its periodic filings with the SEC.
All references in these footnotes to “the Company,” “we,” “us,” “our,” or “Capstone” are to Capstone Green Energy Corporation and its consolidated subsidiaries for the three and six months ended September 30, 2023 and to Capstone Green Energy Holdings, Inc. and its consolidated subsidiaries as of September 30, 2024 and March 31, 2024 and for the three and six months ended September 30, 2024.
2. Basis of Presentation, Significant Accounting Policies and Going Concern
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). They do not include all of the information and footnotes required by GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of March 31, 2024 was derived from audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim Condensed Consolidated Financial Statements include all adjustments (including normal recurring adjustments) necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. Results of operations for any interim period are not necessarily indicative of results for any other interim period or for the full year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the
7
fiscal year ended March 31, 2024 filed with the SEC on September 26, 2024. This Quarterly Report on Form 10-Q (this “Form 10-Q”) refers to the Company’s fiscal years ending March 31 as its “Fiscal” years.
Basis for Consolidation The Condensed Consolidated Financial Statements included in this filing include the accounts of the Company, the Operating Subsidiary and Capstone Turbine Financial Services, LLC, its wholly owned subsidiary that was formed in October 2015, after elimination of inter-company transactions.
Significant Accounting Policies Except as described below, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for Fiscal Year 2024 filed with the SEC, that have had a material impact on the Company's Condensed Consolidated Financial Statements.
Going Concern In connection with the preparation of these Condensed Consolidated Financial Statements for the three months and six ended September 30, 2024, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to meet its obligations as they become due over the next twelve months from the date of the issuance of the financial statements. As of September 30, 2024, the Company had cash of $
On September 28, 2023, the Company filed for a prepackaged financial restructuring with its Senior Lender, Goldman Sachs under the U.S. Chapter 11 Bankruptcy laws. The Company emerged from bankruptcy on December 7, 2023 and effected a financial and organizational restructuring. However, given its current cash position, lack of liquidity, limits to accessing capital and debt funding options, and current economic and market risks, there is substantial doubt regarding the Company’s ability to continue as a going concern and its ability to meet its financial obligations as they become due over the next twelve months from the date of issuance of the financial statements as of, and for the period ended September 30, 2024.
3. Recently Issued Accounting Pronouncements
Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (Topic 280). This update applies to all public entities that are required to report segment information in accordance with Topic 280. The amendments in this update revise reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024— i.e., beginning with the Company’s Annual Report on Form 10-K for its fiscal year ended March 31, 2025 and interim periods thereafter. Early adoption is permitted. The standard should be applied retrospectively to all prior periods presented in the financial statements. The adoption of this guidance will impact the Company’s disclosures only. The Company is in the process of assessing the effect adoption will have on its annual consolidated financial statement disclosure.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures (Topic 740), which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this update are effective for annual periods beginning after December 15, 2024— i.e., beginning with the Company’s Annual Report on Form 10-K for its fiscal year ended March 31, 2026 and interim periods thereafter. The Company is in the process of evaluating the impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures.
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4. Customer Concentrations and Accounts Receivable
Accounts receivables are presented on the Condensed Consolidated Balance Sheets, net of estimated credit losses. The Company applies the aging method by pooling receivables based on levels of delinquency and applying historical loss rates on what has been historically uncollectible by aging categories. The historical loss rate is adjusted for current conditions and reasonable and supportable forecasts of future losses, as necessary. Additionally, the allowance for credit loss calculation includes subjective adjustments for qualitative risk factors that could likely cause estimated credit losses to differ from historical experience. The factors include assessments of various economic conditions, significant events that occurred, geographic location, size and credit ratings of the customers. The Company may also record a specific reserve for individual accounts when the Company becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. Accounts deemed uncollectible are written off against the allowance for credit loss.
In accordance with Accounting Standard Codification (“ASC”) 326, the Company evaluates the collectability of outstanding accounts receivable balances to determine an allowance for credit loss that reflects its best estimate of the current expected credit losses (“CECL”) on a quarterly basis.
Changes in the CECL allowance for accounts receivable are as follows (in thousands):
Balance, March 31, 2024 |
| $ | |
Provision for credit loss |
| | |
Recoveries |
| | |
Balance, September 30, 2024 | $ | |
E-Finity Distributed Generation (“E-Finity”), Arctic Energy Inc. (“Arctic”) and Lone Star Power Solutions, LLC (“Lone Star”),
Additionally, GET/CWS Limited accounted for
5. Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out (“FIFO”) basis) or net realizable value and consisted of the following (in thousands):
September 30, | March 31, | |||||
2024 | 2024 | |||||
Raw materials |
| $ | |
| $ | |
Finished goods | | | ||||
Total | | | ||||
Less: non-current portion | ( | ( | ||||
Total inventory, net non-current portion | $ | | $ | |
9
The non-current portion of inventories represents that portion of inventories in excess of amounts expected to be sold or used in the next twelve months. The non-current inventories are primarily comprised of parts for older generation products that are still in operation but are not technologically compatible with current configurations.
Non-current Inventory | |||
Balance Expected | |||
Expected Period of Use | to be Used | ||
13 to 24 months |
| $ | |
25 to 36 months |
| | |
Total | $ | |
6. Property, Plant, Equipment and Rental Assets
Property, plant, equipment and rental assets consisted of the following (in thousands):
September 30, | March 31, | |||||
| 2024 |
| 2024 | |||
Machinery, equipment, automobiles and furniture | $ | | $ | | ||
Leasehold improvements |
| |
| | ||
Molds and tooling | | | ||||
Rental assets | | | ||||
Total property, plant, equipment and rental assets |
| |
| | ||
Less: accumulated depreciation |
| ( |
| ( | ||
Total Property, plant, equipment and rental assets, net | $ | | $ | |
The Company regularly assesses the useful lives of property and equipment and retires assets no longer in service. Depreciation expense for property, plant, equipment and rental assets was $
7. Temporary Equity
Redeemable Preferred Units
Redeemable noncontrolling interests are reported on the Condensed Consolidated Balance Sheet as Temporary Equity.
During Fiscal 2024, in connection with the Reorganization, the Operating Subsidiary issued
The Preferred Units also provide the holder with the option to convert all or less than all of the Preferred Units into Operating Subsidiary Common Units (“Common Units”) at any time and from time to time without the payment of additional consideration. If the holder elects to convert the Preferred Units, the specified number of Preferred Units to be converted will be divided by the total number of Preferred Units then outstanding times
Additionally, the Preferred Units provide the holder with a put option to sell the shares to the Operating Subsidiary and the Liquidation Preference provides the holder with the option to exchange the Preferred Units for cash (together, the “Features”).
10
The holder of the noncontrolling interest hold a liquidation preference that protects the holder from absorbing losses. The Company incurred a net loss of $
The fair value of $
September 30, | March 31, | |||||||
| 2024 |
| 2024 | |||||
Fair value of common units | $ | | $ | | ||||
Dividend yield | — | % | — | % | ||||
Volatility | | % | | % | ||||
Risk-free interest rate | | % | | % | ||||
Expected term |
At each reporting period, the Company remeasures the redemption value of the Preferred Units and adjusts the carrying value, if that value exceeds the initial fair value, to equal the maximum redemption value to retained earnings. The initial fair value was $
8. Fair Value Measurements
The FASB has established a framework for measuring fair value using GAAP. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1. Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2. Inputs to the valuation methodology include:
● | Quoted prices for similar assets or liabilities in active markets |
● | Quoted prices for identical or similar assets or liabilities in inactive markets |
● | Inputs other than quoted prices that are observable for the asset or liability |
● | Inputs that are derived principally from or corroborated by observable market data by correlation or other means |
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs.
11
Basis for Valuation
The carrying values reported in the Condensed Consolidated Balance Sheets for cash, accounts receivable, accounts payable and the exit notes approximate their fair values because of the immediate or short-term maturities of these financial instruments. The fair value of the Company’s Exit Notes (as defined below) on the date of issuance approximated their carrying value based on a comparable market yield analysis completed by the Company. Financial and nonfinancial assets and liabilities measured on a recurring basis are those that are adjusted to fair value at each reporting period and include the Company’s Preferred Units. The Company used the BSM model (Level 3) with standard valuation inputs to value the Preferred Units as detailed in Note 7— Temporary Equity.
9. Balance Sheet Information
Prepaid Expenses and Other Assets
As of September 30, 2024, the Company had $
A
The current and long-term portions of prepaid royalties and prepaid and other assets were as follows (in thousands):
| September 30, |
| March 31, | |||
2024 | 2024 | |||||
Other royalty-related current assets | $ | | $ | | ||
Other royalty-related non-current assets | |
| | |||
Total royalty-related assets | $ | | $ | | ||
Prepaid vendor inventory | | | ||||
Prepaid insurance | | | ||||
Deposits | | | ||||
Prepaid taxes | | | ||||
Other assets | | | ||||
Total Prepaid expenses, and other current assets and Other assets | $ | | $ | |
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of (in thousands):
| September 30, |
| March 31, | |||
2024 | 2024 | |||||
Trade payables | $ | | $ | | ||
Accrued professional fees | | | ||||
Accrued commissions | | | ||||
Accrued service claims | | | ||||
Other | | ( | ||||
Total Accounts payable and accrued expenses | $ | | $ | |
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10. Accrued Warranty Reserve
The Company provides for the estimated costs of warranties at the time revenue is recognized. The specific terms and conditions of those warranties vary depending upon the microturbine product sold and the geography of sale. The Company’s product warranties generally start from the delivery date and continue for up to
Changes in the accrued warranty reserve consisted of the following (in thousands):
September 30, | March 31, | |||||
| 2024 |
| 2024 | |||
Balance, beginning of the year | $ | | $ | | ||
Standard warranty (benefit) provision |
| ( |
| | ||
Deductions for warranty claims |
| ( |
| ( | ||
Balance, end of the period | $ | | $ | |
11. Debt
Exit Note Purchase Agreement
The Company entered into an Exit Facility during Fiscal 2024 (the “Exit Note Purchase Agreement”), for an aggregated principal amount of $
The Exit Note Purchase Agreement also provides for a $
The Exit Roll Up Notes mature on December 7, 2026, and the Exit New Money Notes mature on December 7, 2025.
The scheduled maturities of the Company’s debt are as follows as of September 30, 2024:
Year Ending March 31, | |||
2025 (remainder of fiscal year) |
| $ | — |
2026 | | ||
2027 | | ||
2028 | — | ||
2029 | — | ||
Thereafter | — | ||
Total principal payments and debt maturities | | ||
Less unamortized issuance costs | ( | ||
Net principal payments and debt maturities | $ | |
The Exit Notes issued pursuant to the Exit Note Purchase Agreement are secured by a lien on substantially all of the present and future property and assets of Operating Subsidiary and each Guarantor, subject to customary exceptions
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and exclusions. The Exit Note Purchase Agreement also includes conditions precedent, representations and warranties, affirmative and negative covenants, events of default, and other customary provisions, including financial covenants with respect to minimum consolidated liquidity and minimum consolidated adjusted EBITDA.
On March 27, 2024, the Company obtained a waiver from the Purchaser and the Collateral Agent in anticipation of default on March 31, 2024. The waiver granted was specific to the $
On June 28, 2024, the Company entered into the First Amendment (the “First Amendment”) to the Exit Note Purchase Agreement. The First Amendment provides for: (i) the amendment of the minimum consolidated adjusted EBITDA financial covenant to (a) allow adjustment for costs related to the restatement of, or other adjustments to, the financial statements of the Company for the period beginning on the Closing Date (as defined in the Exit Note Purchase Agreement) and ending at the end of the 2025 Fiscal Year and (b) the minimum consolidated adjusted EBITDA financial covenant to be first tested at the quarter ended September 30, 2024, (ii) the amendment of the minimum consolidated liquidity financial covenant to (a) reduce the minimum consolidated liquidity to $
The minimum consolidated liquidity covenant will be tested at all times from and after September 30, 2024, and requires the Company and its subsidiaries to maintain a minimum average Consolidated Liquidity (as defined in the First Amendment) during any
(i) from September 30, 2024 to March 30, 2025, $
(ii) from March 31, 2025 to June 29, 2025, $
(iii) from June 30, 2025 to September 29, 2025, $
(iv) from September 30, 2025 to March 30, 2026, $
(v) from March 31, 2026 to December 7, 2026, $
The minimum consolidated adjusted EBITDA covenant will be tested on the last day of each fiscal quarter, commencing with September 30, 2024, and will require the Company and its subsidiaries to maintain a minimum consolidated adjusted EBITDA (as defined in the First Amendment) as at the end of any fiscal quarter (i) from the Closing Date until September 30, 2024, for the period of the fiscal quarters then ended in such calendar year and (ii) from October 1, 2024, for the four fiscal quarter period then ended, to be less than the correlative amount indicated below (with corresponding calendar quarters also included as reference):
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Fiscal Quarter Ending | Consolidated Adjusted EBITDA |
September 30, 2024 | $ |
December 31, 2024 | $ |
March 31, 2025 | $ |
June 30, 2025 | $ |
September 30, 2025 | $ |
December 31, 2025 | $ |
March 31, 2026 | $ |
June 30, 2026 | $ |
September 30, 2026 | $ |
As of September 30, 2024, the Company has an outstanding Exit Notes balance of $
12. Revenue Recognition
The Company derives its revenues primarily from the sale of microturbine products, accessories, parts, equipment rentals and services.
The Company determines revenue recognition through the following steps:
● | Identification of the contract, or contracts, with a customer |
● | Identification of the performance obligations in the contract |
● | Determination of the transaction price |
● | Allocation of the transaction price to the performance obligations in the contract |
● | Recognition of revenue when, or as, the Company satisfies a performance obligation |
Microturbine Products The Company recognizes revenue when the performance obligation identified under the terms of the contract with its customer is satisfied, which generally occurs, for microturbine products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with a microturbine product is recognized at a point in time when the microturbine product is shipped to the customer. On occasion, the Company enters into bill-and-hold arrangements. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (i) the reason for the bill-and-hold arrangement is substantive; (ii) the product is segregated from the Company’s other inventory items held for sale; (iii) the product is ready for shipment to the customer; and (iv) the Company does not have the ability to use the product or direct it to another customer.
Accessories The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for accessories, upon the transfer of control in accordance with the contractual terms and conditions of the sale.
Parts and Services Revenue from extended warranties and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a system has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue. The Company extends payment terms past one year only on a limited basis, and thus any financing component is not considered material.
Factory Protection Plan and Service Cost Reimbursement In addition to the provision of standard warranties, the Company offers Factory Protection Plans (“FPP”) to minimize product downtime and control maintenance costs to
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ensure the microturbine system will operate when needed and perform as intended at the lowest cost of ownership. Revenue related to the Company’s performance obligation to provide replacement parts as needed is recognized over the
Comprehensive factory protection plan service contracts require payment at the beginning of the contract period. Advance payments are not considered a significant financing component as they are typically received less than one year before the related performance obligations are satisfied. These payments are treated as a contract liability and are classified in deferred revenue in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statement of Operations. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statement of Operations on a straight-line basis over the expected term of the contract.
Some FPPs offer labor reimbursement on the labor performed on a microturbine system. Due to the nature of the arrangement, labor reimbursements are accounted for under ASC 460. An Authorized Service Provider (ASP) must perform the labor. ASPs submit claims for labor reimbursements and are credited for the cost of labor if the repairs meet the Company’s prescribed standards. The Company is unable to develop a reasonable estimate of the maximum potential payout under these arrangements because the FPPs do not contain a limit on the number of labor reimbursements that may be submitted. However, given historical practice, the Company has priced the FPP to cover all costs incurred related to the labor reimbursement and is not exposed to significant losses over the FPP premium.
The labor reimbursement is separate and distinct from the parts offering; therefore, the Company allocates a portion of the transaction price to the labor reimbursement based on SSP. The Company applies judgment in determining the SSP as the labor reimbursement is not sold separately. The Company will recognize a liability at the inception of the executed FPP agreement for the premium received in advance for the Labor offering. Income will be recognized on a net, straight-line basis with labor reimbursement costs recognized when incurred.
Significant Judgments - Contracts with Multiple Performance Obligations
The Company enters into contracts with its customers that often include promises to transfer multiple products, parts, accessories, FPP and services. A performance obligation is a promise in a contract with a customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.
Products, parts and accessories are distinct as such services are often sold separately. In determining whether FPP and service contracts are distinct, the Company considers the following factors for each FPP and services agreement: availability of the services from other vendors, the nature of the services, the timing of when the services contract was signed in comparison to the product delivery date and the contractual dependence of the product on the customer’s satisfaction with the professional services work. To date, the Company has concluded that all of the FPP and services contracts included in contracts with multiple performance obligations are distinct.
The Company allocates the transaction price to each performance obligation on a relative standalone selling price (“SSP”) basis. The SSP is the price at which the Company would sell a promised product or service separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation.
The Company determines SSP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company’s discounting practices, the size and volume of the Company’s transactions, the customer demographic, the geographic area where systems and services are sold, price lists, its go-to-market strategy, historical sales and contract prices. The determination of SSP is made through approval by the Company’s management, taking into consideration the go-to-market strategy. As the Company’s go-to-market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes to SSP.
In certain cases, the Company is able to establish SSP based on observable prices of products or services sold separately in comparable circumstances to similar customers. The Company uses a single amount to estimate SSP when it has observable prices.
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If SSP is not directly observable, for example when pricing is highly variable, the Company uses a range of SSP. The Company determines the SSP range using information that may include market conditions or other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customer size and geography.
The following table presents disaggregated revenue by business group (in thousands):
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Microturbine Products | $ | | $ | | $ | | $ | | ||||
Accessories | | | | | ||||||||
Total Product and Accessories | | | | | ||||||||
Parts and Services | | | | | ||||||||
Rentals |
| |
| |
| |
| | ||||
Total Revenue | $ | | $ | | $ | | $ | |
The following table presents disaggregated revenue by geography based on the primary operating location of the Company’s customers (in thousands):
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
United States | $ | | $ | | $ | | $ | | ||||
Mexico |
| | | | | |||||||
All other North America |
| |
| |
| |
| | ||||
Total North America |
| |
| |
| |
| |