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: December 31, 2017
☐ | |
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, | 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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
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
Shares outstanding of the Registrant’s common stock:
Common Stock, par value $0.01 per share | ||
Class | Outstanding as of |
INDEX Page No. Item 1. Item 2. Item 3. Item 4. Item 1. Item 1A. Item 2. Item 3. Item 4. Item 5. Item 6.Page No.
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, 2021 | March 31, 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 48,501 | $ | 67,814 | ||||
Marketable securities | 0 | 5,140 | ||||||
Accounts receivable, net | 25,177 | 13,267 | ||||||
Inventory, net | 21,574 | 13,306 | ||||||
Prepaid expenses and other current assets | 4,924 | 3,546 | ||||||
Restricted cash | 2,323 | 2,157 | ||||||
Total current assets | 102,499 | 105,230 | ||||||
Property, plant and equipment, net | 14,611 | 8,997 | ||||||
Intangibles, net | 12,645 | 9,153 | ||||||
Right-of-use assets | 3,588 | 3,747 | ||||||
Goodwill | 43,471 | 34,634 | ||||||
Restricted cash | 6,165 | 5,568 | ||||||
Deferred tax assets | 1,054 | 1,223 | ||||||
Other assets | 340 | 314 | ||||||
Total assets | $ | 184,373 | $ | 168,866 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 27,891 | $ | 19,810 | ||||
Lease liability, current portion | 705 | 612 | ||||||
Debt, current portion | 72 | 0 | ||||||
Contingent consideration | 4,720 | 7,050 | ||||||
Deferred revenue, current portion | 23,871 | 13,266 | ||||||
Total current liabilities | 57,259 | 40,738 | ||||||
Deferred revenue, long-term portion | 7,647 | 7,991 | ||||||
Lease liability, long-term portion | 3,012 | 3,246 | ||||||
Deferred tax liabilities | 203 | 274 | ||||||
Debt, long-term portion | 125 | 0 | ||||||
Other liabilities | 23 | 25 | ||||||
Total liabilities | 68,269 | 52,274 | ||||||
Commitments and Contingencies (Note 16) | ||||||||
Stockholders' equity: | ||||||||
Common stock | 288 | 280 | ||||||
Additional paid-in capital | 1,130,921 | 1,121,495 | ||||||
Treasury stock | (3,639 | ) | (3,593 | ) | ||||
Accumulated other comprehensive loss | (316 | ) | (277 | ) | ||||
Accumulated deficit | (1,011,150 | ) | (1,001,313 | ) | ||||
Total stockholders' equity | 116,104 | 116,592 | ||||||
Total liabilities and stockholders' equity | $ | 184,373 | $ | 168,866 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
December 31, 2017 | March 31, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 22,113 | $ | 26,784 | |||
Accounts receivable, net | 12,052 | 7,956 | |||||
Inventory | 17,129 | 17,462 | |||||
Prepaid expenses and other current assets | 2,822 | 2,703 | |||||
Restricted cash | — | 795 | |||||
Total current assets | 54,116 | 55,700 | |||||
Property, plant and equipment, net | 36,684 | 43,438 | |||||
Intangibles, net | 3,315 | 301 | |||||
Goodwill | 1,719 | — | |||||
Restricted cash | 165 | 165 | |||||
Deferred tax assets | 545 | 407 | |||||
Other assets | 227 | 233 | |||||
Total assets | $ | 96,771 | $ | 100,244 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 15,486 | $ | 14,490 | |||
Note payable, current portion, net of discount of $19 as of March 31, 2017 | — | 1,481 | |||||
Derivative liabilities | 1,142 | 1,923 | |||||
Deferred revenue | 14,194 | 14,323 | |||||
Total current liabilities | 30,822 | 32,217 | |||||
Deferred revenue | 8,425 | 7,631 | |||||
Deferred tax liabilities | 125 | 125 | |||||
Other liabilities | 54 | 45 | |||||
Total liabilities | 39,426 | 40,018 | |||||
Commitments and contingencies (Note 14) | |||||||
Stockholders' equity: | |||||||
Common stock | 211 | 147 | |||||
Additional paid-in capital | 1,040,348 | 1,017,510 | |||||
Treasury stock | (1,645 | ) | (1,371 | ) | |||
Accumulated other comprehensive income (loss) | 770 | (503 | ) | ||||
Accumulated deficit | (982,339 | ) | (955,557 | ) | |||
Total stockholders' equity | 57,345 | 60,226 | |||||
Total liabilities and stockholders' equity | $ | 96,771 | $ | 100,244 |
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, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | 27,908 | $ | 21,117 | $ | 53,328 | $ | 42,329 | ||||||||
Cost of revenues | 24,647 | 15,596 | 46,698 | 31,768 | ||||||||||||
�� | ||||||||||||||||
Gross margin | 3,261 | 5,521 | 6,630 | 10,561 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 2,669 | 2,719 | 5,711 | 5,218 | ||||||||||||
Selling, general and administrative | 6,697 | 5,887 | 13,838 | 11,524 | ||||||||||||
Amortization of acquisition-related intangibles | 627 | 121 | 1,212 | 242 | ||||||||||||
Change in fair value of contingent consideration | (2,430 | ) | 0 | (2,330 | ) | 0 | ||||||||||
Total operating expenses | 7,563 | 8,727 | 18,431 | 16,984 | ||||||||||||
Operating loss | (4,302 | ) | (3,206 | ) | (11,801 | ) | (6,423 | ) | ||||||||
Interest income, net | 25 | 161 | 57 | 320 | ||||||||||||
Other income (expense), net | 24 | (476 | ) | (40 | ) | (646 | ) | |||||||||
Loss before income tax expense | (4,253 | ) | (3,521 | ) | (11,784 | ) | (6,749 | ) | ||||||||
Income tax expense (benefit) | 181 | 191 | (1,947 | ) | 380 | |||||||||||
Net loss | $ | (4,434 | ) | $ | (3,712 | ) | $ | (9,837 | ) | $ | (7,129 | ) | ||||
Net loss per common share | ||||||||||||||||
Basic | $ | (0.16 | ) | $ | (0.17 | ) | $ | (0.36 | ) | $ | (0.33 | ) | ||||
Diluted | $ | (0.16 | ) | $ | (0.17 | ) | $ | (0.36 | ) | $ | (0.33 | ) | ||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 27,252 | 21,860 | 27,040 | 21,775 | ||||||||||||
Diluted | 27,252 | 21,860 | 27,040 | 21,775 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net loss | $ | (4,434 | ) | $ | (3,712 | ) | $ | (9,837 | ) | $ | (7,129 | ) | ||||
Other comprehensive (loss) gain, net of tax: | ||||||||||||||||
Foreign currency translation (loss) gain | 24 | (43 | ) | (39 | ) | (46 | ) | |||||||||
Total other comprehensive (loss) gain, net of tax | 24 | (43 | ) | (39 | ) | (46 | ) | |||||||||
Comprehensive loss | $ | (4,410 | ) | $ | (3,755 | ) | $ | (9,876 | ) | $ | (7,175 | ) |
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 14,933 | $ | 27,148 | $ | 34,904 | $ | 59,000 | |||||||
Cost of revenues | 9,917 | 22,107 | 34,103 | 50,992 | |||||||||||
Gross margin | 5,016 | 5,041 | 801 | 8,008 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 3,023 | 2,985 | 8,690 | 8,804 | |||||||||||
Selling, general and administrative | 5,486 | 6,077 | 16,964 | 19,640 | |||||||||||
Amortization of acquisition-related intangibles | 85 | 39 | 98 | 118 | |||||||||||
Change in fair value of contingent consideration | 272 | — | 71 | — | |||||||||||
Restructuring | 1 | — | 1,328 | — | |||||||||||
Total operating expenses | 8,867 | 9,101 | 27,151 | 28,562 | |||||||||||
Operating loss | (3,851 | ) | (4,060 | ) | (26,350 | ) | (20,554 | ) | |||||||
Change in fair value of warrants | 399 | 101 | 1,468 | 667 | |||||||||||
Gain on sale of minority interest | — | 325 | 951 | 325 | |||||||||||
Interest income (expense), net | 49 | (89 | ) | 94 | (331 | ) | |||||||||
Other (expense)/income, net | (279 | ) | 873 | (2,449 | ) | 481 | |||||||||
Loss before income tax (benefit) expense | (3,682 | ) | (2,850 | ) | (26,286 | ) | (19,412 | ) | |||||||
Income tax (benefit) expense | 566 | (82 | ) | 496 | 1,036 | ||||||||||
Net loss | $ | (4,248 | ) | $ | (2,768 | ) | $ | (26,782 | ) | $ | (20,448 | ) | |||
Net loss per common share | |||||||||||||||
Basic | $ | (0.21 | ) | $ | (0.20 | ) | $ | (1.44 | ) | $ | (1.49 | ) | |||
Diluted | $ | (0.21 | ) | $ | (0.20 | ) | $ | (1.44 | ) | $ | (1.49 | ) | |||
Weighted average number of common shares outstanding | |||||||||||||||
Basic | 19,949 | 13,792 | 18,614 | 13,746 | |||||||||||
Diluted | 19,949 | 13,792 | 18,614 | 13,746 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED September 30, 2021 AND 2020
(In thousands)
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, 2021 | 27,988 | $ | 280 | $ | 1,121,495 | $ | (3,593 | ) | $ | (277 | ) | $ | (1,001,313 | ) | $ | 116,592 | ||||||||||||
Issuance of common stock - bonus payout | 111 | 1 | 1,681 | — | — | — | 1,682 | |||||||||||||||||||||
Issuance of common stock - restricted shares | 318 | 3 | (3 | ) | — | — | — | — | ||||||||||||||||||||
Stock-based compensation expense | — | — | 1,292 | — | — | — | 1,292 | |||||||||||||||||||||
Issuance of stock for 401(k) match | 7 | — | 112 | — | — | — | 112 | |||||||||||||||||||||
Issuance of common stock - Neeltran acquisition | 302 | 3 | 4,384 | — | — | — | 4,387 | |||||||||||||||||||||
Repurchase of treasury stock | — | — | — | (46 | ) | — | — | (46 | ) | |||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | (63 | ) | — | (63 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (5,403 | ) | (5,403 | ) | |||||||||||||||||||
Balance at June 30, 2021 | 28,726 | $ | 287 | $ | 1,128,961 | $ | (3,639 | ) | $ | (340 | ) | $ | (1,006,716 | ) | $ | 118,553 | ||||||||||||
Issuance of common stock - ESPP | 10 | — | 125 | — | — | — | 125 | |||||||||||||||||||||
Issuance of common stock - bonus payout | 47 | 1 | 597 | — | — | — | 598 | |||||||||||||||||||||
Stock-based compensation expense | — | — | 1,101 | 1,101 | ||||||||||||||||||||||||
Issuance of stock for 401(k) match | 10 | — | 137 | — | — | — | 137 | |||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | 24 | — | 24 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (4,434 | ) | (4,434 | ) | |||||||||||||||||||
Balance at September 30, 2021 | 28,793 | $ | 288 | $ | 1,130,921 | $ | (3,639 | ) | $ | (316 | ) | $ | (1,011,150 | ) | $ | 116,104 |
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, 2020 | 22,902 | $ | 229 | $ | 1,053,507 | $ | (2,666 | ) | $ | (216 | ) | $ | (978,635 | ) | $ | 72,219 | ||||||||||||
Issuance of common stock - restricted shares | 493 | 5 | (5 | ) | — | — | — | — | ||||||||||||||||||||
Stock-based compensation expense | — | — | 909 | — | — | — | 909 | |||||||||||||||||||||
Issuance of stock for 401(k) match | 13 | — | 88 | — | — | — | 88 | |||||||||||||||||||||
Repurchase of treasury stock | — | — | — | (377 | ) | — | — | (377 | ) | |||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (3,417 | ) | (3,417 | ) | |||||||||||||||||||
Balance at June 30, 2020 | 23,408 | $ | 234 | $ | 1,054,499 | $ | (3,043 | ) | $ | (219 | ) | $ | (982,052 | ) | $ | 69,419 | ||||||||||||
Issuance of common stock - ESPP | 8 | — | 99 | — | — | — | 99 | |||||||||||||||||||||
Issuance of common stock - restricted shares | 33 | — | — | — | — | — | — | |||||||||||||||||||||
Stock-based compensation expense | — | — | 849 | — | — | — | 849 | |||||||||||||||||||||
Issuance of stock for 401(k) match | 9 | — | 101 | — | — | — | 101 | |||||||||||||||||||||
Repurchase of treasury stock | — | — | — | (293 | ) | — | — | (293 | ) | |||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | (43 | ) | �� | — | (43 | ) | ||||||||||||||||||
Net loss | — | — | — | — | — | (3,712 | ) | (3,712 | ) | |||||||||||||||||||
Balance at September 30, 2020 | 23,458 | $ | 234 | $ | 1,055,548 | $ | (3,336 | ) | $ | (262 | ) | $ | (985,764 | ) | $ | 66,420 |
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net loss | $ | (4,248 | ) | $ | (2,768 | ) | $ | (26,782 | ) | $ | (20,448 | ) | |||
Other comprehensive gain (loss), net of tax: | |||||||||||||||
Foreign currency translation gain (loss) | 52 | (831 | ) | 1,273 | (1,372 | ) | |||||||||
Total other comprehensive gain (loss), net of tax | 52 | (831 | ) | 1,273 | (1,372 | ) | |||||||||
Comprehensive loss | $ | (4,196 | ) | $ | (3,599 | ) | $ | (25,509 | ) | $ | (21,820 | ) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
AMERICAN SUPERCONDUCTOR CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (9,837 | ) | $ | (7,129 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Depreciation and amortization | 2,631 | 2,009 | ||||||
Stock-based compensation expense | 2,393 | 1,758 | ||||||
Provision for excess and obsolete inventory | 1,203 | 1,250 | ||||||
Deferred income taxes | (2,137 | ) | 0 | |||||
Change in fair value of contingent consideration | (2,330 | ) | 0 | |||||
Other non-cash items | 197 | 233 | ||||||
Unrealized foreign exchange loss on cash and cash equivalents | 1 | 272 | ||||||
Changes in operating asset and liability accounts: | ||||||||
Accounts receivable | (8,657 | ) | 157 | |||||
Inventory | (475 | ) | 3,591 | |||||
Prepaid expenses and other assets | 1,521 | (866 | ) | |||||
Accounts payable and accrued expenses | 3,475 | (3,192 | ) | |||||
Deferred revenue | 281 | (4,636 | ) | |||||
Net cash used in operating activities | (11,734 | ) | (6,553 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | (510 | ) | (1,326 | ) | ||||
Sale of marketable securities | 0 | 25,006 | ||||||
Cash paid for acquisition, net of cash acquired | (11,479 | ) | 0 | |||||
Proceeds from the maturity of marketable securities | 5,189 | 0 | ||||||
Change in other assets | (30 | ) | 63 | |||||
Net cash (used)/provided by investing activities | (6,830 | ) | 23,743 | |||||
Cash flows from financing activities: | ||||||||
Repurchase of treasury stock | (46 | ) | (670 | ) | ||||
Repayment of debt | (18 | ) | 0 | |||||
Proceeds from exercise of employee stock options and ESPP | 125 | 99 | ||||||
Net cash provided/(used) by financing activities | 61 | (571 | ) | |||||
Effect of exchange rate changes on cash | (47 | ) | 53 | |||||
Net increase/(decrease) in cash, cash equivalents and restricted cash | (18,550 | ) | 16,672 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 75,539 | 30,864 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 56,989 | $ | 47,536 | ||||
Supplemental schedule of cash flow information: | ||||||||
Cash paid for income taxes, net of refunds | $ | 306 | $ | 275 | ||||
Non-cash investing and financing activities | ||||||||
Issuance of common stock to settle liabilities | 2,529 | 189 |
Nine months ended December 31, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (26,782 | ) | $ | (20,448 | ) | |
Adjustments to reconcile net loss to net cash used in operations: | |||||||
Depreciation and amortization | 9,239 | 5,606 | |||||
Stock-based compensation expense | 2,115 | 2,266 | |||||
Provision for excess and obsolete inventory | 415 | 1,074 | |||||
Gain on sale of minority interest | (951 | ) | (325 | ) | |||
Change in fair value of warrants and contingent consideration | (1,397 | ) | (667 | ) | |||
Non-cash interest expense | 19 | 127 | |||||
Other non-cash items | 81 | (937 | ) | ||||
Changes in operating asset and liability accounts: | |||||||
Accounts receivable | (3,576 | ) | 3,213 | ||||
Inventory | 180 | (2,294 | ) | ||||
Prepaid expenses and other current assets | 647 | 2,283 | |||||
Accounts payable and accrued expenses | 638 | (4,031 | ) | ||||
Deferred revenue | (862 | ) | 3,598 | ||||
Net cash used in operating activities | (20,234 | ) | (10,535 | ) | |||
Cash flows from investing activities: | |||||||
Purchase of property, plant and equipment | (2,125 | ) | (557 | ) | |||
Proceeds from the sale of property, plant and equipment | 18 | 15 | |||||
Change in restricted cash | 795 | 457 | |||||
Cash paid for acquisition, net of cash acquired | 74 | — | |||||
Proceeds from sale of minority interest | 951 | 325 | |||||
Change in other assets | 26 | 117 | |||||
Net cash (used in)/provided by investing activities | (261 | ) | 357 | ||||
Cash flows from financing activities: | |||||||
Employee taxes paid related to net settlement of equity awards | (274 | ) | (490 | ) | |||
Repayment of debt | (1,575 | ) | (3,167 | ) | |||
Proceeds from public equity offering, net | 16,952 | — | |||||
Proceeds from exercise of employee stock options and ESPP | 85 | — | |||||
Net cash provided by/(used in) financing activities | 15,188 | (3,657 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 636 | (432 | ) | ||||
Net decrease in cash and cash equivalents | (4,671 | ) | (14,267 | ) | |||
Cash and cash equivalents at beginning of year | 26,784 | 39,330 | |||||
Cash and cash equivalents at end of year | $ | 22,113 | $ | 25,063 | |||
Supplemental schedule of cash flow information: | |||||||
Issuance of common stock in connection with the purchase of Infinia Technology Corporation | $ | 3,498 | $ | — | |||
Cash paid for income taxes, net of refunds | 1,012 | 920 | |||||
Issuance of common stock to settle liabilities | 252 | 289 | |||||
Cash paid for interest | 42 | 238 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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 (“AMSC”(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 lowerOrchestrate the costRhythm and Harmony of wind powerPower on the Grid™ and enhancethat 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 themegawatt-scale power grid. In the wind power market, the Company enables manufacturers to field wind turbines through its advanced engineering, support services and power electronics products. In the power grid market, the Company enables electric utilities and renewable energy project developers to connect, transmit and distribute power through its transmission planning services and power electronics and superconductor-based products. The Company’s wind and power grid products and services provide exceptional reliability, security, efficiency and affordability to its customers.
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.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 December 31, 2017 September 30, 2021 and 20162020 and the financial position at December 31, 2017; September 30, 2021; 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, 2017, 2021, and notes thereto, included in the Company’s annual reportAnnual Report on Form 10-K10-K for the year ended March 31, 2017 2021 filed with the Securities and Exchange CommissionSEC on May 25, 2017.
Liquidity
The Company has historically experienced recurring operating losses and as of December 31, 2017,September 30, 2021, the Company had an accumulated deficit of $982.3$1,011.1 million. In addition, the Company has historically experienced recurring negative operating cash flows. At December 31, 2017,September 30, 2021, the Company had cash and cash equivalents of $22.1 million, with no outstanding debt other than ordinary trade payables.$48.5 million. Cash used in operations for the ninesix months ended December 31, 2017September 30, 2021 was $20.2$11.7 million.
In February 2021, the Company has reduced its global workforce substantially, includingfiled a restructuring action announcedshelf registration statement on April 4, 2017 which led to a $1.3 million restructuring chargeForm S-3 that will expire in February 2024 (the nine months ended December 31, 2017. See Note 15 "Restructuring" for further discussion of this action.“Form S-3”). The Company has taken actions to consolidate certain business operations to reduce facility costs. As of December 31, 2017,Form S-3 allows the Company had a global workforceto offer and sell from time-to-time up to $250 million of 275 persons.common stock, debt securities, warrants or units comprised of any combination of these securities. The Company plansForm S-3 is intended to closely monitor its expenses and, if required, expects to further reduce operating costs and capital spending to enhance liquidity.
On May 10, 2017, which includes 6, 2021 (the subsequent exercise by the underwriters of their option in full to purchase additional shares. The Company terminated its At Market Issuance Sales Agreement ("ATM""Neeltran Acquisition Date") with FBR Capital Markets & Co. in conjunction with this equity offering. See Note 13 “Stockholder's Equity” for further discussion of these financing arrangements.
In March 2020, the World Health Organization declared the disease caused by the novel coronavirus, COVID-19, to be a majoritypandemic. COVID-19 has spread throughout the globe, including in the Commonwealth of Massachusetts where the Company’s headquarters are located, and in other areas where the Company has business operations. In response to the outbreak, the Company has followed the guidelines of the U.S. Centers for Disease Control and Prevention and applicable state government authorities to protect the health and safety of the Company’s employees, families, suppliers, customers and communities. While these existing measures and, COVID-19 generally, have not materially disrupted the Company’s business to date, any future actions necessitated by the COVID-19 pandemic may result in disruption to the Company’s business.
While the COVID-19 pandemic continues to rapidly evolve, the Company is starting to experience inflation pressure in its electric control systems requirementssupply chains and some delays in sourcing materials needed for an additional three-year period.
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 financial statements for the ninesix months ended December 31, 2017.September 30, 2021. The Company’s liquidity is highly dependent on its ability to increase revenues, including its ability to collect revenues under its agreements with Inox, its ability to control its operating costs, and its ability to raise additional capital, if necessary. The impact of the COVID-19 pandemic 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. Acquisitions
2021 Acquisition of Neeltran
As described in Note 1, "Nature of the Business and Operations and Liquidity", on the Neeltran Acquisition Date, pursuant to the terms of the Neeltran Stock Purchase Agreement, the Company purchased all of the issued and outstanding shares of capital stock of Neeltran and International for $1.0 million in cash and the AMSC Shares, that were paid and issued, respectively, to the Neeltran selling stockholders. The Company also paid $1.1 million to International selling stockholders to pay off previous loans made by them to Neeltran.
Additionally, the Company paid approximately $7.6 million, including $1.9 million of indebtedness secured by the mortgage on the real property as described below, directly to Neeltran lenders at closing to extinguish outstanding Neeltran indebtedness to third parties. Pursuant to the terms of the Real Property Purchase Agreement, AMSC Husky purchased the real property that serves as Neeltran's headquarters for $4.3 million, of which (a) $2.4 million was paid from immediately available funds by AMSC Husky to the selling parties, and (b) $1.9 million was paid directly to TD Bank as full payment for the outstanding indebtedness secured by the mortgage on such real property. The total purchase price of $16.4 million includes cash paid, the fair value of the AMSC Shares issued at closing and the debt payoff on behalf of the sellers as follows (in millions):
Cash payment | $ | 4.4 | ||
Issuance of 301,556 shares of Company's common stock | 4.4 | |||
Debt payment to third party lenders on behalf of sellers | 7.6 | |||
Total consideration | $ | 16.4 |
The Neeltran Acquisition completed by the Company during the six months ended September 30, 2021 has been accounted for under the purchase method of accounting in accordance with ASC 805,Business Combinations. The Company allocated the purchase price to the assets acquired and liabilities assumed at their estimated fair values as of the date of Neeltran Acquisition. The excess of the purchase price paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill. As Neeltran was previously a private company, the adoption of Accounting Standards Codification 842 ("ASC 842") was completed as part of the Neeltran Acquisition. See Note 15 "Leases" for further details. Neeltran had previously adopted Accounting Standards Codification 606,Revenue from Contracts with Customers ("ASC 606") as part of prior year audited financial statements.
The following table summarizes the allocation of the purchase price based on the estimated fair value of the assets acquired and liabilities assumed in connection with the Neeltran Acquisition (in millions):
Cash and short-term investments | $ | 0.5 | ||
Net working capital (excluding inventory and deferred revenue) | (0.9 | ) | ||
Inventory | 9.0 | |||
Property, plant and equipment | 6.5 | |||
Deferred revenue | (10.0 | ) | ||
Deferred tax liability | (2.3 | ) | ||
Net tangible assets/(liabilities) | 2.8 | |||
Backlog | 0.1 | |||
Trade names and trademarks | 1.2 | |||
Customer relationships | 3.5 | |||
Net identifiable intangible assets/(liabilities) | 4.8 | |||
Goodwill | 8.8 | |||
Total purchase consideration | $ | 16.4 |
Backlog of $0.1 million was evaluated using the multi period excess earnings method under the income approach. The contracts with customers do not provide for any guarantees to source all future requirements from the Company. The amortization method being utilized is economic consumption estimated over a two year period with the expense being allocated to cost of revenues.
Customer relationships of $3.5 million relates to customers currently under contract and was determined based on a multi period excess earnings method under the income approach. The method of amortization being utilized is the economic consumption over 7 years with the expense being allocated to SG&A.
Trade names and trademarks of $1.2 million were reviewed using the assumption that the Company would continue to utilize the Neeltran trade name indefinitely. The relief from royalty method was utilized using a 1% royalty rate on revenues with a 24.5% discount rate over 15 years.
2020 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 Northeast Power Systems, Inc., a New York corporation ("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. Prior to the NEPSI Acquisition, the Company had purchased $0.4 million of products from NEPSI in fiscal year 2019 for which NEPSI was paid and had recorded revenue.
Pursuant to the NEPSI Stock Purchase Agreement, the Company acquired all of the issued and outstanding shares of NEPSI, and membership interest in the realty entity, for which the Company paid $26.0 million in cash and issued 873,657 restricted shares of the Company’s common stock. Additionally, the Company may issue to the selling stockholders up to an additional 1,000,000 shares of common stock upon NEPSI’s achievement of specified revenue objectives during varying periods of up to four years following closing of the NEPSI Acquisition. This contingent consideration is recorded as a derivative liability based on a Monte Carlo simulation to determine fair value at the time of issuance. NEPSI is now a wholly-owned subsidiary of the Company and is operated and reported as a component of its Grid business unit.
The NEPSI Acquisition completed by the Company during the fiscal year ended March 31, 2021 has been accounted for under the purchase method of accounting in accordance with ASC 805,Business Combinations. The Company allocated the purchase price to the assets acquired and liabilities assumed at their estimated fair values as of the date of NEPSI Acquisition. The excess of the purchase price paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill. As NEPSI was previously a private company, the adoption of ASC 606 was completed as part of the NEPSI Acquisition. See Note 3 "Revenue Recognition" for further details. There were no leases acquired and the NEPSI Acquisition had no impact to the Company's reporting under ASC 842.
The total purchase price of approximately $42.4 million includes the fair value of shares of the Company’s common stock issued at closing, cash paid, and contingent consideration as follows (in millions):
Cash payment | $ | 26.0 | ||
Issuance of 873,657 shares of Company’s common stock | 12.4 | |||
Contingent consideration | 4.0 | |||
Total consideration | $ | 42.4 |
Total consideration consists of (a) cash of $26.0 million, (b) issuance of the Company's common stock, using $14.23 per share, which was the closing price on the day that the Company acquired NEPSI, and (c) $4.0 million of contingent consideration for the earnout liability valued as of the NEPSI Acquisition Date. NEPSI Acquisition costs of $0.3 million were recorded in selling, general and administrative ("SG&A") costs for the fiscal year ended March 31, 2021.
The fair value of the contingent consideration was determined using a Monte Carlo model and is accounted for as a derivative liability which is revalued at the fair value determined 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 or (income). See Note 13, "Contingent Consideration" for further details and a summary of key assumptions used to determine fair value in each period.
The following table summarizes the allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed and related deferred income taxes in connection with the NEPSI Acquisition (in millions):
Net working capital (excluding inventory and deferred revenue) | $ | 0.1 | ||
Inventory | 4.2 | |||
Property, plant and equipment | 2.3 | |||
Deferred revenue | (2.7 | ) | ||
Deferred tax liability | (1.7 | ) | ||
Net tangible assets/(liabilities) | 2.2 | |||
Backlog | 0.6 | |||
Trade names and trademarks | 0.6 | |||
Customer relationships | 6.1 | |||
Net identifiable intangible assets/(liabilities) | 7.3 | |||
Goodwill | 32.9 | |||
Total purchase consideration | $ | 42.4 |
Inventory includes a $1.0 million adjustment to step up the inventory balance to fair value consistent with the purchase price allocation. The fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling cost and a normal profit margin on those manufacturing and selling efforts. The $1.0 million step up adjustment increased cost of revenue in the fiscal year ended March 31, 2021 as the inventory was sold. This increase is not reflected in the pro forma condensed combined statements of operations because it does not have a continuing impact beyond the first year.
Backlog of $0.6 million was evaluated using the multi period excess earnings method under the income approach. The contracts with customers do not provide for any guarantees to source all future requirements from the Company. The amortization method being utilized is economic consumption estimated over a two year period with the expense being allocated to cost of revenues.
Customer relationships of $6.1 million relates to customers currently under contract and was determined based on a multi period excess earnings method under the income approach. The method of amortization being utilized is the economic consumption over 7 years with the expense being allocated to SG&A.
Trade names and trademarks of $0.6 million were reviewed, using the assumption that the Company would continue to utilize the NEPSI trade name indefinitely. The relief from royalty method was utilized using an 8% royalty rate on revenues with a 13% discount rate over 8 years.
Goodwill represents the value associated with the acquired workforce and expected synergies related to the business combination of the two companies. Goodwill resulting from the NEPSI Acquisition was assigned to the Company’s Grid business segment. Goodwill recognized in the NEPSI Acquisition is not deductible for tax purposes. This purchase price allocation is preliminary and has not been finalized as the analysis on the assets and liabilities acquired, primarily the tax related liability may require further adjustments to our purchase accounting that could result in a measurement period adjustment that would impact the Company's reported net assets and goodwill as of October 1, 2020. The $1.7 million of deferred tax liability is primarily related to inventory step up and intangibles.
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | 27,908 | $ | 32,233 | $ | 56,158 | $ | 64,860 | ||||||||
Operating loss | (4,346 | ) | (4,963 | ) | (11,131 | ) | (8,591 | ) | ||||||||
Net loss | $ | (4,548 | ) | $ | (3,855 | ) | $ | (11,809 | ) | $ | (3,746 | ) | ||||
Net loss per common share | ||||||||||||||||
Basic | $ | (0.17 | ) | $ | (0.17 | ) | $ | (0.44 | ) | $ | (0.16 | ) | ||||
Diluted | $ | (0.17 | ) | $ | (0.17 | ) | $ | (0.44 | ) | $ | (0.16 | ) | ||||
Shares - basic | 27,253 | 23,036 | 27,101 | 22,951 | ||||||||||||
Shares - diluted | 27,253 | 23,036 | 27,101 | 22,951 |
3. 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 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, 2021, 86% and 82% 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, 2020, 78% and 79% 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.
The Company's equipment and system product line includes certain contracts which do not meet the requirements of an exchange transaction and therefore do not fall within the scope of ASC 606. As these non-exchange transaction contracts are considered grant revenue and do not fall within any specific accounting literature, the Company follows guidance within ASC 606 by analogy to recognize grant revenue over time. In the three and six months ended September 30, 2021, the Company recorded $0.3 million and $0.8 million in grant revenue, respectively, which is included in the Company’s Grid business segment revenue. In the three and six months ended September 30, 2020, the Company recorded $0.4 million and $0.8 million in grant revenue, respectively, which is included in the Company's Grid segment revenue.
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 represent 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 a reasonable profit margin cannot be assured throughout the entire contract, 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.
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 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’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.
The following tables disaggregate the Company’s revenue by product line and by shipment destination (in thousands):
Three Months Ended September 30, 2021 | Six Months Ended September 30, 2021 | |||||||||||||||
Product Line: | Grid | Wind | Grid | Wind | ||||||||||||
Equipment and systems | $ | 23,031 | $ | 1,826 | $ | 44,189 | $ | 2,860 | ||||||||
Services and technology development | 1,588 | 1,463 | 3,930 | 2,349 | ||||||||||||
Total | $ | 24,619 | $ | 3,289 | $ | 48,119 | $ | 5,209 | ||||||||
Region: | ||||||||||||||||
Americas | $ | 18,115 | $ | 59 | $ | 40,760 | $ | 78 | ||||||||
Asia Pacific | 3,269 | 3,220 | 3,867 | 5,091 | ||||||||||||
EMEA | 3,235 | 10 | 3,492 | 40 | ||||||||||||
Total | $ | 24,619 | $ | 3,289 | $ | 48,119 | $ | 5,209 |
Three Months Ended September 30, 2020 | Six Months Ended September 30, 2020 | |||||||||||||||
Product Line: | Grid | Wind | Grid | Wind | ||||||||||||
Equipment and systems | $ | 15,261 | $ | 4,059 | $ | 31,798 | $ | 6,676 | ||||||||
Services and technology development | 1,086 | 711 | 2,264 | 1,591 | ||||||||||||
Total | $ | 16,347 | $ | 4,770 | $ | 34,062 | $ | 8,267 | ||||||||
Region: | ||||||||||||||||
Americas | $ | 15,677 | $ | 30 | $ | 26,231 | $ | 42 | ||||||||
Asia Pacific | 370 | 4,734 | 6,385 | 8,002 | ||||||||||||
EMEA | 300 | 6 | 1,446 | 223 | ||||||||||||
Total | $ | 16,347 | $ | 4,770 | $ | 34,062 | $ | 8,267 |
As of September 30, 2021, and 2020, 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 8, “Accounts Receivable” and Note 9, “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, 2021 | $ | 5,765 | $ | 977 | $ | 21,257 | ||||||
Increases for costs incurred to fulfill performance obligations | — | 2,277 | — | |||||||||
Increase for balances acquired | — | 634 | 10,048 | |||||||||
Increase (decrease) due to customer billings | (4,807 | ) | — | 34,344 | ||||||||
Decrease due to cost recognition on completed performance obligations | — | (3,055 | ) | — | ||||||||
Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations | 7,838 | — | (34,169 | ) | ||||||||
Other changes and FX impact | — | (3 | ) | 38 | ||||||||
Ending balance as of September 30, 2021 | $ | 8,796 | $ | 830 | $ | 31,518 |
Unbilled Accounts Receivable | Deferred Program Costs | Contract Liabilities | ||||||||||
Beginning balance as of March 31, 2020 | $ | 5,711 | $ | 1,631 | $ | 26,142 | ||||||
Increases for costs incurred to fulfill performance obligations | — | 3,279 | — | |||||||||
Increase (decrease) due to customer billings | (5,929 | ) | — | 23,931 | ||||||||
Decrease due to cost recognition on completed performance obligations | — | (3,314 | ) | — | ||||||||
Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations | 6,186 | — | (28,678 | ) | ||||||||
Other changes and FX impact | 0 | 18 | 561 | |||||||||
Ending balance as of September 30, 2020 | $ | 5,968 | $ | 1,614 | $ | 21,956 |
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, 2021, the Company had outstanding performance obligations on existing contracts under ASC 606 to be recognized in the next twelve months of approximately $89.5 million. There are also approximately $10.5 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 twelve-month performance obligations include anticipated shipments to Inox based on the twelve-month rolling forecast provided by Inox on the multi-year supply contract. The quantities specified in any forecast provided by Inox related to the multi-year supply contract are firm and irrevocable for the firstthree months of a twelve-month rolling forecast. The timing of the performance obligations beyond the twelve-month forecast provided by Inox are not determinable and therefore are not included in the total remaining performance obligations.
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, 2021 and 2020:
Three Months Ended | Six Months Ended | ||||||||||||||||
Reportable | September 30, | September 30, | |||||||||||||||
Segment | 2021 | 2020 | 2021 | 2020 | |||||||||||||
EPC Services | Grid | <10% | 12 | % | <10% | 18 | % | ||||||||||
Inox Wind Limited | Wind | 10 | % | <10% | <10% | <10% | |||||||||||
Tri-State Generation and Transmission Association, Inc. | Grid | 12 | % | 0 | <10% | 0 | |||||||||||
Micron Technology | Grid | <10% | <10% | 10 | % | <10% | |||||||||||
Reed & Reed Inc. | Grid | <10% | 25 | % | <10% | 12 | % | ||||||||||
Siemens Gamesa Renewable Energy Pty. Ltd. | Grid | <10% | <10% | <10% | 13 | % |
4. 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 ninesix months ended December 31, 2017September 30, 2021 and 20162020 (in thousands):
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Cost of revenues | $ | 39 | $ | 40 | $ | 98 | $ | 139 | |||||||
Research and development | 184 | 61 | 294 | 153 | |||||||||||
Selling, general and administrative | 660 | 512 | 1,723 | 1,974 | |||||||||||
Total | $ | 883 | $ | 613 | $ | 2,115 | $ | 2,266 |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Cost of revenues | $ | 21 | $ | 30 | $ | 112 | $ | 59 | ||||||||
Research and development | 192 | 161 | 439 | 291 | ||||||||||||
Selling, general and administrative | 888 | 658 | 1,842 | 1,408 | ||||||||||||
Total | $ | 1,101 | $ | 849 | $ | 2,393 | $ | 1,758 |
The Company issued 37,14047,604 shares of immediately vested common stock, all of which were issued in lieu of cash bonuses, during the three months ended September 30, 2021, and 166,648 shares of immediately vested common stock, of which 158,356 shares were issued in-lieu of cash bonuses and 309,700 shares of restricted stock awards during the six months ended September 30, 2021. The Company issued 32,500 shares of restricted stock awards during the three months ended September 30, 2020, and 27,341 shares of immediately vested common stock and 800,500688,167 shares of restricted stock awards during the ninesix months ended December 31, 2017, and issued 35,000 shares of immediately vested common stock, and granted 126,000 restricted stock awards during the nine months ended December 31, 2016.September 30, 2020. 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. In addition, the Company issued 16,667 restricted stock units under the 2007 Stock Incentive Plan during the nine months ended December 31, 2017, each of which represents the right to receive one share of common stock in connection with a severance agreement entered into with one of the Company's former executive officers. These restricted stock units vested and were settled in shares of common stock on the eighth day after receipt of an irrevocable release.
The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The totalCompany has 0 unrecognized compensation costcost for unvested outstanding stock options was $0.3 million at December 31, 2017. This expense will be recognized over a weighted average expense period of approximately 1.2 years.September 30, 2021. The total unrecognized compensation cost for unvested outstanding restricted stock was $2.8$6.8 million at December 31, 2017.September 30, 2021. This expense will be recognized over a weighted-average expense period of approximately 2.01.7 years.
The Company did not grant any stock options during the three and ninesix months ended December 31, 2017. During the nine months ended December 31, 2016, the Company granted 9,703 stock options. These options will vest over 2 years. The weighted average assumptions used in the Black Scholes valuation model for stock options granted during the nine months ended December 31, 2016 are as follows:September 30, 2021 or September 30, 2020.
5. 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
The following table reconciles the numerators and denominators of the earnings per share calculation for the three and ninesix months ended December 31, 2017September 30, 2021 and 20162020 (in thousands, except per share data):
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss | $ | (4,434 | ) | $ | (3,712 | ) | $ | (9,837 | ) | $ | (7,129 | ) | ||||
Denominator: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 28,360 | 23,057 | 28,141 | 22,943 | ||||||||||||
Weighted-average shares subject to repurchase | (1,108 | ) | (1,197 | ) | (1,101 | ) | (1,168 | ) | ||||||||
Shares used in per-share calculation ― basic | 27,252 | 21,860 | 27,040 | 21,775 | ||||||||||||
Shares used in per-share calculation ― diluted | 27,252 | 21,860 | 27,040 | 21,775 | ||||||||||||
Net loss per share ― basic | $ | (0.16 | ) | $ | (0.17 | ) | $ | (0.36 | ) | $ | (0.33 | ) | ||||
Net loss per share ― diluted | $ | (0.16 | ) | $ | (0.17 | ) | $ | (0.36 | ) | $ | (0.33 | ) |
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Numerator: | |||||||||||||||
Net loss | $ | (4,248 | ) | $ | (2,768 | ) | $ | (26,782 | ) | $ | (20,448 | ) | |||
Denominator: | |||||||||||||||
Weighted-average shares of common stock outstanding | 20,889 | 14,203 | 19,189 | 14,175 | |||||||||||
Weighted-average shares subject to repurchase | (940 | ) | (411 | ) | (575 | ) | (429 | ) | |||||||
Shares used in per-share calculation ― basic | 19,949 | 13,792 | 18,614 | 13,746 | |||||||||||
Shares used in per-share calculation ― diluted | 19,949 | 13,792 | 18,614 | 13,746 | |||||||||||
Net loss per share ― basic | $ | (0.21 | ) | $ | (0.20 | ) | $ | (1.44 | ) | $ | (1.49 | ) | |||
Net loss per share ― diluted | $ | (0.21 | ) | $ | (0.20 | ) | $ | (1.44 | ) | $ | (1.49 | ) |
6. Goodwill and Related Other Intangibles
Goodwill
September 25, 2017 | |||
Consideration | |||
Cash | $ | 0.1 | |
Equity (884,890 shares of common stock at $4.02 per share) | 3.6 | ||
Contingent consideration | 0.6 | ||
Total Consideration | $ | 4.3 | |
Recognized amounts of identifiable assets acquired and liabilities assumed | |||
Core technology and know-how | $ | 3.4 | |
Working capital | 0.2 | ||
Property, plant and equipment | 0.0 | ||
Total identifiable net assets | $ | 3.6 | |
Long-term deferred tax liability | 1.1 | ||
Goodwill allocated | $ | 1.7 |
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. The Company's goodwill balance relates to the Neeltran Acquisition in the current year, the NEPSI Acquisition in fiscal 2020, and the acquisition of Infinia Technology Corporation in fiscal 2017 and is reported in the Grid business segment. Goodwill is not amortized but reviewed for impairment. Goodwill is reviewed annually and whenever events or changes in circumstances indicate that the carrying value of the goodwill might not be recoverable.
The Company early adopted ASU 2017-04 asfollowing table provides a roll forward of September 30, 2017. The Company will perform an annual impairment assessment on goodwill, unless events occurthe changes in the interim periods to indicate impairment may have occurred. Company's Grid business segment goodwill balance:
Goodwill | ||||
March 31, 2021 | $ | 34,634 | ||
Neeltran Acquisition | 8,837 | |||
Less impairment loss | 0 | |||
September 30, 2021 | $ | 43,471 |
The Company did not identify any triggering events in the period between the date of Acquisitionthree and December 31, 2017, whichsix months ended September 30, 2021 that would require subsequent interim impairment testing of goodwill. As such,
Other Intangibles
Intangible assets at September 30, 2021 and March 31, 2021 consisted of the following (in thousands):
September 30, 2021 | March 31, 2021 | |||||||||||||||||||||||||||
Gross Amount | Accumulated Amortization | Net Book Value | Gross Amount | Accumulated Amortization | Net Book Value | Estimated Useful Life | ||||||||||||||||||||||
Backlog | $ | 681 | $ | (552 | ) | $ | 129 | $ | 600 | $ | (475 | ) | $ | 125 | 2 | |||||||||||||
Trade name | 1,800 | — | 1,800 | 600 | — | 600 | Indefinite | |||||||||||||||||||||
Customer relationships | 9,600 | (1,710 | ) | 7,890 | 6,100 | (739 | ) | 5,361 | 7 | |||||||||||||||||||
Core technology and know-how | 5,970 | (3,144 | ) | 2,826 | 5,970 | (2,903 | ) | 3,067 | 5-10 | |||||||||||||||||||
Intangible assets | $ | 18,051 | $ | (5,406 | ) | $ | 12,645 | $ | 13,270 | $ | (4,117 | ) | $ | 9,153 |
The Company recorded intangible amortization expense related to customer relationship and core technology and know-how of $0.6 million and $1.2million, in the three and six months ended September 30, 2021, respectively, and $0.1 million and $0.2 million in the three and six months ended September 30, 2020, respectively. Additionally, the Company expectsrecorded intangible amortization related to perform its annual goodwill impairment test duringbacklog that is reported in cost of revenues of less than $0.1 million and $0.1 million in the fourth quarter of fiscal 2017. three and sixmonths ended September 30, 2021, respectively.
Expected future amortization expense related to intangible assets is as follows (in thousands):
Years ended March 31, | Total | |||
2022 | 1,358 | |||
2023 | 2,772 | |||
2024 | 2,152 | |||
2025 | 1,648 | |||
2026 | 1,221 | |||
Thereafter | 1,694 | |||
Total | $ | 10,845 |
The Company will compare the fair value of its reporting unit to its carrying value. If the carrying value of the netCompany's intangible assets assignedrelate entirely to the reporting unit exceedsGrid business segment operations in the fair value of the reporting unit, then the Company would record an impairment loss equal to the difference.United States.
7. 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, but did transfer $0.7 million related to the contingent liability from Level 3 to2 or Level 23 of the fair value measurement hierarchy during the three and ninesix months ended December 31, 2017. The fair value calculation at December 31, 2017 was based on actual observable stock price inputs following the sale of all of the related shares, in place of the Company's assumptions which had been used in the prior period.September 30, 2021.
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.
Marketable Securities
Marketable securities consist of certificates of deposit that are measured using such inputs as quoted prices and are classified within Level 1 of the valuation hierarchy. The Company determines the appropriate classification of its marketable securities at the time of purchase and re-evaluates such classification as of each balance sheet date. All marketable securities are considered available for sale and are carried at fair value. Changes in fair value are recorded to other income (expense), net. The Company had 0 outstanding marketable securities as of September 30, 2021 and the Company recognized 0 change in the three and six months ended September 30, 2021. The Company recognized $0.2 million and $0.1 million in unrealized losses on marketable securities, which is recorded in other income (expense), net, for the three and six months ended September 30, 2020 and less than a $0.1 million gain which was recognized during the three and six months ended September 30, 2020 upon the sale of one of the certificates of deposit. The Company periodically reviews the realizability of each short and long term marketable security when impairment indicators exist with respect to the security. If other than temporary impairment of value of the security exists, the carrying value of the security is written down to its estimated fair value.
Contingent Consideration
Contingent consideration relates to the earnout payment set forth in the NEPSI Stock Purchase Agreement 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" and Note 2, “Acquisitions” for further discussion. The Company relied on a Monte Carlo method to determine the fair value of the contingent consideration on the NEPSI Acquisition Date and will continue 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.
The following table provides the assets and liabilities carried at fair value on a recurring basis, measured as of December 31, 2017September 30, 2021 and March 31, 20172021 (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, 2021: | ||||||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 20,108 | $ | 20,108 | $ | 0 | $ | 0 | ||||||||
Marketable securities | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Derivative liabilities: | ||||||||||||||||
Contingent consideration | $ | 4,720 | $ | 0 | $ | 0 | $ | 4,720 |
Total Carrying Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
March 31, 2021: | ||||||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 54,104 | $ | 54,104 | $ | — | $ | — | ||||||||
Marketable securities | $ | 5,140 | $ | 5,140 | $ | — | $ | — | ||||||||
Derivative liabilities: | ||||||||||||||||
Contingent consideration | $ | 7,050 | $ | — | $ | — | $ | 7,050 |
Total Carrying Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
December 31, 2017: | |||||||||||||||
Assets: | |||||||||||||||
Cash equivalents | $ | 17,944 | $ | 17,944 | $ | — | $ | — | |||||||
Derivative liabilities: | |||||||||||||||
Acquisition contingent consideration | $ | 687 | $ | — | $ | 687 | $ | — | |||||||
Warrants | 455 | — | — | 455 | |||||||||||
Total derivative liabilities | $ | 1,142 | $ | — | $ | 687 | $ | 455 |
Total Carrying Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
March 31, 2017: | |||||||||||||||
Assets: | |||||||||||||||
Cash equivalents | $ | 14,105 | $ | 14,105 | $ | — | $ | — | |||||||
Derivative liabilities: | |||||||||||||||
Warrants | $ | 1,923 | $ | — | $ | — | $ | 1,923 |
The table below reflects the activity for the Company’s major classes of liabilitiesderivative liability measured at fair value on a recurring basis (in thousands):
Acquisition Contingent Consideration | ||||
Balance at March 31, 2021 | $ | 7,050 | ||
Change in fair value | (2,330 | ) | ||
Balance at September 30, 2021 | $ | 4,720 |
Warrants | Acquisition Contingent Consideration | ||||||
April 1, 2017 | $ | 1,923 | $ | — | |||
Issuance of contingent consideration | — | 571 | |||||
Mark to market adjustment | (1,468 | ) | 71 | ||||
Settlement fees | — | 45 | |||||
Balance at December 31, 2017 | $ | 455 | $ | 687 |
Warrants | |||
April 1, 2016 | $ | 3,227 | |
Mark to market adjustment | (1,304 | ) | |
Balance at March 31, 2017 | $ | 1,923 |
8. Accounts Receivable
Accounts receivable at December 31, 2017September 30, 2021 and March 31, 20172021 consisted of the following (in thousands):
September 30, 2021 | March 31, 2021 | |||||||
Accounts receivable (billed) | $ | 16,381 | $ | 7,502 | ||||
Accounts receivable (unbilled) | 8,796 | 5,765 | ||||||
Accounts receivable, net | $ | 25,177 | $ | 13,267 |
December 31, 2017 | March 31, 2017 | ||||||
Accounts receivable (billed) | $ | 10,379 | $ | 7,436 | |||
Accounts receivable (unbilled) | 1,727 | 574 | |||||
Less: Allowance for doubtful accounts | (54 | ) | (54 | ) | |||
Accounts receivable, net | $ | 12,052 | $ | 7,956 |
9. Inventory
Inventory, net of reserves, at December 31, 2017September 30, 2021 and March 31, 20172021 consisted of the following (in thousands):
December 31, 2017 | March 31, 2017 | ||||||
Raw materials | $ | 5,544 | $ | 4,263 | |||
Work-in-process | 1,626 | 426 | |||||
Finished goods | 7,931 | 8,016 | |||||
Deferred program costs | 2,028 | 4,757 | |||||
Net inventory | $ | 17,129 | $ | 17,462 |
September 30, 2021 | March 31, 2021 | |||||||
Raw materials | $ | 11,396 | $ | 8,255 | ||||
Work-in-process | 7,533 | 3,297 | ||||||
Finished goods | 1,815 | 777 | ||||||
Deferred program costs | 830 | 977 | ||||||
Net inventory | $ | 21,574 | $ | 13,306 |
The Company recorded inventory write-downs of $0.1$0.6 million and $0.4$0.5 million for the three and nine months ended December 31, 2017.September 30, 2021, and 2020, respectively. The Company recorded inventory write-downs of $0.4$1.2 million and $1.1$1.3 million for the three and ninesix months ended December 31, 2016.September 30, 2021 and 2020, respectively. These write downswrite-downs were based on evaluatingthe Company's evaluation of its inventory on hand for excess quantities and obsolescence.
Deferred program costs as of December 31, 2017September 30, 2021, and March 31, 20172021, primarily represent costs incurred on programs accounted for under contract accounting where the Company needs to complete development milestonesperformance obligations before the related revenue and costs will be recognized.
10. Property, Plant and Equipment
The cost and accumulated depreciation of property, plant and equipment at December 31, 2017September 30, 2021 and March 31, 20172021 are as follows (in thousands):
December 31, 2017 | March 31, 2017 | ||||||
Land | $ | 3,643 | $ | 3,643 | |||
Construction in progress - equipment | 2,160 | 601 | |||||
Buildings | 34,549 | 34,549 | |||||
Equipment and software | 72,566 | 73,445 | |||||
Furniture and fixtures | 1,048 | 1,201 | |||||
Leasehold improvements | 498 | 2,442 | |||||
Property, plant and equipment, gross | 114,464 | 115,881 | |||||
Less accumulated depreciation | (77,780 | ) | (72,443 | ) | |||
Property, plant and equipment, net | $ | 36,684 | $ | 43,438 |
September 30, 2021 | March 31, 2021 | |||||||
Construction in progress - equipment | $ | 432 | $ | 220 | ||||
Land | 980 | 270 | ||||||
Building | 5,270 | 1,630 | ||||||
Equipment and software | 43,714 | 41,652 | ||||||
Finance lease - right of use asset | 11 | 0 | ||||||
Furniture and fixtures | 1,385 | 1,333 | ||||||
Leasehold improvements | 6,523 | 6,308 | ||||||
Property, plant and equipment, gross | 58,315 | 51,413 | ||||||
Less accumulated depreciation | (43,704 | ) | (42,416 | ) | ||||
Property, plant and equipment, net | $ | 14,611 | $ | 8,997 |
Depreciation expense was $1.4$0.7 million and $8.9$0.9 million for the three and nine months ended December 31, 2017.September 30, 2021 and 2020, respectively. Depreciation expense was $1.7$1.3 million and $5.2$1.8 million for the three and ninesix months ended December 31, 2016. IncludedSeptember 30, 2021 and 2020, respectively. The increase in depreciation expense forland and building relates to the nine months ended December 31, 2017 is $4.1 million of accelerated depreciation recorded to cost of revenues related to revised estimatesproperty added as part of the remaining useful lives of certain pieces of manufacturing equipment. Construction in progress - equipment primarily includes capital investments in the Company's newly leased facility in Ayer, Massachusetts.Neeltran Acquisition.
11. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2017September 30, 2021 and March 31, 20172021 consisted of the following (in thousands):
December 31, 2017 | March 31, 2017 | ||||||
Accounts payable | $ | 5,626 | $ | 3,207 | |||
Accrued inventories in-transit | 505 | 313 | |||||
Accrued other miscellaneous expenses | 2,326 | 2,240 | |||||
Accrued restructuring | 394 | — | |||||
Accrued compensation | 3,792 | 5,042 | |||||
Income taxes payable | 1,372 | 1,344 | |||||
Accrued warranty | 1,471 | 2,344 | |||||
Total | $ | 15,486 | $ | 14,490 |
September 30, 2021 | March 31, 2021 | |||||||
Accounts payable | $ | 14,920 | $ | 5,353 | ||||
Accrued inventories in-transit | 1,772 | 1,460 | ||||||
Accrued other miscellaneous expenses | 2,993 | 2,369 | ||||||
Advanced deposits | 1,479 | 1,035 | ||||||
Accrued compensation | 3,932 | 7,018 | ||||||
Income taxes payable | 640 | 522 | ||||||
Accrued product warranty | 2,155 | 2,053 | ||||||
Total | $ | 27,891 | $ | 19,810 |
The Company generally provides a one to three year warranty on its products, commencing upon installation.delivery or installation where applicable. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience.
Product warranty activity was as follows (in thousands):
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Balance at beginning of period | $ | 2,187 | $ | 2,168 | $ | 2,053 | $ | 2,015 | ||||||||
Acquired warranty obligations | 0 | 0 | 248 | 0 | ||||||||||||
Change in accruals for warranties during the period | 206 | 148 | 314 | 384 | ||||||||||||
Settlements during the period | (238 | ) | (207 | ) | (460 | ) | (290 | ) | ||||||||
Balance at end of period | $ | 2,155 | $ | 2,109 | $ | 2,155 | $ | 2,109 |
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Balance at beginning of period | $ | 1,852 | $ | 2,694 | $ | 2,344 | $ | 3,601 | |||||||
Change in accruals for warranties during the period | 25 | 591 | 152 | 1,009 | |||||||||||
Settlements during the period | (406 | ) | (608 | ) | (1,025 | ) | (1,933 | ) | |||||||
Balance at end of period | $ | 1,471 | $ | 2,677 | $ | 1,471 | $ | 2,677 |
12. Income Taxes
The Company recorded an income tax expensesexpense of $0.6$0.2 million and $0.5income tax benefit of $1.9 million in the three and ninesix months ended December 31, 2017,September 30, 2021, respectively. The Company recorded income tax benefitexpense of $0.1$0.2 million and expense of $1.0$0.4 million in the three and ninesix months ended December 31, 2016, September 30, 2020, respectively.
As a result of purchase accounting fora difference in book and tax basis related to the acquired intangible assets acquired in the ITC acquisition,Neeltran Acquisition (see Note 2, "Acquisitions"), the Company recorded a deferred tax liability of $1.1 million for the difference in book and tax basis.$2.3 million. As a result, the Company was able to benefit from additional deferred tax assets and therefore released a corresponding valuation allowance of $1.1$2.3 million during the nine six months ended December 31, 2017. September 30, 2021. The purchase price allocation is preliminary and has not been finalized as the analysis on the assets and liabilities acquired, primarily the tax related liability, may require further adjustments to the Company's purchase accounting that could result in measurement period adjustments that would impact the Company's reported net assets and goodwill as of May 6, 2021. Material changes, if any, to the preliminary allocation summarized in Note 2, "Acquisitions" will be reported once the related uncertainties are resolved, but no later than May 6, 2022. Goodwill recognized in the acquisitionNeeltran Acquisition and the NEPSI Acquisition is not deductible for tax purposes.
Accounting for income taxes requires a two-steptwo-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 ninesix months ended December 31, 2017September 30, 2021 and did not have any gross unrecognized tax benefits as of March 31, 2017.
Fiscal Year 17 | September 30, 2017 | June 30, 2017 | |
Risk-free interest rate | 1.05% | 1.05% | |
Expected annual dividend yield | — | — | |
Expected volatility | 77.95% | 78.25% | |
Term (years) | 0.01 | 0.26 | |
Fair value | $— | $— |
Fiscal Year 16 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||
Risk-free interest rate | 0.91% | 0.56% | 0.59% | 0.48% | 0.66% | ||||
Expected annual dividend yield | — | — | — | — | — | ||||
Expected volatility | 44.12% | 58.04% | 70.50% | 76.30% | 76.76% | ||||
Term (years) | 0.51 | 0.76 | 1.01 | 1.26 | 1.51 | ||||
Fair value | $— | $0.1 million | $0.2 million | $0.4 million | $0.4 million |
Fiscal Year 17 | December 31, 2017 | September 30, 2017 | June 30, 2017 | ||
Risk-free interest rate | 1.98% | 1.56% | 1.58% | ||
Expected annual dividend yield | — | — | — | ||
Expected volatility | 69.11% | 63.97% | 67.76% | ||
Term (years) | 2.46 | 2.72 | 2.97 | ||
Fair value | $0.1 million | $0.1 million | $0.1 million |
Fiscal Year 16 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||
Risk-free interest rate | 1.55% | 1.57% | 0.97% | 0.86% | 1.08% | ||||
Expected annual dividend yield | — | — | — | — | — | ||||
Expected volatility | 66.51% | 67.28% | 67.98% | 68.34% | 70.25% | ||||
Term (years) | 3.25 | 3.50 | 3.75 | 4.00 | 4.25 | ||||
Fair value | $0.2 million | $0.2 million | $0.2 million | $0.3 million | $0.2 million |
Fiscal Year 17 | December 31, 2017 | September 30, 2017 | June 30, 2017 | ||
Risk-free interest rate | 1.87% | 1.49% | 1.44% | ||
Expected annual dividend yield | — | — | — | ||
Expected volatility | 65.86% | 65.64% | 67.21% | ||
Term (years) | 1.87 | 2.12 | 2.37 | ||
Fair value | $0.4 million | $0.8 million | $0.9 million |
Fiscal Year 16 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||
Risk-free interest rate | 1.41% | 1.43% | 0.93% | 0.77% | 0.98% | ||||
Expected annual dividend yield | — | — | — | — | — | ||||
Expected volatility | 66.53% | 69.31% | 68.96% | 70.01% | 69.88% | ||||
Term (years) | 2.62 | 2.87 | 3.12 | 3.37 | 3.62 | ||||
Fair value | $1.8 million | $2.3 million | $2.3 million | $3.2 million | $2.6 million |
13.Contingent Consideration
Contingent Consideration
The Company evaluated the ITC acquisition Make Whole PaymentNEPSI Acquisition earnout payment set forth in the SPANEPSI Stock Purchase Agreement (see Note 5, "Fair Value Measurements"2, "Acquisitions" for further details), which ultimately required netmay require settlement cash,in the Company's common stock, and determined the contingent consideration qualified for liability classification and derivative treatment under ASC 815.815,Derivatives and Hedging. As a result, for each period, the fair value of the contingent consideration waswill be remeasured and the resulting gain or loss waswill be recognized in operating expenses.
Following is a summary of the key assumptions used in a Monte Carlo simulation to calculate the fair value of the contingent consideration related to the ITC acquisition:
Fiscal Year 17 | September 30, 2017 | September 25, 2017 | |
Risk-free interest rate | 1.09% | 1.09% | |
Expected annual dividend yield | — | — | |
Expected volatility | 66.54% | 65.71% | |
Term (years) | 0.31 | 0.32 | |
Fair value | $0.4 million | $0.6 million |
September 30, | June 30, | |||||||||||
Fiscal Year 2021 | 2021 | 2021 | ||||||||||
Revenue risk premium | 6.60 | % | 6.60 | % | ||||||||
Revenue volatility | 30 | % | 30 | % | ||||||||
Stock Price | $ | 14.58 | $ | 17.39 | ||||||||
Payment delay (days) | 80 | 80 | ||||||||||
Fair value | 4.7 | 7.2 | ||||||||||
March 31, | December 31, | October 1, | ||||||||||
Fiscal Year 2020 | 2021 | 2020 | 2020 | |||||||||
Revenue risk premium | 6.70 | % | 6.90 | % | 7.10 | % | ||||||
Revenue volatility | 30 | % | 30 | % | 30 | % | ||||||
Stock Price | $ | 18.96 | $ | 23.42 | $ | 14.23 | ||||||
Payment delay (days) | 80 | 80 | — | |||||||||
Fair value | 7.1 | 6.7 | 4.0 |
The Company recorded a net lossesgain of $0.3$2.4 million and $0.1$2.3 million resulting from increasesthe decrease in the fair value of the contingent consideration in the three and ninesix months ended December 31, 2017,September 30, 2021, respectively.
14. Debt
As part of the Neeltran Acquisition, the Company identified 4 equipment financing agreements that Neeltran had entered into an underwriting agreement with Oppenheimer & Co. Inc., as representative of several underwriters named therein, relatingprior to the issuanceacquisition on May 6, 2021. The Company determined to account for these agreements as a debt transaction and sale (the "Offering")recorded current and long-term debt liabilities of 4.0 $0.1 million shareseach during the six months ended September 30, 2021.
15. Leases
The Company determines whether a contract is or contains a lease at inception of a contract. The Company defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property or equipment (an identified asset) for a period of time in exchange for consideration. Control over the use of the Company's common stockidentified asset means that the Company have both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
The discount rate was calculated using an incremental borrowing rate based on an assessment prepared by the Company through the use of Company credit ratings, consideration of its lease populations potential risk to its total capital structure, and a market rate for a collateralized loan for its risk profile, calculated by a third party. The Company elected to apply the discount rate using the remaining lease term at the date of adoption for Neeltran lease contracts.
Following the Neeltran Acquisition, the Company evaluated all open Neeltran contracts at the date of the acquisition to determine if any applied under ASC 842 as Neeltran, a public offering price of $4.00 per share. The net proceedsprivate company, had deferred adopting ASC 842 prior to the Neeltran Acquisition, as permitted. The Company identified nine lease contracts with terms greater than twelve months and evaluated them under ASC 842 guidance. As part of the implementation, the Company identified one lease contract that classified as a financing lease. The Company does not expect a material impact to the financial statements on an ongoing basis resulting from the Offering were approximately $14.7 million, after deducting underwriting discountsadoption of the ASC 842 standard for the Neeltran business and commissionsNeeltran will follow the existing policies below.
Operating Leases
All significant lease arrangements are recognized at lease commencement. Operating lease right–of-use assets and offering expenses payable bylease liabilities are recognized at commencement. The operating lease right-of-use asset includes any lease payments related to initial direct cost and prepayments and excludes any lease incentives. Lease expense is recognized on a straight-line basis over the Company.lease term. The Offering closed on May 10, 2017. In addition,Company enters into a variety of operating lease agreements through the Company granted the underwriters a 30-day option (the “Option”)normal course of its business, but primarily real estate leases to purchase up to an additional 600,000 shares of common stock at the public offering price. On May 24, 2017, the underwriters notified the Company that they had exercised their Option in full.support its operations. The net proceeds to the Company from the Option were approximately $2.3 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. The total net proceeds to the Company from the Offeringreal estate lease agreements generally provide for fixed minimum rental payments and the Option were approximately $17.0 million, after deducting underwriting discountspayment of real estate taxes and commissions and offering expenses payable byinsurance. Many of these real estate leases have one or more renewal options that allow the Company. The Option closed on May 26, 2017.
The Company also enters into leases for vehicles, IT equipment and service agreements, and other leases related to its manufacturing operations that are also included in the right-of-use assets and lease liability accounts if they are for a term of longer than twelve months. However, many of these leases are either short-term in nature or immaterial. The Company has made the policy election to exclude short-term leases from the balance sheet.
Finance Leases
As part of the adoption of ASC 842 at Neeltran, the Company identified one lease contract that is classified as a financing lease. In February 2020, Neeltran entered into a contract to lease a copy machine for an initial term of 39 months, or through May 2023. The Company concluded that the lease should be classified and accounted for as a finance lease as the total value of the lease payments are greater than fair value of the asset. Accordingly, on May 6, 2021, the Company recognized a finance lease right-of-use asset and a finance lease liability of $13.2 thousand on the Neeltran opening balance sheet. As of September 30, 2021, the right-of-use asset related to the finance lease was $10.7 thousand, net of accumulated amortization of $2.5 thousand, and is included in the property and equipment, net on the Company's consolidated balance sheet.
Finance lease right-of-use assets and lease liabilities are recognized similar to an operating lease, at the lease commencement date or the date the lessor makes the leased asset available for use. Finance lease right-of-use assets are generally amortized on a straight-line basis over the lease term, and the carrying amount of the finance lease liabilities are (1) accreted to reflect interest using the incremental borrowing rate if the rate implicit in the lease is not readily determinable, and (2) reduced to reflect lease payments made during the period. Amortization expense for finance lease right-of-use assets and interest accretion on finance lease liabilities are recorded to depreciation expense and interest expense, respectively in our consolidated statement that AMSC filed with the SEC on of operations.
Supplemental balance sheet information related to leases at September 19, 2014.
September 30, 2021 | March 31, 2021 | |||||||
Leases: | ||||||||
Right-of-use assets - Financing | $ | 11 | 0 | |||||
Right-of-use assets - Operating | 3,588 | 3,747 | ||||||
Total right-of-use assets | 3,599 | 3,747 | ||||||
Lease liabilities - ST Financing | $ | 5 | 0 | |||||
Lease liabilities - ST Operating | 700 | 612 | ||||||
Lease liabilities - LT Financing | 5 | 0 | ||||||
Lease liabilities - LT Operating | 3,007 | 3,246 | ||||||
Total lease liabilities | 3,717 | 3,858 | ||||||
Weighted-average remaining lease term | 5.29 | 5.82 | ||||||
Weighted-average discount rate | 6.58 | % | 6.72 | % |
The costs related to the Company received net proceeds of $2.5 million, from sales of approximately 379,693 shares of its common stock at an average sales price of approximately $6.79 per shareCompany's finance lease are not material. The costs related to the Company's operating leases for the three and six months ended September 30, 2021, and 2020 are as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||
September 30, 2021 | September 30, 2021 | |||||||
Operating Leases: | ||||||||
Operating lease costs - fixed | $ | 238 | $ | 469 | ||||
Operating lease costs - variable | 32 | 63 | ||||||
Short-term lease costs | 65 | 131 | ||||||
Total lease costs | 335 | 663 |
Three Months Ended | Six Months Ended | |||||||
September 30, 2020 | September 30, 2020 | |||||||
Operating Leases: | ||||||||
Operating lease costs - fixed | $ | 214 | $ | 392 | ||||
Operating lease costs - variable | 28 | 55 | ||||||
Short-term lease costs | 510 | 678 | ||||||
Total lease costs | 752 | 1,125 |
The Company’s estimated minimum future lease obligations under the ATM. No sales of the Company's common stock were made under the ATM after March 31, 2017. On May 4, 2017, the Company provided to FBR a notice of termination of the ATM.leases are as follows (in thousands):
Leases | ||||
Year ended March 31, | ||||
2022 | $ | 460 | ||
2023 | 886 | |||
2024 | 798 | |||
2025 | 674 | |||
2026 | 672 | |||
Thereafter | 934 | |||
Total minimum lease payments | 4,424 | |||
Less: interest | 707 | |||
Present value of lease liabilities | 3,717 |
16. Commitments and Contingencies
Legal Contingencies
From time to time, the Company is involved in legal and administrative proceedings and claims of various types. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.
Other
The Company enters into long-term construction contracts with customers that require the Company to obtain performance bonds. The Company is required to deposit an amount equivalent to some or all the face amount of the performance bonds into an escrow account until the termination of the bond. When the performance conditions are met, amounts deposited as collateral for the performance bonds are returned to the Company. In addition, the Company has various contractual arrangements in which minimum quantities of goods or services have been committed to be purchased on an annual basis.
As of December 31, 2017,September 30, 2021, the Company had $0.2$6.2 million of restricted cash included in long-term assets and $2.3 million of restricted cash included in current assets. As of March 31, 2021, the Company had $5.6 million of restricted cash included in long term assets and $2.2 million of restricted cash included in current assets. These amounts included in restricted cash primarily represent deposits to secure letters of credit for various supply contracts.contracts and long-term projects, including the irrevocable letter of credit in the amount of $5.0 million to secure certain of the Company's obligations under a subcontract agreement with ComEd. These deposits are held in interest bearing accounts.
Severance pay | |||
and benefits | |||
Accrued restructuring balance at April 1, 2017 | $ | — | |
Charges to operations | 1,328 | ||
Cash payments | (934 | ) | |
Accrued restructuring balance at December 31, 2017 | $ | 394 |
17. Business Segments
The Company reports its financial results in two2 reportable business segments: WindGrid and Grid.
Through the Company’s Windtec Solutions, the Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. The Company supplies advanced power electronics and control systems, licenses its highly engineered wind turbine designs, and provides extensive customer support services to wind turbine manufacturers. The Company’s design portfolio includes a broad range of drive trains and power ratings of 2 megawatts ("MWs") and higher. The Company provides a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility.
Through the Company’s wind power offerings, the Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. The Company provides advanced power electronics and control system products, engineered designs, and support services. The Company supplies advanced power electronics and control systems, licenses its highly engineered wind turbine designs, and provides extensive customer support services to wind turbine manufacturers. The Company’s design portfolio includes a broad range of drive trains and power ratings of 2 megawatts ("MWs") and higher. The Company provides a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility.
The operating results for the two business segments are as follows (in thousands):
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues: | ||||||||||||||||
Grid | $ | 24,619 | $ | 16,347 | $ | 48,119 | $ | 34,062 | ||||||||
Wind | 3,289 | 4,770 | 5,209 | 8,267 | ||||||||||||
Total | $ | 27,908 | $ | 21,117 | $ | 53,328 | $ | 42,329 |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Operating Income (loss): | ||||||||||||||||
Grid | $ | (5,836 | ) | $ | (1,374 | ) | $ | (11,180 | ) | $ | (2,562 | ) | ||||
Wind | 205 | (983 | ) | (558 | ) | (2,103 | ) | |||||||||
Unallocated corporate gain (expenses) | 1,329 | (849 | ) | (63 | ) | (1,758 | ) | |||||||||
Total | $ | (4,302 | ) | $ | (3,206 | ) | $ | (11,801 | ) | $ | (6,423 | ) |
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Wind | $ | 2,633 | $ | 18,248 | $ | 10,465 | $ | 36,822 | |||||||
Grid | 12,300 | 8,900 | 24,439 | 22,178 | |||||||||||
Total | $ | 14,933 | $ | 27,148 | $ | 34,904 | $ | 59,000 |
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating loss: | |||||||||||||||
Wind | $ | (1,684 | ) | $ | 1,044 | $ | (7,557 | ) | $ | (3,220 | ) | ||||
Grid | (1,011 | ) | (4,491 | ) | (15,279 | ) | (15,068 | ) | |||||||
Unallocated corporate expenses | (1,156 | ) | (613 | ) | (3,514 | ) | (2,266 | ) | |||||||
Total | $ | (3,851 | ) | $ | (4,060 | ) | $ | (26,350 | ) | $ | (20,554 | ) |
The accounting policies of the business segments are the same as those for the consolidated Company. The Company’s business segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measures are segment revenues and segment operating loss. The disaggregated financial results of the segments reflect allocation of certain functional expense categories consistent with the basis and manner in which Company management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In addition, certain corporate expenses which the Company does not believe are specifically attributable or allocable to either of the two business segments have been excluded from the segment operating loss.
Unallocated corporate expenses primarilyconsist of a gain on contingent consideration of $2.4 million and $2.3 million in the three and six months ended September 30, 2021, respectively. Additionally, unallocated corporate expenses consist of stock-based compensation expense of $0.9$1.1 million and $0.6$0.8 million in the three months ended December 31, 2017September 30, 2021, and 2016, respectively. Unallocated corporate expenses primarily consist of stock-based compensation expense of $2.12020, respectively and $2.4 million and $2.3$1.8 million in the ninesix months ended December 31, 2017 September 30, 2021 and 2016,2020, respectively. Additionally, a restructuring charge of $1.3 million is included in the nine months ended December 31, 2017, as well as losses for the change in fair value of the contingent consideration of $0.3 million and $0.1 million in the three and nine months ended December 31, 2017.
Total assets for the two business segments as of December 31, 2017September 30, 2021, and March 31, 20172021, are as follows (in thousands):
September 30, 2021 | March 31, 2021 | |||||||
Grid | $ | 118,503 | $ | 81,253 | ||||
Wind | 8,221 | 6,098 | ||||||
Corporate assets | 57,649 | 81,515 | ||||||
Total | $ | 184,373 | $ | 168,866 |
December 31, 2017 | March 31, 2017 | ||||||
Wind | $ | 15,303 | $ | 18,346 | |||
Grid | 36,165 | 31,060 | |||||
Corporate assets | 45,303 | 50,838 | |||||
Total | $ | 96,771 | $ | 100,244 |
Three months ended December 31, | Nine months ended December 31, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Inox Wind Limited | 15 | % | 66 | % | 27 | % | 58 | % | |||
Vestas Middle East S.L.U. | 27 | % | — | % | 11 | % | — | % | |||
SSE Generation Ltd. | 17 | % | — | % | <10% | — | % | ||||
Hidalgo Wind Farm LLC | <10% | 17 | % | <10% | <10% |
18. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board ("IASB") issued, ASU 2014-09,
In 2016, the FASB issued the following two ASU's on Statement of Cash Flows (Topic 230). Both amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that year.
19. Subsequent Events
The Company has performed an evaluation of subsequent events through the time of filing this Quarterly Report on Form 10-Q10-Q with the SEC and has determined that other than those disclosed above, there are no such events to report.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that relate to future events or conditions, including without limitation, the statements in Part II, “Item 1A. Risk Factors” and in Part I under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry prospects, or our prospective results of operations or financial position, the benefits of our acquisition of Northeast Power Systems, Inc. ("NEPSI") and Neeltran, Inc. ("Neeltran"), changes in macroeconomic and market conditions, arising from the COVID-19 pandemic, including inflation, sourcing, material delays and global supply chain disruptions and adoption of accounting changes may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements represent management’s current expectations and are inherently uncertain. There are a number of important factors that could materially impact the value of our common stock or cause actual results to differ materially from those indicated by such forward-looking statements. These important factors include, but are not limited to: A significant portion of our revenues are derived from a single customer, Inox; We have a history of operating losses, and negative operating cash flows, which may continue in the future and require us to secure additional financing in the future;future. Our operating results may fluctuate significantly from quarter to quarter and may fall below expectations in any particular fiscal quarter; Our financial conditionWe have a history of negative operating cash flows, and we may have an adverse effect on our customer and supplier relationships; Our successrequire additional financing in addressing the wind energy market is dependent on the manufacturers that license our designs; Our success is dependent upon attracting and retaining qualified personnel and our inability to do so could significantly damage our business and prospects; We rely upon third-party suppliers for the components and sub-assemblies of many of our Wind and Grid products, making us vulnerable to supply shortages and price fluctuations; Failure to successfully execute any move of our Devens, Massachusetts manufacturing facility or achieve expected savings or other anticipated benefits following any move could adversely impact our financial performance; We may not realize all of the sales expected from our backlog of orders and contracts; Our success depends upon the commercial use of high temperature superconductor products,future, which is currently limited, and a widespread commercial market for our products may not develop; Growth of the wind energy market depends largely on the availability and size of government subsidies, economic incentives and legislative programs designed to support the growth of wind energy; Our contracts with the U.S. government are subject to audit, modification or termination by the U.S. government and include certain other provisions in favor of the government, and additional funding of such contracts may not be approved by the U.S. Congress; Tax reform in the U.S.available to us; We may negatively affect our operating results; We have operations in and depend on sales in emerging markets, including India, and global conditions could negatively affect our operating resultsbe required to issue performance bonds or limitprovide letters of credit, which restricts our ability to expandaccess any cash used as collateral for the bonds or letters of credit; Changes in exchange rates could adversely affect our operations outsideresults of these markets; Our business and operations would be adversely impacted in the event of a failure or security breach of our information technology infrastructure;operations; If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired and may lead investors and other users to lose confidence in our financial data; We may not realize all of the sales expected from our backlog of orders and contracts; Our contracts with the U.S. government are subject to audit, modification or termination by the U.S. government and include certain other provisions in favor of the government. The continued funding of such contracts remains subject to annual congressional appropriation, which, if not approved, could reduce our revenue and lower or eliminate our profit; The “COVID-19” pandemic could adversely impact our business, financial condition and results of operations; Changes in U.S. government defense spending could negatively impact our financial position, results of operations, liquidity, and overall business. We rely on third-party suppliers for components and subassemblies of many of our Grid and Wind products, making us vulnerable to supply shortages and price fluctuations, which could harm our business; Uncertainty surrounding our prospects and financial condition may have an adverse effect on our customer and supplier relationships; We may experience difficulties re-establishing our HTS wire production capability in our Ayer, Massachusetts facility; Our success is dependent upon attracting and retaining qualified personnel and our inability to do so could significantly damage our business and prospects; Historically, a significant portion of our revenues have been derived from a single customer and if this customer’s business is negatively affected, it could adversely impact our business; Our success in addressing the wind energy market is dependent on the manufacturers that license our designs;Our business and operations would be adversely impacted in the event of a failure or security breach of our information technology infrastructure; Failure to comply with evolving data privacy and data protection laws and regulations or to otherwise protect personal data, may adversely impact our business and financial results; Many of our revenue opportunities are dependent upon subcontractors and other business collaborators; If we fail to implement our business strategy successfully, our financial performance could be harmed; Problems with product quality or product performance may cause us to incur warranty expenses and may damage our market reputation and prevent us from achieving increased sales and market share; Many of our customers outside of the United States may be either directly or indirectly related to governmental entities, and we could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar worldwide anti-bribery laws outside the United States; We have had limited success marketing and selling our superconductor products and system-level solutions, and our failure to more broadly market and sell our products and solutions could lower our revenue and cash flow;We may acquire additional complementary businesses or technologies, which may require us to incur substantial costs for which we may never realize the anticipated benefits, such as in connection with our acquisition of NEPSI and Neeltran; Our success depends upon the commercial adoption of the REG system, which is currently limited, and a widespread commercial market for our products may not develop; Adverse changes in domestic and global economic conditions could adversely affect our operating results; We have operations in, and depend on sales in, emerging markets, including India, and global conditions could negatively affect our operating results or limit our ability to expand our operations outside of these markets. Changes in India’s political, social, regulatory and economic environment may affect our financial performance; Our products face competition, which could limit our ability to acquire or retain customers; Our international operations are subject to risks that we do not face in the United States, which could have an adverse effect on our operating results; Growth of the wind energy market depends largely on the availability and size of government subsidies, economic incentives and legislative programs designed to support the growth of wind energy; Lower prices for other fuel sources may reduce the demand for wind energy development, which could have a material adverse effect on our ability to grow our Wind business; We may be unable to adequately prevent disclosure of trade secrets and other proprietary information;Our patents may not provide meaningful protection for our technology, which could result in us losing some or all of our market position; We face risks related to our intellectual property;technologies; We face risks related to our legal proceedings; We face risks related to our common stock; and the important factors discussed under the caption "Risk Factors" in Part 1. Item 1A of our Form 10-K for the fiscal year ended March 31, 2017,2021 and our other reports filed with the SEC. These and the important factors, discussed under the caption “Risk Factors” in Part 1. Item 1A of our Form 10-K for the fiscal year ended March 31, 2017 among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Any such forward-looking statements represent management’s estimates as of the date of this Quarterly Report on Form 10-Q. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
American Superconductor
Executive Overview
We are a leading system provider of megawatt-scale resiliency solutions that lowerorchestrate the costrhythm and harmony of wind power on the grid™, and enhancethat protect and expand the performancecapability of the U.S. Navy's fleet. In the power grid.grid market, we enable electric utilities, industrial facilities, and renewable energy project developers to connect, transmit and distribute smarter, cleaner and better power through our transmission planning services and power electronics and superconductor-based systems. In the wind power market, we enable manufacturers to field highly competitive wind turbines through our advanced
Our wind and power gridsystem solutions help to improve energy efficiency, alleviate power grid capacity constraints, improve system resiliency, and increase the adoption of renewable energy generation. Demand for our solutions is driven by the growing needs for modernized smart grids that improve power reliability, security and quality, the U.S. Navy's effort to upgrade on-board power systems to support fleet electrification, and the need for increased renewable sources of electricity, such as wind and solar energy, and for modernized smart grids that improve power reliability, security and quality.energy. Concerns about these factors have led to increased spending by corporations and the military, as well as supportive government regulations and initiatives on local, state, national and globalnational levels, including renewable portfolio standards, tax incentives and international treaties.
We manufacture products using two proprietary core technologies: PowerModulePowerModule™ programmable power electronic converters and our AmperiumAmperium® high temperature superconductor (“HTS”) wires. These technologies and our system-level solutions are protected by a broad and deep intellectual property portfolio consisting of hundreds of patents and licenses worldwide.
We operate our business under two market-facing business units: WindGrid and Grid.Wind. We believe this market-centric structure enables us to more effectively anticipate and meet the needs of wind turbine manufacturers,the U.S. Navy, electric utilities, industrial facilities, power generation project developers and electric utilities.
• | Grid. Through our Gridtec™ Solutions, our Grid business segment enables electric utilities, industrial facilities and renewable energy project developers to connect, transmit and distribute power with exceptional efficiency, reliability, security and affordability. We provide transmission planning services that allow us to identify power grid congestion, poor power quality, and other risks, which help us determine how our solutions can improve network performance. These services often lead to sales of our grid interconnection solutions for wind farms and solar power plants, power quality systems and transmission and distribution cable systems. We also sell ship protection products to the U.S. Navy through our Grid business segment. |
• | Wind. Through our Windtec™ Solutions, our Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. We supply advanced power electronics and control systems, license our highly engineered wind turbine designs, and provide extensive customer support services to wind turbine manufacturers. Our design portfolio includes a broad range of drive trains and power ratings of 2 megawatts (“MW”) and higher. We provide a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility. |
Our fiscal year begins on April 1 and ends on March 31. When we refer to a particular fiscal year, we are referring to the fiscal year beginningthat began on April 1 of that same year. For example, fiscal 20172021 refers to the fiscal year beginningthat began on April 1, 2017.2021. Other fiscal years follow similarly.
On October 31, 2018, we entered into a Subcontract Agreement with Commonwealth Edison Company (“ComEd”) (the “Subcontract Agreement”) for the manufacture and installation of the Company’s REG system within ComEd’s electric grid in Chicago, Illinois (the “Project”). As provided in the Subcontract Agreement, the Subcontract Agreement became effective upon the signing of an amendment by us and the U.S. Department of Homeland Security (“DHS”) to the existing contract (the “Prime Contract”) between us and DHS on June 20, 2019. Unless terminated earlier by us, ComEd or DHS according to the terms of the Subcontract Agreement, the term of the Subcontract Agreement will continue until we complete our warranty obligations under the Subcontract Agreement. Under the terms of the Subcontract Agreement, we have agreed, among other things, to provide the REG system and to supervise ComEd’s installation of the REG system in Chicago. As part of our separate cost sharing arrangement with DHS under the Prime Contract, we expect funding provided by DHS in connection with the Subcontract Agreement to be between $9.0 to $11.0 million, which represents the total amount of revenue we are expected to recognize over the term of the Subcontract Agreement and includes up to $1.0 million that we have agreed to reimburse ComEd for costs incurred by ComEd while undertaking its tasks under the Subcontract Agreement (the “Reimbursement Amount”). In addition, we are required to deliver an irrevocable letter of credit in the amount of $5.0 million to secure certain Company obligations under the Subcontract Agreement, which we have done, and deposited $5.0 million in an escrow account as collateral to secure such letter of credit. ComEd has agreed to provide the site and provide all civil engineering work required to support the installation, operation and integration of the REG system into ComEd’s electric grid. Other than the Reimbursement Amount, ComEd is responsible for its own costs and expenses. DHS’s approval to commence with construction was obtained on June 20, 2019. Substation work on the project began in late 2019 and we successfully integrated the REG system on Com Ed's electric power grid and the REG system became fully operational in August 2021. The REG system was placed into operation during the three months ended September 25, 2017,30, 2021.
On October 1, 2020, we 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, we acquired Infinia Technology Corporationall of the issued and outstanding (i) shares of capital stock of Northeast Power Systems, Inc., a New York corporation (“ITC”NEPSI") for approximately $3.8 million, and (ii) membership interests of Northeast Power Realty, LLC, a New York limited liability company, which holds the real property that serves as described belowNEPSI’s headquarters (the “Acquisition”"NEPSI Acquisition"). Located in Richmond, Washington, ITCNEPSI is a technology firm foundedU.S.-based global provider of medium-voltage metal-enclosed power capacitor banks and harmonic filter banks for use on electric power systems. As a result of this transaction, NEPSI became a wholly-owned subsidiary and is operated by our Grid business segment.
The NEPSI purchase price was $26.0 million in 2009 specializingcash on hand, including cash from the settlement of our $25 million certificate of deposit during the three months ended September 30, 2020, and 873,657 restricted shares of our common stock. As part of the transaction, in the design, development and commercializationfuture, the selling stockholders may receive up to an additional 1,000,000 million restricted shares of cryo-coolers for a wide rangeour common stock upon the achievement of applications.
On May 6, 2021, we acquired all of the issued and outstanding shares of ITC (the “ITC Shares”capital stock of (i) Neeltran, Inc. a Connecticut corporation ("Neeltran") that supplies rectifiers and transformers to industrial customers, and (ii) Neeltran International, Inc., a Connecticut corporation (“International”), as well as the real property that served as Neeltran’s headquarters ("the Neeltran Acquisition"). For additional information, see “Liquidity and Capital Resources” below.
In 2020, COVID-19 was declared a pandemic and spread throughout the globe, including in the Commonwealth of Massachusetts where our headquarters are located, and in other areas where we have business operations. In response to the pandemic, we have followed the guidelines of the U.S. Centers for a purchase price of approximately $3.8 million, consisting of $0.1 million in cashDisease Control and 884,890 sharesPrevention (“CDC”) and applicable state government authorities to protect the health and safety of our common stock, par value $0.01 per share (the “AMSC Shares”). Underemployees, their families, our suppliers, our customers and our communities. While these measures and, COVID-19 generally, have not materially disrupted our business to date, any future actions necessitated by the termsCOVID-19 pandemic may result in disruption to our business.
The COVID-19 pandemic continues to rapidly evolve. We are starting to experience inflation pressure in our supply chain and some delays in sourcing materials needed for our products which has increased our cost of revenues and decreased gross margin. The extent to which the outbreak impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the continued geographic spread of the SPA, we were obligated to file a registration statement (the “Resale Registration Statement”) coveringdisease, the resaleduration of the AMSC Shares by certain selling stockholders (the “Selling Stockholders”) no later than 10 business days followingpandemic, the closinglocation, duration and magnitude of future waves of infection, new variants of the Acquisition,virus, availability and to use commercially reasonable efforts to causeadoption of vaccines and treatments, effectiveness of vaccines against the Resale Registration Statement to be declared effective byvirus and its mutations, travel restrictions and social distancing in the SecuritiesUnited States, the European Union, India and Exchange Commission (“SEC”) as soon as practicable thereafter. Additionally, we agreed to payother countries, the Selling Stockholders an amount in cash (the “Make Whole Payment”), if any, equal to (x) an amount equal to (i) the price per AMSC Share pursuant to the termsduration and extent of the SPA, multiplied by (ii) the number of AMSC Shares sold by Selling Stockholders during the first 90 days afterbusiness closures or business disruptions including global supply chain disruptions and the effectiveness of actions taken to contain and treat the Resale Registration Statement, minus (y) the aggregate sales proceeds received by the Selling Stockholdersdisease. Changes in macroeconomic and market conditions arising from the sale of any AMSC Shares during the first 90 days after the effectiveness of the Resale Registration Statement. The Resale Registration Statement was declared effectiveCOVID-19 pandemic, including inflation, sourcing, material delays and global supply chain disruptions could have a material adverse effect on October 23, 2017. The contingent liability related to the Make Whole Payment was determined under a fair value option based pricing model to be $0.6 million on September 25, 2017our business financial condition and was subsequently reassessed at each period end until the final amount of $0.7 million as of December 31, 2017 was determined according to the formula per the agreement. See Note 5 "Fair Value Measurements" and Note 12 "Warrants and Derivative Liabilities" for further discussion regarding the
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ under different assumptions or conditions. During the nine months ended December 31, 2017, we adopted ASU 2017-04, which provides for changes to the annual impairment testing of goodwill. See Note 4, "Acquisition and Related Goodwill" for further details. Aside from the adoption of ASU 2017-04, thereThere were no significant changes in the critical accounting policies that were disclosed in our Form 10-K for the fiscal 2016, whichyear ended on March 31, 2017.
Results of Operations
Three and ninesix months ended December 31, 2017September 30, 2021, compared to the three and ninesix months ended December 31, 2016
Revenues
Total revenues decreased 45%increased 32% and 41% 26% to $14.9$27.9 million and $34.9$53.3 million for the three and ninesix months ended December 31, 2017,September 30, 2021, respectively, compared to $27.1$21.1 million and $59.0$42.3 million for the three and ninesix months ended December 31, 2016,September 30, 2020, respectively. Our revenues are summarized as follows (in thousands):
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Wind | $ | 2,633 | $ | 18,248 | $ | 10,465 | $ | 36,822 | |||||||
Grid | 12,300 | 8,900 | 24,439 | 22,178 | |||||||||||
Total | $ | 14,933 | $ | 27,148 | $ | 34,904 | $ | 59,000 |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues: | ||||||||||||||||
Grid | $ | 24,619 | $ | 16,347 | $ | 48,119 | $ | 34,062 | ||||||||
Wind | 3,289 | 4,770 | 5,209 | 8,267 | ||||||||||||
Total | $ | 27,908 | $ | 21,117 | $ | 53,328 | $ | 42,329 |
Our WindGrid business unit accounted for 18%88% and 30%90% of total revenues for the three and ninesix months ended December 31, 2017,September 30, 2021, respectively, compared to 67% 77% and 62%80% for the three and ninesix months ended December 31, 2016,September 30, 2020, respectively. Our Grid business unit revenues increased 51% and 41% to $24.6 million and $48.1 million in the three and six months ended September 30, 2021, respectively, from $16.3 million and $34.1 million in the three and six months ended September 30, 2020, respectively. The increase in the Grid business unit revenue in the three and six months ended September 30, 2021, was primarily driven by the contributions from the acquisitions of NEPSI and Neeltran.
Our Wind business unit accounted for 12% and 10% of total revenues for the three and six months ended September 30, 2021, respectively, compared to 23% and 20% for the three and six months ended September 30, 2020, respectively. Revenues in the Wind business unit decreased 86%31% and 72%37% to $2.6$3.3 million and $10.5$5.2 million in the three and six months ended September 30, 2021, from $4.8 million and $8.3 million in the three and six months ended September 30, 2020. The decrease in the three and ninesix months ended December 31, 2017, respectively, from $18.2 million and $36.8 millionSeptember 30, 2021, was driven by shipments of electrical control systems ("ECS") to Doosan in the three and ninesix months ended December 31, 2016, respectively.
Cost of totalRevenues and Gross Margin
Cost of revenues increased by 58% and 47% to $24.6 million and $46.7 million for the three and ninesix months ended December 31, 2017, respectively,September 30, 2021, compared to 33%$15.6 million and 38%$31.8 million for the three and ninesix months ended September 30, 2020. Gross margin was 12% and 13% for the three and six months ended December 31, 2016, respectively. Our Grid business unit revenues increased 38%September 30, 2021, compared to 26% and 10% to $12.3 million25% for the three and $24.4 millionsix months ended September 30, 2020. The decrease in gross margin in the three and ninesix months ended December 31, 2017, respectively, from $8.9September 30, 2021, was due to an unfavorable product mix, higher raw materials cost and additional costs related to purchase accounting adjustments associated with the Neeltran Acquisition. Cost of revenues includes total amortization expense of less than $0.1 million and $22.2$0.1 million in the three and ninesix months ended December 31, 2016, respectively. Grid business unitSeptember 30, 2021 as a result of each of the NEPSI and Neeltran acquired backlog intangible assets. In addition, a fair value purchase adjustment of approximately $0.3 million and $0.6 million for the step-up basis assigned to acquired inventory, to properly reflect the fair value in purchase accounting, was charged to cost of revenues in the three and six months ended September 30, 2021.
Operating Expenses
Research and development
Research and development ("R&D") expense remained relatively flat at $2.7 million in the three months ended December 31, 2017 increased primarilySeptember 30, 2021 and September 30, 2020, respectively. The slight decrease in R&D expense was due to higher D-VAR system revenues. Grid business unit revenuesoverall compensation expense and less allocation of expenses to cost of goods sold for revenue generating projects in the ninethree months ended December 31, 2017September 30, 2020, compared to the three months ended September 30, 2021. Research and development expenses increased primarily9% in the six months ended September 30, 2021 to $5.7 million from $5.2 million in the six months ended September 30, 2020. The increase in R&D expense in the six month period was due to less allocation of expenses to cost of goods sold for revenue generating projects.
Selling, general, and administrative
Selling, general and administrative ("SG&A") expenses increased 14% in the three months ended September 30, 2021, to $6.7 million from $5.9 million in the three months ended September 30, 2020. The increase in SG&A expense in the three months ended September 30, 2021 was due to higher D-VAR system revenues,overall compensation expense due to the additions of NEPSI and Neeltran, as well as higher revenue fromstock compensation expense than in the U.S. Navy.
Three months ended December 31, | Nine months ended December 31, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Inox Wind Limited | 15 | % | 66 | % | 27 | % | 58 | % | |||
Vestas Middle East S.L.U. | 27 | % | — | % | 11 | % | — | % | |||
SSE Generation Ltd. | 17 | % | — | % | <10% | — | % | ||||
Hidalgo Wind Farm LLC | <10% | 17 | % | <10% | <10% |
Amortization of acquisition related intangibles
We recorded amortization expense related to our core technology and know-how, trade namescustomer relationships, and trademarkother intangible assets of less than $0.1$0.6 million and $1.2 million in each of the three and six months ended December 31, 2017September 30, 2021, respectively, and 2016. We recorded amortization expense related to our core technology and know-how, trade names and trademark intangible assets of less than $0.1 million and $0.1$0.2 million in the ninethree and six months ended December 31, 2017September 30, 2020, respectively. The increase in amortization expense is primarily a result of the acquisitions of NEPSI and 2016, respectively.
Change in fair value of contingent consideration
The change in fair value of our contingent consideration for the Make Whole Paymentearnout payment on the ITCNEPSI Acquisition resulted in a lossgain of $0.3$2.4 million and $0.1$2.3 million in the three and ninesix months ended December 31, 2017.September 30, 2021. The change in the fair value was primarily driven by the change in stock price, which is a key valuation metric.
Operating loss
Our operating loss is summarized as follows (in thousands):
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating loss: | |||||||||||||||
Wind | $ | (1,684 | ) | $ | 1,044 | $ | (7,557 | ) | $ | (3,220 | ) | ||||
Grid | (1,011 | ) | (4,491 | ) | (15,279 | ) | (15,068 | ) | |||||||
Unallocated corporate expenses | (1,156 | ) | (613 | ) | (3,514 | ) | (2,266 | ) | |||||||
Total | $ | (3,851 | ) | $ | (4,060 | ) | $ | (26,350 | ) | $ | (20,554 | ) |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Operating Income (loss): | ||||||||||||||||
Grid | $ | (5,836 | ) | $ | (1,374 | ) | $ | (11,180 | ) | $ | (2,562 | ) | ||||
Wind | 205 | (983 | ) | (558 | ) | (2,103 | ) | |||||||||
Unallocated corporate expenses | 1,329 | (849 | ) | (63 | ) | (1,758 | ) | |||||||||
Total | $ | (4,302 | ) | $ | (3,206 | ) | $ | (11,801 | ) | $ | (6,423 | ) |
Our WindGrid business segment generated operating losses of $1.7$5.8 million and $7.6$11.1 million in the three and nine monthssix months ended December 31, 2017, respectively,September 30, 2021, compared to a profit of $1.0$1.4 million and loss of $3.2$2.6 million in the three and ninesix months ended December 31, 2016, respectively.September 30, 2020. The increase in the Wind business unit operating losses in the three months ended December 31, 2017 was due primarily to a lack of ECS shipments to Inox, offset partially by increased license revenue as previously discussed. The increase in the Wind business unit operating loss in the nine months ended December 31, 2017 was due primarily to fewer ECS shipments to Inox, partially offset by increased license revenue, as previously discussed.
Our Wind business segment generated an operating profit of $0.2 million and an operating loss of $0.6 million in the three and six months ended September 30, 2021, compared to the prior year period. The increase in Grid business unit operating loss in the nine months ended December 31, 2017 was due primarily to $4.1 millionlosses of accelerated depreciation related to revised estimates of the useful lives of certain pieces of manufacturing equipment.
Unallocated corporate expenses consist of a gain on contingent consideration of $2.4 million and $2.3 million in the three and ninesix months ended December 31, 2016, respectively.September 30, 2021. Additionally, a restructuring charge of $1.3 million, primarily for severance costs as a result of the restructuring action announced on April 4, 2017, is included in unallocated corporate expenses for the nine months ended December 31, 2017, as well as lossesprimarily consisted of $0.3stock-based compensation expense of $1.1 million and $0.1$0.8 million for the change in fair value of the contingent consideration in the three and nine months ended December 31, 2017, respectively.
Interest income, net, was less than $0.1 million and $0.1 million in the three and ninesix months ended December 31, 2017, respectively,September 30, 2021, compared to gains of $0.1 million and $0.7 million in the three and nine months ended
Other (expense) income, net
Other (expense) income, net was expense of $0.3less than $0.1 million and $2.4other expense, net was less than $0.1 million in the three and ninesix months ended December 31, 2017, respectively,September 30, 2021, compared to incomeother expense, net of $0.9$0.5 million and $0.5$0.6 million in the three and six months ended September 30, 2020. The decrease in other expense during both periods was driven by the impacts of favorable fluctuations in foreign currencies during the respective period.
Income Taxes
Income tax expense was $0.2 million in the three and nine months ended December 31, 2016, respectively. The increaseSeptember 30, 2021 and income tax benefit was $1.9 million in other expense, net, during the three and ninesix months ended December 31, 2017, was primarily driven by higher foreign currency losses.
Net loss
Net loss was $4.4 million and $9.8 million in the three and six months ended September 30, 2021, compared to $3.7 million and $7.1 million in the three and six months ended September 30, 2020. The increase in net loss was driven by lower gross margin and higher operating expenses primarily due to acquisition costs and purchase adjustment recorded as a result ofaccounting adjustments in the ITC Acquisition, for the difference in tax basis on the ITC net assets acquired.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measuremeasures prepared in accordance with GAAP.
We define non-GAAP net loss as net loss before sale of minority investments, stock-based compensation, amortization of acquisition-related intangibles, consumption of zero cost-basis inventory, changeschange in fair value of warrants and contingent consideration, non-cash interest expense, tax effect of adjustments,acquisition costs, and the other non-cash or unusual charges, indicated in the table below.charges. We believe non-GAAP net loss assists management and investors in comparing our performance across reporting periods on a consistent basis by excluding these non-cash or non-recurring charges and other items that we do not believe are indicative of our core operating performance. In addition, we use non-GAAP net loss as a factor to evaluate the effectiveness of our business strategies. A reconciliation of GAAP to non-GAAP net loss is set forth in the table below (in thousands, except per share data):
Three months ended December 31, | Nine months ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net loss | $ | (4,248 | ) | $ | (2,768 | ) | $ | (26,782 | ) | $ | (20,448 | ) | |||
Sale of minority investments | — | (325 | ) | (951 | ) | (325 | ) | ||||||||
Stock-based compensation | 883 | 613 | 2,115 | 2,266 | |||||||||||
Amortization of acquisition-related intangibles | 85 | 39 | 98 | 118 | |||||||||||
Consumption of zero cost-basis inventory | (118 | ) | (478 | ) | (514 | ) | (1,118 | ) | |||||||
Change in fair value of warrants and contingent consideration | (126 | ) | (101 | ) | (1,397 | ) | (667 | ) | |||||||
Non-cash interest expense | — | 30 | 19 | 127 | |||||||||||
Tax effect of adjustments | 19 | 77 | 142 | 179 | |||||||||||
Non-GAAP net loss | $ | (3,505 | ) | $ | (2,913 | ) | $ | (27,270 | ) | $ | (19,868 | ) | |||
Non-GAAP net loss per share | $ | (0.18 | ) | $ | (0.21 | ) | $ | (1.46 | ) | $ | (1.45 | ) | |||
Weighted average shares outstanding - basic and diluted | 19,949 | 13,792 | 18,614 | 13,746 |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net loss | $ | (4,434 | ) | $ | (3,712 | ) | $ | (9,837 | ) | $ | (7,129 | ) | ||||
Stock-based compensation | 1,100 | 849 | 2,393 | 1,758 | ||||||||||||
Amortization of acquisition-related intangibles | 668 | 121 | 1,289 | 242 | ||||||||||||
Change in fair value of contingent consideration | (2,430 | ) | — | (2,330 | ) | — | ||||||||||
Acquisition costs | (7 | ) | — | 681 | — | |||||||||||
Non-GAAP net loss | $ | (5,103 | ) | $ | (2,742 | ) | $ | (7,804 | ) | $ | (5,129 | ) | ||||
Non-GAAP net loss per share - basic | $ | (0.19 | ) | $ | (0.13 | ) | $ | (0.29 | ) | $ | (0.24 | ) | ||||
Weighted average shares outstanding - basic | 27,252 | 21,860 | 27,040 | 21,775 |
We incurred non-GAAP net losses of $3.5$5.1 million and $7.8 million or $0.18 per share,$0.19 and $27.3 million or $1.46$0.29 per share, for the three and ninesix months ended December 31, 2017,September 30, 2021, compared to non-GAAP net losses of $2.9$2.7 million and $5.1 million, or $0.21 per share,$0.13 and $19.9 million or $1.45$0.24 per share, for the three and ninesix months ended December 31, 2016.September 30, 2020. The increasesincrease in the non-GAAP net loss in bothfor the three and nine month period ended December 31, 2017 were driven primarily by an increase in net loss, as previously discussed, and an adjustment for the sale of our minority investment in Blade Dynamics Limited, partially offset by decreased consumption of zero cost basis inventory and the gain resulting from the decreased value of the warrants and contingent consideration on the ITC acquisition in the three and ninesix months ended December 31, 2017.September 30, 2021 was due to a higher operating loss driven by lower gross margin and higher operating expenses.
Liquidity and Capital Resources
We have experienced recurring operating losses, and as of December 31, 2017September 30, 2021, had an accumulated deficit of $982.3 million. In addition, we have experienced recurring negative operating cash flows and our Wind segment revenues decreased substantially in the nine months ended December 31, 2017 compared to the prior year period due to decreased demand from Inox. We cannot predict if and when this demand dislocation will be resolved. From April 1, 2011 through the date of this filing, we have reduced our global workforce substantially, including an 8% reduction in force, primarily affecting employees in our Devens, Massachusetts facility, effective April 4, 2017. We incurred restructuring charges of $1.3 million in cash severance expenses in the nine months ended December 31, 2017 in connection with the workforce reduction. We are currently moving our manufacturing and administrative operations from our facility in Devens, Massachusetts to a nearby, smaller-scale leased building in Ayer, Massachusetts, which is anticipated to reduce operating costs.
Our cash requirements depend on numerous factors, including if and when the Inox demand dislocation is resolved, the successful completion of our product development activities, our ability to commercialize our Resilient Electric Grid (“REG”)REG and ship protection system solutions, the rate of customer and market adoption of our products, collecting receivables according to established terms, and the continued availability of U.S. government funding during the product development phase of our Superconductors-based products.
In February 2021, we filed a shelf registration statement on Form S-3 that will expire in February 2024 (the “Form S-3”). The Form S-3 allows us 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 us flexibility to conduct registered sales of our securities, subject to market conditions, in order to fund our 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.
As described above, on May 6, 2021, we acquired all of the issued and outstanding shares of capital stock of (i) Neeltran and (ii) International, for: (a) $1.0 million in cash, and (b) 301,556 shares of the Company’s common stock, which were paid and issued to the selling stockholders of Neeltran. We also paid $1.1 million to the selling stockholders of International at closing to pay off previous loans made by them to Neeltran.
Also on May 6, 2021, our wholly-owned Connecticut limited liability company, AMSC Husky LLC, purchased the real property that served as Neeltran’s headquarters for $4.3 million, of which (a) $2.4 million was paid in immediately available funds by AMSC Husky to the owners of such real property, and (b) $1.9 million was paid directly to TD Bank as full payment for the outstanding indebtedness secured by the mortgage on such real property. In addition to the amount paid to discharge the mortgage, we paid approximately $5.7 million directly to other Neeltran lenders at closing to extinguish outstanding Neeltran indebtedness to third parties on behalf of the sellers. All cash payments associated with the Neeltran Acquisition were funded with cash on hand.
As of December 31, 2017,September 30, 2021, we had cash, cash equivalents, marketable securities and restricted cash of $22.3$57.0 million, compared to $27.7$80.7 million as of March 31, 2017,2021, a decrease of $5.5$23.7 million. Our cash and cash equivalents, and restricted cash are summarized as follows (in thousands):
December 31, 2017 | March 31, 2017 | ||||||
Cash and cash equivalents | $ | 22,113 | $ | 26,784 | |||
Restricted cash | 165 | 960 | |||||
Total cash, cash equivalents, and restricted cash | $ | 22,278 | $ | 27,744 |
September 30, 2021 | March 31, 2021 | |||||||
Cash and cash equivalents | $ | 48,501 | $ | 67,814 | ||||
Marketable securities | - | 5,140 | ||||||
Restricted cash | 8,488 | 7,725 | ||||||
Total cash, cash equivalents, marketable securities and restricted cash | $ | 56,989 | $ | 80,679 |
For the ninesix months ended December 31, 2017,September 30, 2021, net cash used in operating activities was $20.2$11.7 million, compared to $10.5$6.6 million of cash used for the ninesix months ended December 31, 2016. September 30, 2020. The increase in net cash used in operations was due primarily to anthe overall impact of increased sales activities on operating loss, and less cash collections from Inox, partially offset by usage of inventory.
For the ninesix months ended December 31, 2017,September 30, 2021, net cash used in investing activities was $0.3$6.8 million, compared to net cash provided by investing activities of $0.4$23.7 million for the ninesix months ended December 31, 2016.ended September 30, 2020. The increase in net cash used in investing activities was due primarily to increased purchases of property, plant and equipment relateddue to the Devens facility move, partially offset by proceeds received fromcash that was used to pay for the final payment due from Blade Dynamics as well as releasesNeeltran Acquisition. Additionally the prior year period included $25 million for settlement of restricted casha certificate deposit that was used to fund the acquisition of NEPSI. There was no such transaction in the ninesix months ended December 31, 2017.
For the ninesix months ended December 31, 2017,September 30, 2021, net cash provided by financing activities was $15.2less than $0.1 million compared to net cash used in financing activities of $3.7$0.6 million in the ninesix months ended December 31, 2016.September 30, 2020. The increasedecrease in net cash provided byused in financing activities was due primarily due to net proceeds of $17.0 million froma decrease in the issuance of 4.6 million sharesrepurchase of common stock in May 2017,connection with no such equity offering inemployee tax obligations upon the prior year period. See the discussion regarding the May 2017 equity offering below.
As of December 31, 2017,September 30, 2021, we had $0.2$6.2 million of restricted cash included in long-term assets and $2.3 million of restricted cash included in current assets. These amounts included inof restricted cash primarily represent deposits to secure letters of credit for various supply contracts.contracts and long-term projects, including the irrevocable letter of credit in the amount of $5.0 million to secure certain of our obligations under the Subcontract Agreement with ComEd. These deposits are held in interest bearing accounts.
We believe we have sufficient available liquidity to fund our operations and capital expenditures for the next twelve months. In addition, we may seek to raise additional capital, which could be in the form of loans, convertible debt or equity, to fund our operating requirements and capital expenditures. Our liquidity is highly dependent on our ability to increase revenues, including our ability to collect revenues under our agreements with Inox, control our operating costs, and our ability to raise additional capital, if necessary. There can be no assurance that we will be able to raise additional capital on favorable terms or at all, or execute on any other means of improving our liquidity as described above. Additionally, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to raise additional capital, if necessary, which could negatively impact our liquidity.
Legal Proceedings
We are involved in legal and administrative proceedings and claims of various types. See Part II, Item 1, “Legal Proceedings,” for additional information. We record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. We review these estimates each accounting period as additional information is known and adjust the loss provision when appropriate. If a matter is both probable to result in liability and the amounts of loss can be reasonably estimated, we estimate and disclose the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating transactions that are not required to be reflected on our balance sheet except as discussed below.
We occasionally enter into construction contracts that include a performance bond. As these contracts progress, we continually assess the probability of a payout from the performance bond. Should we determine that such a payout is probable, we would record a liability.
In addition, we have various contractual arrangements inunder which we have committed to purchase minimum quantities of goods or services have been committed to be purchased on an annual basis.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in ASU 2016-13 provide more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.In 2016, the FASB issued the following two ASU's on
We do not believe that, outside of those disclosed here, there are any other recently issued accounting pronouncements that will have a material impact on our consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of Changes in Internal Control over Financial Reporting There were no changes None RISK FACTORS Other than the Our success is dependent upon attracting and retaining qualified personnel and our inability to do so could significantly damage our business and prospects. We have attracted a highly skilled management team and specialized workforce, including scientists, engineers, researchers, manufacturing, personnel, and marketing and sales professionals. Hiring and retaining good personnel for our business is challenging, and highly qualified technical personnel are likely to remain a limited resource for the foreseeable future. We may not be able to hire the necessary personnel to implement our business strategy. In addition, we may need to provide higher compensation or more training to our personnel than we currently anticipate. Moreover, any officer or employee can terminate his or her relationship with us at any time. Losing the services of any of our executive officers or key employees could materially and adversely impact our business. On September 9, 2021, President Biden issued an executive order requiring all employers with U.S. federal government contracts to ensure that their U.S.-based employees, contractors, and subcontractors, that work on or in support of U.S. federal government contracts, are fully vaccinated by December 2021. The executive order only permits limited exceptions for medical and religious reasons. As a U.S. federal government contractor, we are requiring all U.S. based employees at sites that service or support our U.S. federal government contracts to be fully vaccinated. Additional vaccine mandates may be announced in jurisdictions in which our businesses operate. Our implementation of these requirements may result in attrition, including attrition of key personnel and skilled labor, and difficulty securing future labor needs, which could have a material adverse effect on our business, financial condition and results of operations. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company’s stock repurchase activity during the three months ended September 30, 2021 was as follows: Month Total Number Average Total Number of July 1, 2021 - July 31, 2021 Total (a) During the three months ended September 30, 2021, we did not repurchase shares in connection with our stock-based compensation plans. DEFAULTS UPON SENIOR SECURITIES None MINE SAFETY DISCLOSURES Not Applicable OTHER INFORMATION None ITEM 6. EXHIBITS EXHIBIT INDEX Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed/Furnished Herewith 31.1 * 31.2 * 32.1 ** 32.2 ** 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. * 101.SCH Inline XBRL Taxonomy Extension Schema Document. * 101.CAL Inline XBRL Taxonomy Calculation Linkbase Document. * 101.DEF Inline XBRL Definition Linkbase Document. * 101.LAB Inline XBRL Taxonomy Label Linkbase Document. * 101.PRE Inline XBRL Taxonomy Presentation Linkbase Document. * _________________________ * Filed herewith ** Furnished herewith Attached as Exhibits 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet as of Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN SUPERCONDUCTOR CORPORATION By: /s/ John W. Kosiba, Jr. Date: November 8, 2021 John W. Kosiba, Jr. Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |