AMERICAN SUPERCONDUCTOR CORP /DE/ 10-Q

ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, 2024 March 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 72,131 $ 90,522 Accounts receivable, net 40,059 26,325 Inventory, net 70,880 41,857 Prepaid expenses and other current assets 10,806 7,295 Restricted cash 1,201 468 Total current assets 195,077 166,467 Property, plant and equipment, net 38,765 10,861 Intangibles, net 7,329 6,369 Right-of-use assets 3,744 2,557 Goodwill 48,950 43,471 Restricted cash 1,454 1,290 Deferred tax assets 1,201 1,119 Equity-method investments 1,245 — Other assets 683 637 Total assets $ 298,448 $ 232,771 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 25,158 $ 24,235 Lease liability, current portion 555 716 Debt, current portion — 25 Contingent consideration — 3,100 Deferred tax liabilities, current portion 16 — Deferred revenue, current portion 69,356 50,732 Total current liabilities 95,085 78,808 Deferred revenue, long-term portion 11,915 7,097 Lease liability, long-term portion 2,814 1,968 Deferred tax liabilities, long-term portion 1,591 300 Other liabilities 28 27 Total liabilities 111,433 88,200 Commitments and Contingencies (Note 18) Stockholders' equity: Common stock 398 373 Additional paid-in capital 1,253,168 1,212,913 Treasury stock ( 3,765 ) ( 3,639 ) Accumulated other comprehensive income 1,509 1,582 Accumulated deficit ( 1,064,295 ) ( 1,066,658 ) Total stockholders' equity 187,015 144,571 Total liabilities and stockholders' equity $ 298,448 $ 232,771 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements 3 AMERICAN SUPERCONDUCTOR CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended Six Months Ended September 30, September 30, 2024 2023 2024 2023 Revenues $ 54,471 $ 34,004 $ 94,761 $ 64,258 Cost of revenues 38,858 25,418 66,923 49,390 Gross margin 15,613 8,586 27,838 14,868 Operating expenses: Research and development 2,646 1,641 4,931 3,493 Selling, general and administrative 10,525 7,946 19,423 15,815 Amortization of acquisition-related intangibles 433 538 845 1,076 Change in fair value of contingent consideration 2,762 850 6,682 2,200 Restructuring — ( 20 ) — ( 14 ) Total operating expenses 16,366 10,955 31,881 22,570 Operating loss ( 753 ) ( 2,369 ) ( 4,043 ) ( 7,702 ) Interest income, net 979 194 2,099 368 Other expense, net ( 329 ) ( 204 ) ( 489 ) ( 321 ) Loss before income tax expense (benefit) ( 103 ) ( 2,379 ) ( 2,433 ) ( 7,655 ) Income tax (benefit) expense ( 4,990 ) 106 ( 4,796 ) 228 Net income (loss) $ 4,887 $ ( 2,485 ) $ 2,363 $ ( 7,883 ) Net income (loss) per common share Basic $ 0.13 $ ( 0.09 ) $ 0.07 $ ( 0.28 ) Diluted $ 0.13 $ ( 0.09 ) $ 0.06 $ ( 0.28 ) Weighted average number of common shares outstanding Basic 36,952 28,828 36,317 28,545 Diluted 37,499 28,828 36,951 28,545 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 AMERICAN SUPERCONDUCTOR CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Three Months Ended Six Months Ended September 30, September 30, 2024 2023 2024 2023 Net income (loss) $ 4,887 $ ( 2,485 ) $ 2,363 $ ( 7,883 ) Other comprehensive (loss) gain, net of tax: Foreign currency translation (loss) gain ( 88 ) 64 ( 73 ) 62 Total other comprehensive (loss) gain, net of tax ( 88 ) 64 ( 73 ) 62 Comprehensive income (loss) $ 4,799 $ ( 2,421 ) $ 2,290 $ ( 7,821 ) The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 AMERICAN SUPERCONDUCTOR CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE Three and Six Months Ended September 30, 2024 AND 2023 (In thousands) Common Stock Additional Accumulated Other Total Number of Shares Par Value Paid-in Capital Treasury Stock Comprehensive Income (Loss) Accumulated Deficit Stockholders' Equity Balance at March 31, 2024 37,343 $ 373 $ 1,212,913 $ ( 3,639 ) $ 1,582 $ ( 1,066,658 ) $ 144,571 Issuance of common stock – restricted shares 44 1 ( 1 ) — — — — Stock-based compensation expense — — 1,229 — — — 1,229 Issuance of common stock for 401(k) match 12 — 179 — — — 179 Repurchase of treasury stock — — — ( 126 ) — — ( 126 ) Cumulative translation adjustment — — — — 15 — 15 Net loss — — — — — ( 2,524 ) ( 2,524 ) Balance at June 30, 2024 37,399 $ 374 $ 1,214,320 $ ( 3,765 ) $ 1,597 $ ( 1,069,182 ) $ 143,344 Issuance of common stock – ESPP 8 — 157 — — — 157 Issuance of common stock - restricted shares 815 8 ( 8 ) — — — — Stock-based compensation expense — — 843 — — — 843 Issuance of common stock for 401(k) match 7 — 166 — — — 166 Issuance of common stock - Megatran acquisition, net of offering expenses 1,298 13 31,189 — — — 31,202 Issuance of common stock to settle contingent consideration 300 3 6,501 — — — 6,504 Cumulative translation adjustment — — — — ( 88 ) — ( 88 ) Net income — — — — — 4,887 4,887 Balance at September 30, 2024 39,827 $ 398 $ 1,253,168 $ ( 3,765 ) $ 1,509 $ ( 1,064,295 ) $ 187,015 6 Common Stock Additional Accumulated Other Total Number of Shares Par Value Paid-in Capital Treasury Stock Comprehensive Income (Loss) Accumulated Deficit Stockholders' Equity Balance at March 31, 2023 29,937 $ 299 $ 1,139,113 $ ( 3,639 ) $ 1,571 $ ( 1,055,547 ) $ 81,797 Issuance of common stock – restricted shares 699 7 ( 7 ) — — — — Stock-based compensation expense — — 1,357 — — — 1,357 Issuance of common stock for 401(k) match 33 1 163 — — — 164 Cumulative translation adjustment — — — — ( 2 ) — ( 2 ) Net loss — — — — — ( 5,398 ) ( 5,398 ) Balance at June 30, 2023 30,669 $ 307 $ 1,140,626 $ ( 3,639 ) $ 1,569 $ ( 1,060,945 ) $ 77,918 Issuance of common stock – ESPP 21 — 136 — — — 136 Issuance of common stock – restricted shares 9 — — — — — — Stock-based compensation expense — — 1,111 — — — 1,111 Issuance of common stock for 401(k) match 17 — 150 — — — 150 Cumulative translation adjustment — — — — 64 — 64 Net loss — — — — — ( 2,485 ) ( 2,485 ) Balance at September 30, 2023 30,716 $ 307 $ 1,142,023 $ ( 3,639 ) $ 1,633 $ ( 1,063,430 ) $ 76,894 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 7 AMERICAN SUPERCONDUCTOR CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six Months Ended September 30, 2024 2023 Cash flows from operating activities: Net income (loss) $ 2,363 $ ( 7,883 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: Depreciation and amortization 2,395 2,234 Stock-based compensation expense 2,072 2,468 Provision for excess and obsolete inventory 780 1,070 Amortization of operating lease right-of-use assets 546 122 Deferred income taxes ( 5,165 ) — Change in fair value of contingent consideration 6,682 2,200 Other non-cash items ( 15 ) 273 Changes in operating asset and liability accounts: Accounts receivable 2,538 3,152 Inventory ( 6,672 ) ( 11,935 ) Prepaid expenses and other assets ( 2,082 ) 8,015 Operating leases ( 1,048 ) ( 123 ) Accounts payable and accrued expenses ( 4,455 ) ( 9,399 ) Deferred revenue 18,182 8,458 Net cash provided by (used in) operating activities 16,121 ( 1,348 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 852 ) ( 430 ) Cash paid to settle Megatran contingent consideration liability ( 3,278 ) — Cash paid for Megatran Acquisition, net of cash acquired ( 29,577 ) — Change in other assets 218 ( 10 ) Net cash used in investing activities ( 33,489 ) ( 440 ) Cash flows from financing activities: Repurchase of treasury stock ( 126 ) — Repayment of debt ( 25 ) ( 33 ) Cash paid related to registration of common stock shares ( 148 ) — Proceeds from exercise of employee stock options and ESPP 157 136 Net cash (used in) provided by financing activities ( 142 ) 103 Effect of exchange rate changes on cash 16 ( 10 ) Net decrease in cash, cash equivalents and restricted cash ( 17,494 ) ( 1,695 ) Cash, cash equivalents and restricted cash at beginning of period 92,280 25,675 Cash, cash equivalents and restricted cash at end of period $ 74,786 $ 23,980 Supplemental schedule of cash flow information: Cash paid for income taxes, net of refunds $ 248 $ 171 Non-cash investing and financing activities Issuance of common stock in connection with the purchase of Megatran $ 31,350 $ — Issuance of common stock to settle contingent consideration $ 6,504 $ — Right-of-use assets obtained in exchange for new lease obligations $ — $ 242 Issuance of common stock to settle 401k match liabilities $ 345 $ 313 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 8 AMERICAN SUPERCONDUCTOR CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Operations and Liquidity Nature of the Business and Operations American Superconductor Corporation (together with its subsidiaries, “AMSC®” or the “Company”) was founded on April 9, 1987. The Company is a leading system provider of megawatt-scale power resiliency solutions that orchestrate the rhythm and harmony of power on the grid™ and protect and expand the capability of the Navy’s fleet. The Company’s system level products leverage its proprietary “smart materials” and “smart software and controls” to provide enhanced resiliency and improved performance of megawatt-scale power flow. These unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with United States generally accepted accounting principles (“GAAP”) and the Securities and Exchange Commission’s (“SEC”) instructions to Form 10 -Q. Certain prior period amounts were reclassified to conform to the presentation in the current period. 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 condensed consolidated financial statements prepared in accordance with GAAP have been or omitted pursuant to those instructions. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods ended September 30, 2024 and 2023 and the financial position at September 30, 2024 ; 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 condensed consolidated financial statements for the year ended March 31, 2024 , and notes thereto, included in the Company’s Annual Report on Form 10 -K for the year ended March 31, 2024 filed with the SEC on May 29, 2024 . Liquidity The Company has historically experienced recurring operating losses and as of September 30, 2024 , the Company had an accumulated deficit of $ 1,064.3 million. In addition, the Company has historically experienced recurring negative operating cash flows. At September 30, 2024 , the Company had cash and cash equivalents of $ 72.1 million. Cash provided by operations for the six months ended September 30, 2024 was $ 16.1 million. In January 2024, the Company filed a shelf registration statement on Form S- 3 that will expire three years from the date on which it was declared effective, March 15, 2027 ( the “First Form S- 3” ). The First Form S- 3 allows the Company to offer and sell from time-to-time up to $ 250 million of common stock, debt securities, warrants or units comprised of any combination of these securities, with $ 250 million available for future offerings as of September 30, 2024 . The First Form S- 3 is intended to provide the Company flexibility to conduct registered sales of its securities, subject to market conditions, in order to fund its future capital needs. The terms of any future offering under the First 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. On January 31, 2024, the Company entered into an underwriting agreement with Oppenheimer & Co. Inc., as a representative of the several underwriters named therein, relating to the issuance and sale (the "2024 Offering") of 6,210,000 shares of the Company's common stock at a public offering price of $ 11.25 per share. The net proceeds to the Company from the 2024 Offering were approximately $ 65.2 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. The 2024 Offering closed on February 14, 2024. On August 1, 2024 (the "Acquisition Date"), the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with the selling stockholders named therein. Pursuant to the terms of the Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding shares of Megatran Industries, Inc. ("Megatran") (the "Acquisition"), for aggregate consideration in an amount equal to $ 61.4 million (the “Purchase Price”), which consideration amount was subject to various adjustments set forth in the Stock Purchase Agreement (including those described below) and consisted of: (a) (i) $ 25.0 million, minus (ii) the Indebtedness (as defined in the Stock Purchase Agreement) outstanding as of immediately prior to the closing, minus (iii) Company Expenses (as defined in the Stock Purchase Agreement) (collectively, the “Cash Purchase Price”); (b) a number of restricted shares (rounded up or down to the nearest whole share, as applicable) (the “Company Shares”) of the Company’s common stock, $. 01 par value per share (“Common Stock”) equal to the quotient obtained by dividing ( x ) $ 31.4 million (the “Share Purchase Price”) by (y) the closing price per share of Common Stock on the Nasdaq Global Select Market on the last trading day immediately preceding the Closing Date; and (c) an additional cash payment equal to $ 5.0 million, as adjusted pursuant to Sections 5.6 (c), (d), and (f) of the Stock Purchase Agreement (the “Additional Cash Purchase Price”). Megatran is now a wholly-owned subsidiary of the Company and, together with its wholly-owned subsidiaries and affiliates, is operated and reported as a component of its Grid business unit. On September 23, 2024, the Company paid $ 3.3 million to the selling stockholders, which was calculated based on the agreed upon formula set forth in the Stock Purchase Agreement. This amount is reflected as the change in fair value of this contingent consideration in the three and six months ended September 30, 2024. As of September 30, 2024, there are no remaining obligations to the selling stockholders of Megatran. In August 2024, the Company filed an automatically-effective shelf registration statement on Form S- 3 that will expire no later than August 12, 2027 ( the “Second Form S- 3” ). The Second Form S- 3 allows the Company to offer and sell from time-to-time unspecified amounts of common stock, debt securities, warrants or units comprised of any combination of these securities and allows certain selling stockholders to offer and sell from time-to-time common stock. The Second Form S- 3 is intended to assist the selling stockholders in the resale of their common stock and to provide the Company flexibility to conduct registered sales of its securities, subject to market conditions, in order to fund its future capital needs. The terms of any future offering under the Second 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. In recent periods, the Company has experienced inflationary pressure in its supply chain and some delays in sourcing materials needed for its products resulting in some production disruption, both of which have increased the Company’s cost of revenues and decreased gross margin. While the impact of inflation has been challenging, the Company has taken actions to limit this pressure, including adjusting the pricing of its products and services. Changes in macroeconomic conditions arising from various reasons, such as the ongoing wars between Russia and Ukraine and Israel and Hamas, inflation, rising interest rates, labor force availability, sourcing, material delays and global supply chain disruptions could have a material adverse effect on the Company’s business, financial condition and results of operations. 9 The Company believes that based on the information presented above and its quarterly management assessment, it has sufficient liquidity to fund its operations and capital expenditures for the next twelve months following the issuance of the unaudited condensed consolidated financial statements for the six months ended September 30, 2024 . The Company’s liquidity is highly dependent on its ability to increase revenues, its ability to control its operating costs, and its ability to raise additional capital, if necessary. The impact of global sources of instability, including the wars between Russia and Ukraine and Israel and Hamas, on the global financing markets may reduce the Company's ability to raise additional capital, if necessary, which could negatively impact the Company's liquidity. There can be no assurance that the Company will be able to continue to raise additional capital, on favorable terms or at all, from other sources or execute on any other means of improving liquidity described above. 2. Acquisition Acquisition of Megatran As described in Note 1, Nature of the Business and Operations and Liquidity, on the Acquisition Date, the Company acquired all of the issued and outstanding shares of capital stock of Megatran. Megatran's wholly-owned subsidiary, NWL, Inc. ("NWL"), is a U.S.-based global provider of engineered power conversion solutions for demanding industrial and military applications. Pursuant to the Stock Purchase Agreement, the Company acquired all of the issued and outstanding shares of Megatran, for aggregate consideration in an amount equal to $ 61.4 million, which consideration amount was subject to various adjustments set forth in the Stock Purchase Agreement (including those described below) and consisted of: (a) (i) $ 25.0 million, minus (ii) the Indebtedness (as defined in the Stock Purchase Agreement) outstanding as of immediately prior to the closing, minus (iii) Company Expenses (as defined in the Stock Purchase Agreement); (b) a number of restricted shares (rounded up or down to the nearest whole share, as applicable) of Common Stock equal to the quotient obtained by dividing ( x ) $ 31.4 million by (y) the closing price per share of Common Stock on the Nasdaq Global Select Market on the last trading day immediately preceding the Closing Date; and (c) an additional cash payment equal to $ 5.0 million, as adjusted pursuant to Sections 5.6 (c), (d), and (f) of the Stock Purchase Agreement. Megatran is now a wholly-owned subsidiary of the Company and, together with its wholly-owned subsidiaries and affiliates, is operated and reported as a component of its Grid business unit. On September 23, 2024, the Company paid $ 3.3 million to the selling stockholders, which was calculated based on the agreed upon formula set forth in the Stock Purchase Agreement. This amount is reflected as the change in fair value of this contingent consideration in the three and six months ended September 30, 2024. As of September 30, 2024, there are no remaining obligations to the selling stockholders of Megatran. The Acquisition 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 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. The total purchase price of approximately $ 61.4 million includes the fair value of shares of the Company’s common stock issued at closing, and cash paid, as follows (in millions): Cash payments $ 30.0 Issuance of 1,297,600 shares of Company’s Common Stock $ 31.4 At the Acquisition Date, in addition to the $ 30.0 million cash, the Company valued the Company’s common stock, using $ 24.16 per share, which was the closing price on the day prior to the day that the Company acquired Megatran. Acquisition costs of $ 0.9 million and $ 1.1 million were included in s elling, general and administrative ("SG&A") for the three and six months ended September 30, 2024, respectively. 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 Acquisition (in millions): Cash and cash equivalents $ 0.4 Equity-method investments 1.2 Prepaid expenses and other current assets 1.7 Accounts receivable 16.1 Inventory 23.1 Property, plant, and equipment 28.4 Accounts payable and accrued expenses ( 5.6 ) Deferred revenue ( 5.0 ) Deferred tax liability ( 6.4 ) Net tangible assets/(liabilities) 53.9 Backlog 0.7 Customer relationships 1.3 Net identifiable intangible assets 2.0 Goodwill 5.5 Total purchase consideration $ 61.4 The fair value of the financial assets acquired includes receivables with a fair value of $ 16.1 million. The gross amount due is $ 16.9 million, of which $ 0.8 million is expected to be uncollectible. Inventory includes a $ 0.7 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 inventory step up adjustment increased cost of revenue $ 0.3 million in the three month period ended September 30, 2024 as the inventory was sold. Backlog of $ 0.7 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 an eight -month period with the expense being allocated to cost of revenues. Customer relationships of $ 1.3 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 straight line over 10 years, as the results were not materially different from the economic consumption method, with the expense being allocated to SG&A. 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 Acquisition was assigned to the Company’s Grid segment. Goodwill recognized in the 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 August 1, 2024. Material changes, if any, to the preliminary allocation summarized above will be reported once the related uncertainties are resolved, but no later than August 1, 2025. The $ 6.4 million of deferred tax liability is primarily related to basis difference of property, plant, and equipment. Unaudited Pro Forma Operating Results The unaudited pro forma condensed consolidated statement of operations for the three and six months ended September 30, 2024 and 2023 presented as if the Acquisition had occurred on April 1, 2024 and 2023, respectively, is as follows: Three Months Ended September 30, Six Months Ended September 30, 2024 2023 2024 2023 Net Revenue $ 58,722 $ 50,929 $ 118,032 $ 99,915 Operating income (loss) 81 ( 1,783 ) ( 4,079 ) ( 7,193 ) Net income (loss) $ 635 $ ( 311 ) $ ( 2,748 ) $ ( 633 ) Net income (loss) per common share Basic $ 0.02 $ ( 0.01 ) $ ( 0.07 ) $ ( 0.02 ) Diluted $ 0.02 $ ( 0.01 ) $ ( 0.07 ) $ ( 0.02 ) Shares - basic 37,404 30,126 37,189 29,843 Shares - diluted 37,950 30,126 37,189 29,843 The pro forma amounts include the historical operating results of the Company and Megatran with appropriate adjustments that give effect to acquisition related costs, income taxes, intangible amortization resulting from the Acquisition and certain conforming accounting policies of the Company. The pro forma amounts are not necessarily indicative of the operating results that would have occurred if the Acquisition and related transactions had been completed at the beginning of the applicable periods presented. In addition, the pro forma amounts are not necessarily indicative of operating results in future periods. In the unaudited consolidated results for the three and six months ended September 30, 2024, Megatran’s operations are included in the Company’s consolidated results from the date of Acquisition of August 1, 2024. Megatran contributed $ 14.3 million of revenue and $ 2.1 million in net income for the Company for the three and six month periods ended September 30, 2024. Amortization expense of $ 0.2 million is included in the three and six months ended September 30, 2024, as a result of the Megatran acquired intangible assets. In addition, $ 0.3 million for the step-up basis assigned to acquired inventory was charged to cost of revenues in the three and six months ended September 30, 2024. 3. Revenue Recognition The Company’s revenues in its Grid 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 segment are derived primarily through supplying advanced power electronics and control systems, licensing its highly engineered wind turbine designs, and providing extensive customer support services to wind turbine manufacturers. The Company records revenue based on a five -step model in accordance with Accounting Standards Codification ("ASC") 606. For its customer contracts, the Company identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) control of goods or services is transferred to the customer. For the three and six months ended September 30, 2024 , 90 % and 89 % of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time. For the three and six months ended September 30, 2023 , 79 % and 78 % of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time. In the Company's equipment and system product line, each contract with a customer summarizes each product sold to a customer, which typically represents distinct performance obligations. A contract's transaction price is allocated to each distinct performance obligation using the respective standalone selling price which is determined primarily using the cost-plus expected margin approach and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s product sales transfer control to the customer in line with the contracted delivery terms and revenue is recorded at the point in time when title and risk transfer to the customer, which is primarily upon delivery, as the Company has determined that this is the point in time that control transfers to the customer. In the Company's service and technology development product line, there are several different types of transactions and each begins with a contract with a customer that summarizes each product sold to a customer, which typically represents distinct performance obligations. The technology development transactions are primarily for activities that have no alternative use and for which a profit can be expected throughout the life of the contract. In these cases, the revenue is recognized over time, but in the instances where the profit cannot be assured throughout the entire contract then the revenue is recognized at a point in time. Each contract's transaction price is allocated to each distinct performance obligation using the respective standalone selling price which is determined primarily using the cost-plus expected margin approach. The ongoing service transactions are for service contracts that provide benefit to the customer simultaneously as the Company performs its obligations, and therefore this revenue is recognized ratably over time throughout the effective period of these contracts. The transaction prices on these contracts are allocated based on an adjusted market approach which is re-assessed annually for reasonableness. The field service transactions include contracts for delivery of goods and completion of services made at the customer's requests, which are not deemed satisfied until the work has been completed and/or the requested goods have been delivered, so all of this revenue is recognized at the point in time when the control changes, and at allocated prices based on the adjusted market approach driven by standard price lists. The royalty transactions are related to certain contract terms on transactions in the Company's equipment and systems product line based on activity as specified in the contracts. The transaction prices of these agreements are calculated based on an adjusted market approach as specified in the contract. The Company reports royalty revenue for usage-based royalties when the sales have occurred. In circumstances when collectability is not assured and a contract does not exist under ASC 606, revenue is deferred until a non-refundable payment has been received for substantially all the amount that is due and there are no further remaining performance obligations. 10 The Company's service contracts can include a purchase order from a customer for specific goods in which each item is a distinct performance obligation satisfied at a point in time at which control of the goods is transferred to the customer. This transfer occurs based on the contracted delivery terms or when the requested service work has been completed. The transaction price for these goods is allocated based on the adjusted market approach considering similar transactions under similar circumstances. Service contracts are also derived from ongoing maintenance contracts and extended service-type warranty contracts. In these transactions, the Company is contracted to provide an ongoing service over a specified period of time. As the customer is consuming the benefits as the service is being provided, the revenue is recognized over time ratably. The Company’s policy is not to accept volume discounts, product returns, or rebates and allowances within its contracts. In the event a contract was approved with any of these terms, it would be evaluated for variable consideration, estimated and recorded as a reduction of revenue in the same period the related product revenue was recorded. The Company provides assurance-type warranties on all product sales for a term of typically one to three years, and extended service-type warranties are available for purchase at the customer's option for an additional term ranging up to four additional years. The Company accrues for the estimated warranty costs for assurance warranties at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. For all extended service-type warranties, the Company recognizes the revenue ratably over time during the effective period of the services. The Company records revenue net of sales tax, value added tax, excise tax and other taxes collected concurrent with revenue-producing activities. The Company has elected to recognize the cost for freight and shipping when control over the products sold passes to customers and revenue is recognized. The Company has elected to recognize incremental costs of obtaining a contract as expense when incurred except in contracts where the amortization period would exceed twelve months. As of September 30, 2024 and March 31, 2024 , the Company's capitalized incremental contract costs were not material. The Company has elected not to adjust the promised amount of consideration for the effects of a significant financing component if the period of financing is twelve months or less. The Company has elected to recognize revenue based on the as invoiced practical expedient if there is a right to consideration from a customer in an amount that corresponds directly with the value of the Company's performance. The Company’s contracts with customers do not typically include extended payment terms and may include milestone billing over the life of the contract. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from delivery. 11 The following tables disaggregate the Company’s revenue by product line and by shipment destination (in thousands): Three Months Ended September 30, 2024 Six Months Ended September 30, 2024 Product Line: Grid Wind Grid Wind Equipment and systems $ 43,747 $ 7,166 $ 74,452 $ 14,591 Services and technology development 3,189 369 4,820 898 Total $ 46,936 $ 7,535 $ 79,272 $ 15,489 Region: Americas $ 43,479 $ 1 $ 73,957 $ 1 Asia Pacific 790 7,531 1,989 15,483 EMEA 2,667 3 3,326 5 Total $ 46,936 $ 7,535 $ 79,272 $ 15,489 Three Months Ended September 30, 2023 Six Months Ended September 30, 2023 Product Line: Grid Wind Grid Wind Equipment and systems $ 22,682 $ 4,879 $ 45,808 $ 8,862 Services and technology development 5,833 610 8,443 1,145 Total $ 28,515 $ 5,489 $ 54,251 $ 10,007 Region: Americas $ 24,696 $ 27 $ 47,856 $ 57 Asia Pacific 3,418 5,462 5,129 9,928 EMEA 401 - 1,266 22 Total $ 28,515 $ 5,489 $ 54,251 $ 10,007 As of September 30, 2024 and 2023 , 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, 2024 $ 6,150 $ 2,523 $ 57,829 Increase for balance acquired — — 5,049 Increases for costs incurred to fulfill performance obligations — 4,866 — Increase (decrease) due to customer billings ( 6,241 ) — 70,133 Decrease due to cost recognition on completed performance obligations — ( 2,553 ) — Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations 4,607 — ( 52,084 ) Other changes and FX impact 7 12 344 Ending balance as of September 30, 2024 $ 4,523 $ 4,848 $ 81,271 Unbilled Accounts Receivable Deferred Program Costs Contract Liabilities Beginning balance as of March 31, 2023 $ 9,958 $ 2,136 $ 50,760 Increases for costs incurred to fulfill performance obligations — 2,110 — Increase (decrease) due to customer billings ( 13,981 ) — 34,284 Decrease due to cost recognition on completed performance obligations — ( 2,160 ) — Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations 10,351 — ( 25,710 ) Other changes and FX impact 7 ( 11 ) ( 288 ) Ending balance as of September 30, 2023 $ 6,335 $ 2,075 $ 59,046 12 The Company’s remaining performance obligations represent the unrecognized revenue value of the Company’s contractual commitments. The Company’s performance obligations may vary significantly each reporting period based on the timing of major new contractual commitments. As of September 30, 2024 , the Company had outstanding performance obligations on existing contracts under ASC 606 to be recognized in the next twelve months of approximately $ 205.0 million . There are also approximately $ 102.3 m illion o f outstanding performance obligations to be recognized over a period of thirteen to sixty months. The remaining performance obligations are subject to customer actions and therefore the timing of revenue recognition cannot be reasonably estimated. The following table sets forth customers who represented 10% or more of the Company’s total revenues for the three and six months ended September 30, 2024 and 2023 : Three Months Ended Six Months Ended Reportable September 30, September 30, Segment 2024 2023 2024 2023 Inox Wind Limited Wind 12 % 12 % 14 % 12 % Gray Construction, Inc. Grid <10% 11 % <10% <10% 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 six months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, Six Months Ended September 30, 2024 2023 2024 2023 Cost of revenues $ 39 $ 59 $ 97 $ 169 Research and development 113 156 256 311 Selling, general and administrative 691 896 1,719 1,988 Total $ 843 $ 1,111 $ 2,072 $ 2,468 The Company issued 817,500 shares and 842,500 shares of restricted stock during the three and six months ended September 30, 2024 , respectively. The Company issued no shares and 19,200 shares of immediately vested common stock during the three and six months ended September 30, 2024 , respectively. The Company issued 9,000 shares and 681,500 shares of restricted stock during the three and six months ended September 30, 2023 , respectively. No shares of immediately vested common stock were issued during the three months ended September 30, 2023 and 53,675 shares of immediately vested common stock during the six months ended September 30, 2023 . These restricted stock awards generally vest over 2 - 3 years. Awards for restricted stock include both time-based and performance-based awards. For options and restricted stock awards that vest upon the passage of time, expense is being recorded over the vesting period. Performance-based awards are expensed over the requisite service period based on probability of achievement. The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. There were no unrecognized compensation costs for unvested stock options as of September 30, 2024 . The total unrecognized compensation cost for unvested outstanding restricted stock was $ 17.8 mi llion as of September 30, 2024 . This expense will be recognized over a weighted-average expense period of approximately 1.8 years. 13 The Company granted no stock options during the three and six months ended September 30, 2024 and 2023 . 5. Computation of Net Income (Loss) per Common Share Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Where applicable, diluted EPS is computed by dividing the net income by the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period, calculated using the treasury stock method. Common equivalent shares include the effect of restricted stock, exercise of stock options and warrants and contingently issuable shares. Stock options and warrants that are out-of-the-money with exercise prices greater than the average market price of the underlying common shares and shares of performance-based restricted stock where the contingency was not met are excluded from the computation of diluted EPS as the effect of their inclusion would be anti-dilutive. For the three months ended September 30, 2024 , 535,001 shares were not included in the calculation of diluted EPS. Of these, 526,333 were shares of performance-based restricted stock where the contingency was not met. Of the remaining shares, 652 shares relate to outstanding stock awards that were considered anti-dilutive, and 8,016 shares related to ESPP shares and were excluded as they were considered anti-dilutive. For the six months ended September 30, 2024 , 479,341 shares were not included in the calculation of diluted EPS. Of these, 469,667 were shares of performance-based restricted stock where the contingency was not met. Of the remaining shares, 326 shares relate to outstanding stock awards that were considered anti-dilutive, and 9,348 shares related to ESPP shares and were excluded as they were considered anti-dilutive. For each of the three and six months ended September 30, 2023 , 1,036,206 shares were not included in the calculation of diluted EPS. Of these, 1,000,000 relate to shares associated with the contingent consideration derivative liability for which the contingency has not yet been met, and 36,206 relate to outstanding stock options as they were considered anti-dilutive . The following table reconciles the numerators and denominators of the earnings per share calculation for the three and six months ended September 30, 2024 and 2023 (in thousands, except per share data): Three Months Ended September 30, Six Months Ended September 30, 2024 2023 2024 2023 Numerator: Net income (loss) $ 4,887 $ ( 2,485 ) $ 2,363 $ ( 7,883 ) Denominator: Weighted-average shares of common stock outstanding 37,931 30,283 37,463 29,996 Weighted-average shares subject to repurchase ( 979 ) ( 1,455 ) ( 1,146 ) ( 1,451 ) Shares used in per-share calculation ― basic 36,952 28,828 36,317 28,545 Shares used in per-share calculation ― diluted 37,499 28,828 36,951 28,545 Net income (loss) per share ― basic $ 0.13 $ ( 0.09 ) $ 0.07 $ ( 0.28 ) Net income (loss) per share ― diluted $ 0.13 $ ( 0.09 ) $ 0.06 $ ( 0.28 ) 6. Goodwill and Other Intangibles Goodwill Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized but reviewed for impairment. The Company's goodwill balance relates to the Megatran Acquisition in fiscal 2024, the Neeltran acquisition in fiscal 2021 , the Northeast Power Systems, Inc. ("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 reviewed annually on February 28th and whenever events or changes in circumstances indicate that the carrying value of the goodwill might not be recoverable. There were no changes to goodwill during the year ended March 31, 2024. 14 Goodwill March 31, 2024 $ 43,471 Megatran Acquisition 5,479 September 30, 2024 $ 48,950 The Company did not record impairment in the three and six months ended September 30, 2024 that would require interim impairment testing of goodwill. Other Intangibles Intangible assets at September 30, 2024 and March 31, 2024 consisted of the following (in thousands): September 30, 2024 March 31, 2024 Gross Amount Accumulated Amortization Net Book Value Gross Amount Accumulated Amortization Net Book Value Estimated Useful Life Backlog 1,381 ( 856 ) 525 681 ( 681 ) — 2 Trade name and trademarks 1,800 — 1,800 1,800 — 1,800 Indefinite Customer relationships 10,880 ( 7,253 ) 3,627 9,600 ( 6,649 ) 2,951 7 - 10 Core technology and know-how 5,970 ( 4,593 ) 1,377 5,970 ( 4,352 ) 1,618 5 - 10 Intangible assets $ 20,031 $ ( 12,702 ) $ 7,329 $ 18,051 $ ( 11,682 ) $ 6,369 The Company recorded intangible amortization expense related to customer relationship and core technology and know-how of $ 0.4 million and $ 0.8 million in the three and six months ended September 30, 2024 , respectively. The Company recorded intangible amortization expense related to customer relationship and core technology and know-how of $ 0.5 million and $ 1.1 million in the three and six months ended September 30, 2023 , respectively. The Company recorded $ 0.2 million of intangible amortization in cost of revenue related to backlog during both the three and six months ended September 30, 2024 . The Company recorded no amortization expense related to backlog during the three months ended September 30, 2023 and less than $ 0.1 million related to backlog was reported in cost of revenues during the six months ended September 30, 2023 . Expected future amortization expense related to intangible assets is as follows (in thousands): Years ending March 31, Total 2025 1,413 2026 1,349 2027 1,213 2028 671 2029 201 Thereafter 682 Total $ 5,529 The Company's intangible assets relate entirely to the Grid business segment operations in the United States. 15 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, Level 2 or Level 3 of the fair value measurement hierarchy during the six months ended September 30, 2024 . 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 and are measured using such inputs as quoted prices and are classified within Level 1 of the valuation hierarchy. Cash equivalents consist principally of certificates of deposits and money market accounts. Contingent Consideration Contingent consideration related to the earnout payment set forth in the NEPSI Stock Purchase Agreement governing the acquisition of NEPSI provided that the selling stockholders may have received 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 which must have occurred by September 30, 2024. Contingent consideration related to the make whole payment set forth in the Megatran Stock Purchase Agreement provided that the selling stockholders would be made whole for any costs or taxes as a result of the orderly distribution process. See Note 15 , "Contingent Consideration" for further discussion. As of September 30, 2024, the Company has settled all outstanding contingent consideration. 16 The following table provides the assets and liabilities carried at fair value on a recurring basis, measured as of September 30, 2024 and March 31, 2024 (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, 2024: Assets: Cash equivalents $ 41,731 $ 41,731 $ — $ — Total Carrying Value Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024 Assets: Cash equivalents $ 72,832 $ 72,832 $ — $ — Derivative liabilities: Contingent consideration $ 3,100 $ — $ — $ 3,100 The table below reflects the activity for the Company’s contingent consideration derivative liability measured at fair value on a recurring basis (in thousands): NEPSI Acquisition Contingent Consideration Megatran Acquisition Contingent Consideration Balance at March 31, 2023 $ 1,270 $ — Change in fair value 4,922 — Settlement of contingent consideration ( 3,092 ) — Balance at March 31, 2024 3,100 — Change in fair value 3,404 3,278 Settlement of contingent consideration ( 6,504 ) ( 3,278 ) Balance at September 30, 2024 $ — $ — 8. Accounts Receivable Accounts receivable at September 30, 2024 and March 31, 2024 consisted of the following (in thousands): September 30, 2024 March 31, 2024 Accounts receivable (billed) 35,536 $ 20,175 Accounts receivable (unbilled) 4,523 6,150 Accounts receivable $ 40,059 $ 26,325 17 9. Inventory Inventory, net of reserves, at September 30, 2024 and March 31, 2024 consisted of the following (in thousands): September 30, 2024 March 31, 2024 Raw materials $ 37,336 $ 20,622 Work-in-process 23,819 14,872 Finished goods 4,877 3,840 Deferred program costs 4,848 2,523 Net inventory $ 70,880 $ 41,857 The Company recorded inventory write-downs of $ 0.3 million and $ 0.7 million f or the three months ended September 30, 2024 and 2023 , respectively. The Company recorded inventory write-downs of $ 0.8 million and $ 1.1 million f or the six months ended September 30, 2024 and 2023 , respectively. These write-downs were based on the Company's evaluation of its inventory on hand for excess quantities and obsolescence. Deferred program costs as of September 30, 2024 and March 31, 2024 primarily represent costs incurred on programs where the Company needs to complete performance obligations before the related revenue and costs will be recognized. 10. Prepaid and Other Current Assets During fiscal 2022, the Company conducted an analysis as to whether it was entitled to employee retention credits (“ERC”) under the CARES Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021. Based on the analysis, the Company determined that it was entitled to an ERC of approximately $ 3.3 million related to payroll taxes paid in the first and second quarters of 2021 and the first quarter of 2020. The Company determined it met all the criteria required under the gross receipts test of the applicable Internal Revenue Service regulations related to ERCs. As accounting for payroll tax credits are not within the scope of ASC 740, Income Taxes , the Company has chosen to account for the ERCs by analogizing to the International Accounting Standards Board IAS 20, Accounting for Government Grants and Disclosure of Government Assistance . In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. The Company evaluated its eligibility for the ERC and determined that it met all the criteria to claim a refundable tax credit against the employer portion of Social Security taxes for up to 70 % of the qualified wages the Company paid to employees for the three month periods ended March 31, 2021 and June 30, 2021 and for up to 50 % of the qualified wages the Company paid to employees for the three month period ended March 31, 2020. The Company recorded a $ 3.3 million receivable in prepaid expenses and other current assets and a benefit of $ 1.8 million to cost of revenues, $ 0.8 million to selling, general, and administrative and $ 0.7 million to research and development in the fiscal year ended March 31, 2023 for the ERC that was expected to be received based on the amended filings. During the year ended March 31, 2024, the Company received $ 3.0 million for the initial claims that were processed. During the six months ended September 30, 2024 , the Company did not receive any cash for the remaining $ 0.3 million balance of initial claims that were processed. The remaining balance is expected to be received during the remainder of fiscal 2024. 18 11. Property, Plant and Equipment The cost and accumulated depreciation of property, plant and equipment at September 30, 2024 and March 31, 2024 are as follows (in thousands): September 30, 2024 March 31, 2024 Land $ 22,650 $ 980 Construction in progress – equipment 851 226 Buildings 7,445 5,416 Equipment and software 47,766 44,095 Furniture and fixtures 1,635 1,526 Leasehold improvements 7,813 6,990 Property, plant and equipment, gross 88,160 59,233 Less accumulated depreciation ( 49,395 ) ( 48,372 ) Property, plant and equipment, net $ 38,765 $ 10,861 Depreciation expense was $ 0.8 million and $ 0.6 million for the three months ended September 30, 2024 and 2023 , respectively. Depreciation expense was $ 1.4 million and $ 1.2 million for the six months ended September 30, 2024 and 2023 , respectively. The increase in land relates to the property added as part of the Megatran Acquisition. 12. Equity-Method Investments Investment in NWL Pacific Inc. Co., LTD The Company has a 50 % ownership in NWL Pacific Inc. Co., LTD ("NWL Pacific"). The investment represents the Company's interest in NWL Pacific. The investment is a joint venture in South Korea established on May 12, 1998. The Company treats the equity investment in the condensed consolidated financial statements under the equity method. Equity method investments are equity securities in entities the Company does not control but over which it has the ability to exercise significant influence. These investments are accounted for under the equity method of accounting in accordance with ASC 323, Investments — Equity Method and Joint Ventures . Equity method investments are measured at cost minus impairment, if any, plus or minus the Company’s share of an investee’s income or loss, less distributions received. As of September 30, 2024 the Company did not have material accounts receivable nor accounts payable balances with NWL Pacific. The tables below present the summarized financial information from the date of acquisition through September 30, 2024 , as provided to the Company by the investee, for the unconsolidated company (in thousands): 2024 Net Revenue $ 857 Gross Profit 308 Income from operation 157 Net income $ 148 13. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses at September 30, 2024 and March 31, 2024 consisted of the following (in thousands): September 30, 2024 March 31, 2024 Accounts payable $ 3,831 $ 4,476 Accrued inventories in-transit 2,587 539 Accrued other miscellaneous expenses 3,983 2,366 Accrued contract loss 97 97 Advanced deposits 1,540 2,270 Accrued compensation 8,293 10,326 Income taxes payable 220 346 Accrued product warranty 3,110 2,363 Accrued commissions 1,497 1,452 Total $ 25,158 $ 24,235 The Company generally provides a one to three year warranty on its products, commencing upon delivery or installation where applicable. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. 19 Product warranty activity was as follows (in thousands): Three Months Ended September 30, Six Months Ended September 30, 2024 2023 2024 2023 Balance at beginning of period $ 2,542 $ 1,926 $ 2,363 $ 2,638 Acquired warranty obligations 637 — 637 — Provisions for warranties during the period 298 644 774 852 Settlements during the period ( 367 ) ( 678 ) ( 664 ) ( 1,598 ) Balance at end of period $ 3,110 $ 1,892 $ 3,110 $ 1,892 14. Income Taxes The Company recorded income tax benefit of $ 5.0 million and $ 4.8 million in the three and six months ended September 30, 2024 , respectively, and income tax expense of $ 0.1 million and $ 0.2 million in the three and six months ended September 30, 2023 , respectively. As a result of a difference in book and tax basis related to the intangible assets acquired in the Acquisition (see Note 2, "Acquisition"), the Company recorded a deferred tax liability of $ 6.4 million. As a result, the Company was able to benefit from additional deferred tax assets and therefore released a corresponding valuation allowance of $ 5.2 million during the three months ended September 30, 2024. 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 August 1, 2024 . Material changes, if any, to the preliminary allocation summarized in Note 2, "Acquisition" will be reported once the related uncertainties are resolved, but no later than August 1, 2025 . Goodwill recognized in the Acquisition, is not deductible for tax purposes. Accounting for income taxes requires a two -step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company re-evaluates these uncertain tax positions on a quarterly basis. The evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. The Company did not identify any uncertain tax positions in the six months ended September 30, 2024 and did not have any gross unrecognized tax benefits as of September 30, 2024 . 15. Contingent Consideration NEPSI Contingent Considerations On October 1, 2020 ( the "NEPSI Acquisition Date"), the Company entered into a Stock Purchase Agreement (the "NEPSI Stock Purchase Agreement") with the selling stockholders named therein. Pursuant to the terms of the NEPSI Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding (i) shares of capital stock of NEPSI, and (ii) membership interests of Northeast Power Realty, LLC, a New York limited liability company, which holds the real property that serves as NEPSI's headquarters (the "NEPSI Acquisition"). NEPSI is a U.S.-based global provider of medium-voltage metal-enclosed power capacitor banks and harmonic filter banks for use on electric power systems. NEPSI is a wholly-owned subsidiary of the Company and is operated by its Grid business unit. The purchase price was $ 26.0 million in cash and 873,657 restricted shares of common stock of the Company. As part of the transaction, the selling stockholders were entitled to receive up to an additional 1,000,000 shares of common stock of the Company upon the achievement of certain specified revenue objectives during varying periods of up to four years following closing of the NEPSI Acquisition. During the year ended March 31, 2024, the Company issued 399,999 shares of common stock and cash in lieu of a fractional share of common stock, related to the achievement of specified revenue objectives in connection with the NEPSI Acquisition. NEPSI recognized revenues in excess of $ 120.0 million during the four years after the NEPSI Acquisition Date. As a result, during the quarter ended September 30, 2024, the Company issued 300,000 shares of common stock of the Company to the selling stockholders, following certification of the achievement of the specified earnout revenue objective. As of September 30, 2024, the Company has settled all outstanding contingent consideration under the NEPSI Stock Purchase Agreement. The Company evaluated the NEPSI Acquisition earnout payment set forth in the NEPSI Stock Purchase Agreement, which was expected to require settlement in the Company's common stock, and determined the contingent consideration qualified for liability classification and derivative treatment under ASC 815, Derivatives and Hedging . As a result, for each period, the fair value of the contingent consideration was remeasured and the resulting gain or loss was recognized in operating expenses until the share amount is fixed. Megatran Contingent Consideration On August 1, 2024 , the Company entered into a Stock Purchase Agreement with the selling stockholders of Megatran named therein. Pursuant to the terms of the Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding shares of Megatran for aggregate consideration in an amount equal to $ 61.4 million which consideration amount was subject to various adjustments set forth in the Stock Purchase Agreement. The value of the contingent consideration to make the sellers whole was determined to be de minimus at the time of the Acquisition. On September 23, 2024, the Company paid $ 3.3 million to the selling stockholders, which was calculated based on the agreed upon formula set forth in the Stock Purchase Agreement. This amount is reflected as the change in fair value of this contingent consideration in the three and six months ended September 30, 2024. As of September 30, 2024, there are no remaining obligations to the selling stockholders of Megatran. In the three and six months ended September 30, 2024 the Company completed the payment of $ 3.3 million to selling stockholders of Megatran to settle the remaining obligations of the acquisition. 20 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 NEPSI Acquisition: June 30, Fiscal Year 2024 2024 Revenue risk premium 5.50 % Revenue volatility 27.5 % Stock Price $ 23.39 Payment delay (days) 80 Fair value (millions) $ 7.0 March 31, December 31, September 30, June 30, March 31, Fiscal Year 2023 2024 2023 2023 2023 2023 Revenue risk premium 5.50 % 5.70 % 5.30 % 5.20 % 5.30 % Revenue volatility 24.8 % 24.8 % 27.5 % 22.5 % 25 % Stock Price $ 13.51 $ 11.14 $ 7.55 $ 6.26 $ 4.91 Payment delay (days) 80 80 80 80 80 Fair value (millions) $ 3.1 $ 1.2 $ 3.5 $ 2.6 $ 1.3 During the three and six months ended September 30, 2024 the Company issued 300,000 shares of common stock related to the achievement of specified revenue objectives at a fair value of $ 6.5 million. The Company recorded a gain resulting from the decrease in fair value of $ 0.5 million and a loss of $ 3.4 million resulting from the increases in the fair value of the contingent consideration in the three and six months ended September 30, 2024 , respectively. The Company recorded losses of $ 0.9 million and $ 2.2 million resulting from the increases in the fair value of the contingent consideration in the three and six months ended September 30, 2023 , respectively. 16. Debt As part of the acquisition of Neeltran, the Company identified four equipment financing agreements that Neeltran had entered into prior to the acquisition of Neeltran on May 6, 2021. The Company did not have a current debt balanc e as of September 30, 2024 and had a balance of less than $ 0.1 million as of March 31, 2024 . 17. Leases Operating Leases All significant lease arrangements are recognized at lease commencement. Operating lease right–of-use assets and lease 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 lease term. The Company enters into a variety of operating lease agreements through the normal course of its business, but primarily real estate leases to support its operations. The real estate lease agreements generally provide for fixed minimum rental payments and the payment of real estate taxes and insurance. Many of these real estate leases have one or more renewal options that allow the Company, at its discretion, to renew the lease for varying periods up to five years or to terminate the lease. Only renewal options or termination rights that the Company believed were likely to be exercised were included in the lease calculations. 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 condensed consolidated balance sheet. 21 Finance Leases As of September 30, 2024 , the right-of-use asset related to the finance lease is fully amortized, and is included in the property and equipment, net on the Company's condensed 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 the Company's condensed consolidated statement of operations. Supplemental balance sheet information related to leases at September 30, 2024 , and March 31, 2024 are as follows (in thousands): September 30, 2024 March 31, 2024 Leases: Right-of-use assets – Operating $ 3,744 $ 2,557 Total right-of-use assets 3,744 2,557 Lease liabilities – ST Operating $ 555 $ 716 Lease liabilities – LT Operating 2,814 1,968 Total lease liabilities $ 3,369 $ 2,684 Weighted-average remaining lease term 5.33 3.49 Weighted-average discount rate 14.84 % 9.83 % The costs related to the Company's finance lease are not material. The costs related to the Company's operating leases for the three and six months ended September 30, 2024 and 2023 are as follows (in thousands): Three Months Ended Six Months Ended September 30, 2024 September 30, 2024 Operating Leases: Operating lease costs – fixed $ 336 $ 645 Operating lease costs – variable 45 91 Short-term lease costs 39 78 Total lease costs $ 420 $ 814 Three Months Ended Six Months Ended September 30, 2023 September 30, 2023 Operating Leases: Operating lease costs – fixed $ 255 $ 514 Operating lease costs – variable 40 79 Short-term lease costs 37 74 Total lease costs $ 332 $ 667 22 The Company’s estimated minimum future lease obligations under the Company's leases are as follows (in thousands): Leases Year ending March 31, 2025 $ 321 2026 1,113 2027 1,164 2028 805 2029 385 Thereafter 1,497 Total minimum lease payments 5,285 Less: interest ( 1,916 ) Present value of lease liabilities $ 3,369 18. 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 condensed 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 condensed consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its condensed 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 September 30, 2024 , the Company had $ 1.5 million of restricted cash included in long-term assets and $ 1.2 million of restricted cash included in current assets. As of March 31, 2024 , the Company had $ 1.3 million of restricted cash included in long term assets and $ 0.5 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 and long-term projects or collateral deposits. These deposits are held in interest bearing accounts. 23 19. Business Segments The Company reports its financial results in two reportable business segments: Grid and Wind. In accordance with ASC 280 , Segment Reporting , the Company aggregates four operating segments into one reporting segment for financial reporting purposes due to their similar operating and financial characteristics. The Company's operating segments reflect the way in which internally-reported financial information is used to make decisions and allocate resources. Through the Company’s power grid offerings, the Grid business segment enables electric utilities, industrial facilities, and renewable energy project developers to connect, transmit and distribute smarter, cleaner and better power through its transmission planning services, power electronics, and superconductor-based systems. The sales process is enabled by transmission planning services that allow it to identify power grid congestion, poor power quality and other risks, which helps the Company determine how its solutions can improve network performance. These services often lead to sales of grid interconnection solutions for wind farms and solar power plants, power quality systems, and transmission and distribution cable systems. The Company also sells ship protection products to the U.S. Navy through its Grid business segment. Through the Company’s wind power offerings, the Wind business segment enables manufacturers to field highly competitive wind turbines through its 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. 24 The operating results for the two business segments are as follows (in thousands): Three Months Ended September 30, Six Months Ended September 30, 2024 2023 2024 2023 Revenues: Grid $ 46,936 $ 28,515 $ 79,272 $ 54,251 Wind 7,535 5,489 15,489 10,007 Total $ 54,471 $ 34,004 $ 94,761 $ 64,258 Three Months Ended September 30, Six Months Ended September 30, 2024 2023 2024 2023 Operating income (loss): Grid $ 2,336 $ ( 679 ) $ 3,195 $ ( 2,649 ) Wind 516 252 1,515 ( 398 ) Unallocated corporate expenses ( 3,605 ) ( 1,942 ) ( 8,753 ) ( 4,655 ) Total $ ( 753 ) $ ( 2,369 ) $ ( 4,043 ) $ ( 7,702 ) 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 consisted of net losses resulting from activity relating to both the NEPSI earnout and the Megatran make whole payment which resulted in $ 2.8 million and $ 6.7 million in increases in the fair value of contingent consideration in the three and six months ended September 30, 2024 , respectively. Unallocated corporate expenses consisted of a loss on contingent consideration of $ 0.9 million and $ 2.2 million in the three and six months ended September 30, 2023 , respectively. Additionally, unallocated corporate expenses consisted of stock-based compensation expense of $ 0.8 million and $ 2.1 million in the three and six months ended September 30, 2024 , respectively, and $ 1.1 million and $ 2.5 million in the three and six months ended September 30, 2023 , respectively . Total assets for the two business segments as of September 30, 2024 and March 31, 2024 , are as follows (in thousands): September 30, 2024 March 31, 2024 Grid $ 212,985 $ 125,878 Wind 11,475 14,733 Corporate assets 73,988 92,160 Total $ 298,448 $ 232,771 25 20. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures . The amendments in ASU 2023 - 07 improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. Following the release of ASU 2023 - 07 in November 2023, the effective date will be annual reporting periods beginning after December 15, 2024. As of September 30, 2024 , the Company is evaluating the impact on its condensed consolidated financial statements. In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures . The amendments in ASU 2023 - 09 address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. Following the release of ASU 2023 - 09 in December 2023, the effective date will be annual reporting periods beginning after December 15, 2024. As of September 30, 2024 , the Company is evaluating the impact on its condensed consolidated financial statements. In March 2024, the FASB issued ASU 2024 - 02, Codification Improvements — Amendments to Remove References to the Concepts Statements . The amendments in ASU 2024 - 02 contain amendments to the Codification that remove references to various FASB Concepts Statements. Following the release of ASU 2024 - 02 in March 2024, the effective date will be annual reporting periods beginning after December 15, 2024. As of September 30, 2024 , the Company is evaluating the impact on its condensed consolidated financial statements. 21. Subsequent Events The Company has performed an evaluation of subsequent events through the time of filing this Quarterly Report on Form 10 -Q with the SEC and has determined that there are no such events to report. 26 AMERICAN SUPERCONDUCTOR CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS