What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-02-14 compared with 2024-11-12 · 105 added, 104 removed, 187 unchanged (53% of the section changed)

2 unchanged sentences

All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are approximate.

All references in this Quarterly Report on Form 10-Q to “the Company,” “we,” “us,” “our,” or “Capstone” are to Capstone Green Energy Corporation and its consolidated subsidiaries for the three and six months ended September 30, 2023 and to Capstone Green Energy Holdings, Inc.

and its consolidated subsidiaries as of September 30, 2024 and March 31, 2024 and for the three and six months ended September 30, 2024.

All references in this Quarterly Report on Form 10-Q to “the Company,” “we,” “us,” “our,” or “Capstone” are to Capstone Green Energy Corporation and its consolidated subsidiaries for the three and nine months ended December 31, 2023 and to Capstone Green Energy Holdings, Inc.

and its consolidated subsidiaries as of December 31, 2024 and March 31, 2024 and for the three and nine months ended December 31, 2024.

Special Note Regarding Forward-Looking Statements

6 unchanged sentences

● our short and long-term liquidity requirements and the adequacy of our capital resources;

● our ability to realize the anticipated benefits of our recently completed financial restructuring;

● our ability to realize the anticipated benefits of our financial restructuring completed in December 2023;

● the restrictions imposed by the covenants contained in the Note Purchase Agreement (as defined in Note 11— Debt) and the Operating Subsidiary LLC Agreement (as defined in Note 13— Commitments and Contingencies) and our ability to comply with the financial covenants contained in the Note Purchase Agreement;

● the impact of several recent key management changes and our ability to retain key employees following the financial restructuring;

● the impact of several recent key management changes and our ability to retain key employees following the financial restructuring completed in December 2023;

● risks related to the restatement of our previously issued consolidated financial statements, including costs, risks and uncertainties associated with the pending SEC investigation into the circumstances surrounding such restatement;

● our ability to remediate the material weaknesses in internal control over financial reporting disclosed in the Annual Report on Form 10-K for Fiscal 2024;

● our ability to remediate the material weaknesses in internal control over financial reporting disclosed in our Annual Report on Form 10-K for Fiscal 2024;

● risks related to our history of net losses and ability to raise additional capital and fund future operating requirements;

11 unchanged sentences

● changes to trade regulation, quotas, duties or tariffs and sanctions caused by the changing U.S.

and geopolitical environments, including the ongoing conflicts in Ukraine, Israel and Gaza;

and geopolitical environments, including the tariffs proposed by the current administration and the ongoing conflicts in Ukraine, Israel and Gaza;

● corruption risks in the markets where our products are sold;

● security and cybersecurity risks related to our electronic processing of sensitive and confidential business and product data;

● our ability to adequately protect our intellectual property rights;

● our ability to adequately develop and protect our intellectual property rights;

● other risks and uncertainties discussed in “Item 1A.

15 unchanged sentences

We are currently exploring energy conversion options for the smaller end of the power spectrum.

During the three months ended September 30, 2024, our net loss decreased by $5.5 million, or 93%, to $0.4 million and our basic and diluted loss per share decreased by 93% to $(0.02), compared to a $5.9 million net loss and $(0.32) net loss per share during the three months ended September 30, 2023.

The decrease to net loss during the three months ended September 30, 2024, was primarily due to the $1.7 million improvement in gross profit, lower operating expenses of $2.8 million, lower interest expense of $0.8 million and an increase in other income, net of $0.6 million, partially offset by reorganization items, net of $0.5 million.

During the three months ended December 31, 2024, we had a net loss of $2.7 million and a basic and diluted net loss per share of $0.14 compared to net income of $24.2 million and basic and diluted net income per share of $1.27 during the three months ended December 31, 2023.

The change in net income (loss) was primarily due to the non-recurring positive effect of the reorganization items of $32.6 million recognized during the three months ended December 31, 2023, offset by an improved gross profit of $2.0 million, driven by a $5.5 million revenue increase, $3.3 million lower total operating expense, $0.3 million increase in other income, and $0.1 million of lower interest expense as compared to the three months ended December 31, 2023.

In the energy efficiency market, we continue to expand our market presence in hotels, office buildings, hospitals, retail, and industrial applications globally.

The renewable energy market is fueled by landfill gas, biodiesel, and biogas from sources such as food processing, agricultural waste and livestock manure.

Our product sales in the oil and gas and other natural resources market is driven by our microturbines’ reliability, emissions profile and ease of installation.

Our product sales in the oil and gas and other natural resources market are driven by our microturbines’ reliability, emissions profile and ease of installation.

Given the volatility of the oil and gas market, our business strategy is to ensure diversification by also targeting projects within the energy efficiency and renewable energy markets.

We continue to focus on improving our products based on customer input, building brand awareness and new channels to market by developing a diversified network of strategic distribution partners.

Our focus is on products and solutions that provide near term opportunities to drive repeatable business rather than discrete projects for niche markets.

Our focus is on products and

solutions that provide near term opportunities to drive repeatable business rather than discrete projects for niche markets.

In addition, management closely monitors operating expenses and strives to improve manufacturing efficiencies while simultaneously lowering direct material costs and increasing average selling prices.

The key drivers to our success

are revenue growth, higher average selling prices, lower direct material costs, positive new order flow, reduced cash usage and expansion of the Energy-as-a-Service (“EaaS”) business.

The key drivers to our success are revenue growth, higher average selling prices, lower direct material costs, positive new order flow, reduced cash usage and expansion of the Energy-as-a-Service (“EaaS”) business.

An overview of our direction, targets and key initiatives are as follows:

6 unchanged sentences

The following table summarizes our percentage or product revenues by vertical markets for which we had product revenues for the periods presented:

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Energy efficiency

1 unchanged sentence

Renewable energy

Transportation

Energy Efficiency—CHP/CCHP

Energy efficiency refers to the proper utilization of both electrical and thermal energies in the power production process.

In such applications, our microturbines are able to maximize the availability of usable energy to provide a significant economic advantage to our customers while reducing their on-site emissions.

In such applications, our microturbines are designed to maximize the availability of usable energy to provide a significant economic advantage to our customers while reducing their on-site emissions.

CHP and CCHP can improve site economics by capturing the waste heat created from a single combustion process to increase the efficiency of the total system, from approximately 30% to approximately 85% for hot water and chilled water to as much as 90% or more for some steam and direct drying applications.

9 unchanged sentences

They also run efficiently on other small biogas applications like food processing plants, livestock farms and agricultural green waste operations.

Microturbines can burn these renewable fuels with minimal emissions, thereby, in some cases, avoiding the imposition of penalties incurred for pollution while simultaneously producing electricity from this “free” renewable fuel source for use at the site or in the surrounding areas.

Microturbines can burn these renewable fuels with minimal emissions, thereby, in some cases, avoiding the imposition of penalties incurred

for pollution while simultaneously producing electricity from this “free” renewable fuel source for use at the site or in the surrounding areas.

Our microturbines have demonstrated effectiveness in these smaller applications and may outperform conventional combustion engines in some situations, including when the gas contains a high amount of sulfur, as the sulfur can contaminate combustion engines’ lube oil, leading to equipment breakdowns and higher lifecycle costs.

Critical Power Supply

Because of the potentially catastrophic consequences of system failure, momentary or otherwise, certain high -demand power users, including high technology, health care and information systems facilities, require higher levels of reliability in their power generation service.

The majority of microturbine-based distributed generation installations have powered through hurricanes with little or no downtime.

To meet these customer requirements, traditional solutions utilize Uninterruptible Power Supplies (“UPS”) to protect critical loads from power disturbances along with back-up diesel generators for extended outages.

We offer an alternative solution where our microturbines can also be installed along with a rotary UPS to provide a complete line interactive continuous power solution.

In this case, the microturbines remain in grid connect mode while the rotary UPS stabilizes the utility voltage and provides a seamless transfer from operation connected to the grid to operation isolated from the grid.

Microgrid is a group of interconnected loads and distributed energy resources that acts as a single controllable energy entity with respect to the grid.

8 unchanged sentences

We are continuing to pursue global EV charging opportunities to fill the demand for power in this market segment.

Net product orders were approximately $9.2 million and $6.3 million for the three months ended September 30, 2024 and 2023, respectively.

Ending backlog was approximately $10.6 million at September 30, 2024, compared to $14.2 million at March 31, 2024.

The book-to-bill ratio was 0.8:1 and 0.4:1 for the three months ended September 30, 2024 and 2023, respectively.

Net product orders were approximately $24.1 million and $5.9 million for the three months ended December 31, 2024 and 2023, respectively.

Ending backlog was approximately $26.8 million at December 31, 2024, compared to $14.2 million at March 31, 2024.

The book-to-bill ratio was 3.05:1 and 1.2:1 for the three months ended December 31, 2024 and 2023, respectively.

Book-to-bill ratio is the ratio of new orders we received to units shipped and billed during a period.

A portion of our backlog is concentrated in the oil and gas market, which may impact the overall timing of shipments or the conversion of backlog to revenue.

The timing of the backlog is based on the requirement date indicated by our customers.

However, based on historical experience, management expects that a significant portion of our backlog may not be shipped within the next 18 months.

A portion of the backlog is subject to project schedules and supply chain limitations, whist are outside the control of the Company.

Additionally, the timing of shipments is subject to change based on several variables (including customer deposits, payments, availability of credit and customer delivery schedule changes), most of which are not in our control and can affect the timing of our revenue.

11 unchanged sentences

We offer new and remanufactured parts through our global distribution network.

Service revenue in the three months ended September 30, 2024 and 2023 was approximately 23% and 19% of total revenue, respectively.

Service revenue during the six months ended September 30, 2024 and 2023 was approximately 25% and 20% of total revenue, respectively.

Parts and Services revenue in the three months ended December 31, 2024 and 2023 was approximately 37% and 46% of total revenue, respectively.

Parts and Services revenue during the nine months ended December 31, 2024 and 2023 was approximately 40% and 35% of total revenue, respectively.

Product Robustness and Life Cycle Maintenance Costs We continue to invest in enhancements that relate to high performance and high reliability.

An important element of our continued innovation and product strategy is

to focus on the engineering of our product hardware and electronics to make them work together more effectively and deliver improved microturbine performance, reliability and low maintenance costs to our customers.

An important element of our continued innovation and product strategy is to focus on the engineering of our product hardware and electronics to make them work together more effectively and deliver improved microturbine performance, reliability and low maintenance costs to our customers.

New Product Development Our new product development is targeted specifically to meet the needs of our selected vertical markets.

We expect that our existing product platforms, the C65, C200, C600, C800 and C1000S Series microturbines, will be our foundational product lines for the foreseeable future.

Our research and development project portfolio is centered on enhancing the features of these base products.

Our research and development project portfolio are centered on enhancing the features of these base products.

We have continued to develop our new hydrogen products.

16 unchanged sentences

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures of contingent liabilities.

On an on-going basis, we evaluate our estimates, including but not limited to those related to inventories, credit losses and redeemable noncontrolling interests valuations.

The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses

and related disclosures of contingent liabilities.

On an ongoing basis, we evaluate our estimates, including but not limited to those related to inventories, credit losses and redeemable noncontrolling interests valuations.

We base our estimates on historical experience and on various other assumptions that we believe 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.

2 unchanged sentences

(1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Item 7 of our Annual Report on Form 10-K for the year ended March 31, 2024 describe the significant accounting estimates used in the preparation of our Condensed Consolidated Financial Statements.

Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 describe the significant accounting estimates used in the preparation of our Condensed Consolidated Financial Statements.

Results of Operations

Three Months Ended September 30, 2024 and 2023

Three Months Ended December 31, 2024 and 2023

The following table summarizes our revenue by geographic markets (in millions):

Three Months Ended September 30,

Three Months Ended December 31,

United States and Canada

3 unchanged sentences

Total Revenue

Revenue for the three months ended September 30, 2024 decreased $5.7 million to $22.7 million from $28.4 million for the three months ended September 30, 2023.

The $5.7 million decrease was primarily driven by decreases in revenue of $2.9 million in Europe, $1.5 million in the United States and Canada, $0.8 million in Asia and Australia and $0.5 million in Latin America.

The decreases in Europe, United States and Canada, Asia and Australia and Latin America were primarily due to decreases in product deliveries for projects in those regions during the three months ended September 30, 2024.

Parts and services revenue was impacted by order timing and parts availability.

Revenue for the three months ended December 31, 2024 increased $5.5 million to $20.1 million from $14.6 million for the three months ended December 31, 2023.

The $5.5 million increase was primarily driven by increases in revenue of $3.8 million in the United States and Canada, $1.4 million in Latin America and $0.7 million in Europe, offset by a decrease in revenue of $0.5 million in Asia and Australia.

The increases in the United States and Canada, Latin America and Europe was due to increased microturbine product, parts and rental demand.

The decrease in Asia and Australia were primarily due to decreases in product deliveries for projects in those regions during the three months ended December 31, 2024.

The following table summarizes our revenue (revenue amounts in millions):

Three Months Ended September 30,

Three Months Ended December 31,

Microturbine Product

2 unchanged sentences

Total Revenue

For the three months ended September 30, 2024, revenue from microturbine products and accessories decreased $3.8 million, or 25%, to $11.3 million from $15.1 million for the three months ended September 30, 2023.

The $3.8 million decrease was primarily driven by a decrease in 5.4 megawatts shipped from 12.2 to 6.8 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Product demand was adversely affected by the restructuring as customers assessed the long-term viability of the Company.

Average revenue per megawatt shipped was approximately $1.6 million and $1.2 million during the three months ended September 30, 2024 and 2023, respectively, which was the result of previously announced product price increases.

For the three months ended December 31, 2024, revenue from microturbine products and accessories increased $3.0 million, or 58%, to $8.2 million from $5.2 million for the three months ended December 31, 2023.

The $3.0 million increase was driven primarily by a 2.1 megawatts shipped increase during the three months ended December 31, 2024, compared to the three months ended December 31, 2023.

Average revenue per megawatt shipped was approximately $1.3 million and $1.2 million during the three months ended December 31, 2024 and 2023, respectively.

The timing of shipments is variable and based on several factors (including customer deposits, payments, availability of credit and delivery schedule changes), most of which are not within our control and can affect the timing of revenue recognition.

Parts, service and rentals revenue (which are part of our EaaS business line and includes revenue from our parts shipments, factory protection plan (“FPP”) contracts, rentals, Distributor Support Subscription (“DSS”) fees and other service revenue) decreased $1.9 million, or 14%, to $11.4 million for three months ended September 30, 2024 from $13.3 million for the three months ended September 30, 2023.

The $1.9 million decrease was primarily due to decreases in our spare parts revenue of $1.3 million and $0.6 million in DSS fees as, following the Reorganization, the DSS service fees are reported as Other income during the three months ended September 30, 2024.

Refer to Note 13— Commitments and Contingencies— Related Party Transactions, in the Notes to Condensed Consolidated Financial Statements for information related to the DSS fees in connection with the Reorganization during Fiscal 2024.

Sales to E -Finity Distributed Generation (“E-Finity”), Arctic Energy Inc.

(“Arctic”) and Lone Star Power Solutions, LLC (“Lone Star”) , three of our domestic distributors, and GET/CWS Limited, one of our international customers, accounted for 21%, 14%, 10% and 11% of revenue for the three months ended September 30,

2024, respectively.

Sales to E-Finity and Cal Microturbine accounted for 21% and 11% of our revenue for the three months ended September 30, 2023, respectively.

Parts, service and rentals revenue (which are part of our EaaS business line and includes revenue from our parts shipments, factory protection plan (“FPP”) contracts, rentals, and other service revenue) increased $2.5 million, or 27%, to $11.9 million for three months ended December 31, 2024 from $9.4 million for the three months ended December 31, 2023.

The $2.5 million increase was primarily due to increases in our part shipments and rentals due to our growing EaaS business line as our distributors increase their sales.

Parts and services revenue also increased due to order timing and improved parts availability.

E -Finity Distributed Generation (“E-Finity”), Lone Star Power Solutions, LLC (“Lone Star”) and Cal Microturbine, three of our domestic distributors, accounted for 15%, 14% and 11% of revenue for the three months ended December 31, 2024, respectively.

Cal Microturbine, accounted for 17% of revenue for the three months ended December 31, 2023.

Gross Profit Cost of goods sold includes direct material costs, production and service center labor and overhead, inventory charges and provision for estimated product warranty expenses.

Gross profit was $7.0 million, or 31% of revenue for the three months ended September 30, 2024, compared to a gross profit of $5.3 million, or 19% of revenue for the three months ended September 30, 2023.

The increase was primarily the result of an increase in product pricing, resulting in an increase of average revenue per megawatt shipped, lower warranty charges and decreases in production and service center labor and overhead expenses.

Gross profit was $5.0 million, or 25% of revenue for the three months ended December 31, 2024, compared to a gross profit of $3.0 million, or 21% of revenue for the three months ended December 31, 2023.

The improvement was primarily the result of an increase in product sales volume and pricing, lower warranty charges and decreases in production and service center labor and overhead expenses.

Effective March 2024, we increased our sales prices and are negotiating with vendors to reduce material costs.

The following table summarizes our gross profit (in millions except percentages):

Three Months Ended September 30,

Three Months Ended December 31,

Product and accessories

3 unchanged sentences

Total gross profit

As a percentage of total revenue

The improvement of $0.9 million in product and accessories gross profit was primarily due to higher product pricing and changes in product mix during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Product and accessories gross margin as a percentage of product and accessories revenue increased to 6% during the three months ended September 30, 2024, from (1)% during the three months ended September 30, 2023, primarily due to higher product pricing in the three months ended September 30, 2024.

Parts, services and rentals gross margin as a percentage of parts and service revenue increased to 55% during the three months ended September 30, 2024, compared to 41% during the three months ended September 30, 2023, primarily as a result of increases in parts prices and lower overhead costs in the three months ended September 30, 2024.

Research and Development (“R&D”) Expenses R&D expenses were $0.6 million and $0.7 million during the three months ended September 30, 2024 and 2023, respectively.

Selling, General, and Administrative (“SG&A”) Expenses SG&A expenses decreased $2.8 million, or 30%, to $6.4 million for the three months ended September 30, 2024, from $9.2 million for the three months ended September 30, 2023, primarily due to unusually high legal fees incurred during the three months ended September 30, 2023 for reorganization and restatement activities, resulting in a decrease of $3.3 million and lower marketing expenses of $0.4 million, partially offset by an increase of $0.9 million in accounting expenses.

Interest Expense Interest expense for the three months ended September 30, 2024 and 2023 was $1.0 million and $1.8 million, respectively.

The decrease in interest expense was primarily due to a lower average debt balance during the second quarter of Fiscal 2025 due to our Reorganization, compared to $51.0 million of indebtedness outstanding under the pre-petition notes during Fiscal 2024.

Six Months Ended September 30, 2024 and 2023

The improvement of $0.6 million in product and accessories gross profit was primarily due to an increasing revenue per megawatt, as a result of previously announced product price increases, while decreasing the cost per megawatt.

Product and accessories gross margin as a percentage of product and accessories revenue increased to (10)% during the three months ended December 31, 2024, from (27)% during the three months ended December 31, 2023, primarily due to increased megawatts sold and a favorable product sales mix for the three months ended December 31, 2024.

Parts, services and rentals gross margin as a percentage of parts and service revenue increased to 49% during the three months ended December 31, 2024, compared to 47% during the three months ended December 31, 2023, primarily as a result of increased gross profit of $1.8 million of rentals the three months ended December 31, 2024.

Research and Development (“R&D”) Expenses R&D expenses were $0.7 million and $0.6 million during the three months ended December 31, 2024 and 2023, respectively.

Selling, General, and Administrative (“SG&A”) Expenses SG&A expenses decreased $3.4 million, or 35%, to $6.3 million for the three months ended December 31, 2024, from $9.7 million for the three months ended December 31, 2023, primarily due to a $2.4 million reduction of legal and accounting fees for the restatement and restructuring activities and a $1.4 million decrease in stock-based compensation expense.

Interest Expense Interest expense for the three months ended December 31, 2024 and 2023 was $1.0 million and $1.1 million, respectively, reflecting a decline in interest rates.

Nine Months Ended December 31, 2024 and 2023

The following table summarizes our revenue by geographic markets (in millions):

Six Months Ended September 30,

Nine Months Ended December 31,

United States and Canada

3 unchanged sentences

Total Revenue

Revenue for the six months ended September 30, 2024 decreased $13.9 million to $38.4 million from $52.3 million for the six months ended September 30, 2023.

The $13.9 million decrease was primarily driven by decreases in revenue of $6.3 million in Europe, $4.6 million in the United States and Canada, $2.3 million in Asia and Australia and $0.9 million in Latin America, partially offset by an increase of $0.2 million in the Middle East and Africa.

The decreases in Europe, the United States and Canada, Asia and Australia and Latin America were primarily due to decreases in product deliveries for projects in those regions during the six months ended September 30, 2024.

The increase in the Middle East and Africa was primarily due to an increase in our revenue from our parts shipments to the region, compared to the six months ended September 30, 2023.

Revenue for the nine months ended December 31, 2024, decreased $8.4 million to $58.5 million from $66.9 million for the nine months ended December 31, 2023.

The $8.4 million decrease was primarily driven by decreases in revenue of $5.7 million in Europe, $2.8 million in Asia and Australia, and $0.7 million in the United States and Canada.

The decrease was offset by an increase in revenue of $0.5 million in Latin America and $0.3 million in the Middle East and Africa.

The decreases in Europe, Asia and Australia and the United States and Canada w ere primarily due to lower product deliveries for projects in those regions during the nine months ended December 31, 2024.

The increases in Latin America and i n the Middle East and Africa was primarily due to an increase in our parts shipments to the region, compared to the nine months ended December 31, 2023.

The following table summarizes our revenue (revenue amounts in millions):

Six Months Ended September 30,

Nine Months Ended December 31,

Microturbine Product

2 unchanged sentences

Total Revenue

For the six months ended September 30, 2024, revenue from microturbine products and accessories decreased by $11.7 million, or 41%, to $16.6 million from $28.3 million for the six months ended September 30, 2023.

The $11.7 million decrease was primarily driven by a decrease of 13.4 in megawatts shipped of 10.8 from 24.2 during the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

Product demand was adversely affected by the restructuring as customers assess the long-term viability of the Company.

Average revenue per megawatt shipped was approximately $1.5 million and $1.2 million during the six months ended September 30, 2024 and 2023, respectively, which was a result of previously announced product price increases.

For the nine months ended December 31, 2024, revenue from microturbine products and accessories decreased by $8.6 million, or 26%, to $24.9 million from $33.5 million for the nine months ended December 31, 2023.

The $8.6 million decrease was primarily driven by a decrease of 10.3 in megawatts shipped during the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023.

Average revenue per megawatt shipped was approximately $1.4 million and $1.2 million during the nine months ended December 31, 2024 and 2023, respectively, which resulted from the previously announced product price increases.

Parts, service and rentals revenue (which are part of our EaaS business line and includes revenue from our parts shipments, FPP contracts, rentals, DSS fees and other service revenue) decreased $2.2 million, or 9%, to $21.8 million for the six months ended September 30, 2024 from $24.0 million for the six months ended September 30, 2023.

The $2.2 million decrease was primarily due to decreases of $0.9 million in DSS fees as DSS service fees are reported as Other income, $0.8 million in rental revenue, $0.7 million in spare parts revenue, partially offset by an increase of $0.2 million in revenue from our FPP contracts and engineering services revenue d uring the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

Refer to Note 13— Commitments and Contingencies— Related Party Transactions, in the Notes to Condensed Consolidated Financial Statements for information related to the distributor support services business in connection with our Reorganization during Fiscal 2024.

E-Finity and Lone Star accounted for 17% and 13% of revenue for the six months ended September 30, 2024, respectively.

E-Finity and Cal Microturbine accounted for 16% and 10% of revenue for the six months ended September 30, 2023, respectively.

Parts, service and rentals revenue (which are part of our EaaS business line and includes revenue from our parts shipments, FPP contracts, rentals and other service revenue) increased $0.2 million, or 1%, to $33.6 million for the nine months ended December 31, 2024, from $33.4 million for the nine months ended December 31, 2023, due to an increase in our rental and service contracts revenue of $1.0 million as a result of increased sales from our EaaS business line distributors and a $0.4 million increase in parts revenue, offset by a $1.2 million of DSS fees reported in revenue during the nine months ended December 31, 2023.

Those fees are being recorded as Other Income for the nine months ended December 31, 2024.

E-Finity and Lone Star accounted for 16% and 13% of revenue for the nine months ended December 31, 2024, respectively.

E-Finity and Cal Microturbine accounted for 14% and 11% of revenue for the nine months ended December 31, 2023, respectively.

Gross Profit Cost of goods sold includes direct material costs, production and service center labor and overhead, inventory charges and provision for estimated product warranty expenses.

Gross profit was $10.8 million, or 28% of revenue for the six months ended September 30, 2024, compared to a gross profit of $8.7 million, or 17% of revenue for the six months ended September 30, 2023.

The increase was primarily the result of an increase in product pricing and lower warranty and inventory charges, partially offset by higher production and service center labor and overhead expense.

Gross profit was $15.8 million, or 27% of

revenue for the nine months ended December 31, 2024, compared to a gross profit of $11.7 million, or 18% of revenue for the nine months ended December 31, 2023.

The increase was primarily the result of an increase in product pricing, parts pricing and rental pricing, lower warranty and inventory charges and lower production and service center labor and overhead expense.

Effective March 2024, we increased our sales prices and are negotiating with vendors to reduce material costs.

The following table summarizes our gross profit (in millions except percentages):

Six Months Ended September 30,

Nine Months Ended December 31,

Product and accessories

4 unchanged sentences

As a percentage of total revenue

The improvement of $1.3 million in product and accessories gross profit was primarily due to higher product pricing and changes in product mix during the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

Product and accessories gross margin as a percentage of product and accessories revenue increased to 0% during the six months ended September 30, 2024, from (4)% during the six months ended September 30, 2023, primarily due to higher product pricing in the six months ended September 30, 2024.

Parts, services and rentals gross margin as a percentage of parts and service revenue increased to 49% during the six months ended September 30, 2024, compared to 41% during the six months ended September 30, 2023 primarily as a result of increases in parts prices and lower overhead costs in the six months ended September 30, 2024.

Research and Development (“R&D”) Expenses R&D expenses were $1.1 million and $1.3 million during the six months ended September 30, 2024 and 2023, respectively.

The decrease of $0.2 million, or 14%, was primarily due to lower labor and supplies costs incurred during the six months ended September 30, 2024.

Selling, General, and Administrative (“SG&A”) Expenses SG&A expenses decreased $2.8 million, or 17%, to $13.2 million for the six months ended September 30, 2024, from $16.0 million for the six months ended September 30, 2023, primarily due to unusually high legal fees incurred during the six months ended September 30, 2023 for reorganization and restatement activities, resulting in a decrease of $2.7 million, lower marketing and consulting expenses of $1.4 million and $0.6 million, respectively, partially offset by an increase of $1.8 million in accounting expenses.

Interest Expense Interest Expense for the six months ended September 30, 2024 and 2023 was $2.0 million and $3.5 million, respectively.

The decrease in interest expense was primarily due to a lower average debt balance during the six months ended September 30, 2024 due to our Reorganization, compared to $51.0 million of indebtedness outstanding under the pre-petition notes during Fiscal 2024.

Product and accessories gross margin as a percentage of product and accessories revenue increased to (3)% during the nine months ended December 31, 2024, from (8)% during the nine months ended December 31, 2023, primarily due to increased revenue per megawatt in the nine months ended December 31, 2024.

Parts, services and rentals gross margin as a percentage of parts and service revenue increased to 49% during the nine months ended December 31, 2024, compared to 43% during the nine months ended December 31, 2023, primarily as a result of increases in parts price, rental price, rental utilization and lower overhead costs in the nine months ended December 31, 2024.

Research and Development (“R&D”) Expenses R&D expenses were $1.9 million during both the nine months ended December 31, 2024 and 2023.

Selling, General, and Administrative (“SG&A”) Expenses SG&A expenses decreased $6.2 million, or 24%, to $19.5 million for the nine months ended December 31, 2024, from $25.7 million for the nine months ended December 31, 2023, primarily due to a $3.4 million reduction of legal and accounting fees for the restatement and restructuring activities and a $1.7 million decrease in stock-based compensation expense.

Interest Expense Interest Expense for the nine months ended December 31, 2024 and 2023 was $3.0 million and $4.6 million, respectively, resulting from the Company’s lower debt level following the December 2023 restructuring.

Liquidity and Capital Resources

Our cash requirements depend on many factors, including the execution of our business strategy and plan.

Our cash increased $0.6 million during the six months ended September 30, 2024, primarily due to net cash provided by operating activities, partially offset by cash used in investing and financing activities.

Operating Activities During the six months ended September 30, 2024, $0.9 million in cash was provided by our operating activities, which consisted of a net loss for the period of $4.4 million and changes in operating assets and liabilities of $1.5 million, partially offset by non-cash adjustments (primarily representing depreciation and amortization, non-cash lease expenses and paid-in-kind (“PIK”) interest) of $6.7 million.

During the six months ended September 30, 2023, we used $9.4 million in cash for our operating activities, which consisted of a net loss for the period of $11.6 million and changes in operating assets and liabilities of $2.0 million, partially offset by non-cash adjustments (primarily representing depreciation and amortization, non-cash lease expense, non-cash reorganization items, net, stock-based compensation, inventory and warranty provision) of $4.2 million.

Our cash and cash equivalents balance increased $1.2 million during the nine months ended December 31, 2024, primarily due to net cash provided by operating activities, partially offset by cash used in investing and financing activities.

Operating Activities During the nine months ended December 31, 2024, $2.2 million in cash was provided by our operating activities, which consisted of a net loss for the period of $7.1 million, changes in operating assets and liabilities of $0.7 million and offset by non-cash adjustments of $10.0 million.

For the nine months ended December 31, 2023, $22.1 million in cash was used in operating activities, which consisted of net income of $12.7 million, non-cash adjustments of $9.4 million, offset by $35.3 million in non-cash reorganization items and $8.7 million change in operating assets and liabilities.

Non-cash charges consist of primarily of depreciation and amortization, non-cash lease expenses and paid-in-kind (“PIK”) interest, and stock-based compensation.

The following is a summary of the significant sources (uses) of cash from operating activities (in thousands):

Six Months Ended September 30,

Nine Months Ended December 31,

Net income (loss)

Non-cash operating activities(1)

8 unchanged sentences

(1) Represents changes in depreciation and amortization, non-cash lease expenses, PIK interest, stock-based compensation expense, non-cash reorganization items, net, and inventory, warranty and credit loss provisions.

The change in non-cash operating activities during the six months ended September 30, 2024, compared to the six months ended September 30, 2023, was primarily due to an increase in PIK interest of $1.7 million related to the issuance of the Exit Notes during Fiscal 2024 and a decrease in non-cash reorganization expenses of $0.5 million that was not incurred during the six months ended September 30, 2024.

The $2.8 million of cash provided from inventory during the six months ended September 30, 2024, was primarily the result of improved supply chain management and reduced lead times for parts, compared to the $7.7 million of cash provided from inventory during the six months ended September 30, 2023, primarily due to the reduction in finished goods inventory levels.

The change in accounts receivable was primarily the result of delayed collections during the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

The change in accounts payable and accrued expenses was primarily due to an increase in payments to vendors during the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

The change in other operating assets and liabilities during the six months ended September 30, 2024, compared to the six months ended September 30, 2023, was primarily due to the decreases in deferred revenue attributable to customer deposits and the removal of the DSS service fees.

Investing Activities Net cash used in investing activities of $0.2 million and $3.9 million during the six months ended September 30, 2024 and 2023, respectively, was primarily due to investments in operating and rental fleet assets, respectively.

Financing Activities Net cash used in financing activities during the six months ended September 30, 2024 was used for repayment of finance lease obligations.

Net cash provided by financing activities during the six months ended September 30, 2023 was primarily the result of net cash of $3.0 million received from the issuance of additional pre-petition senior secured notes.

The change in non-cash operating activities during the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023, was primarily due to a decrease in non-cash reorganization expenses of $35.3 million.

The $4.3 million of cash provided from inventory during the nine months ended December 31, 2024, was the result of improved supply chain management from reduced lead times for parts and the sale of rental equipment returned to inventory, compared to the $6.6 million of cash provided from inventory during the nine months ended December 31, 2023, primarily due to the reduction in finished goods inventory levels.

The change in accounts receivable was primarily the result of reduced revenue and collections during the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023.

The change in effect of payable and accrued expenses was primarily due to establishing a normal payment rate to vendors during the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023 when vendor payments were accelerated to be in line with their terms.

The change in other operating assets and liabilities during the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023, was primarily due to the decreases in deferred revenue attributable to customer deposits and the removal of the DSS service fees .

Investing Activities Net cash used in investing activities of $0.8 million and $4.6 million during the nine months ended December 31, 2024 and 2023, respectively, was primarily due to investments in operating and rental fleet assets, respectively.

Financing Activities Net cash used in financing activities during the nine months ended December 31, 2024, was used for repayment of finance lease obligations.

The funds generated from financing activities during the nine months ended December 31, 2023 were primarily the result of $12.0 million of funding under the DIP Facility, cash of $3.0 million received from the issuance of additional pre-petition senior secured notes under the A&R Note Purchase Agreement during the second quarter of Fiscal 2024 and $3.0 million of funding under the Exit Facility during the third quarter of Fiscal 2024, partially offset by issuance costs of $0.2 million.

Debt Refer to Note 11— Debt in the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for information related to our notes.

Lease Commitments Refer to Note 14— Leases in the Notes to Condensed Consolidated Financial Statements for information related to our leases.

Going Concern In connection with preparing the Condensed Consolidated Financial Statements for the six months ended September 30, 2024, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about our ability to meet our obligations as they became due for the next twelve months from the date of issuance of our financial statements.

As of September 30, 2024, we had cash of $2.7 million, and a working capital deficit of $7.8 million.

We incurred a net loss of $4.4 million during the six months ended September 30, 2024.

Going Concern In connection with preparing the Condensed Consolidated Financial Statements for the nine months ended December 31, 2024, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about our ability to meet our obligations as they became due for the next twelve months from the date of issuance of our financial statements.

As of December 31, 2024, we had cash of $3.3 million, and a working capital deficit of $15.6 million.

We incurred a net loss of $7.1 million during the nine months ended December 31, 2024.

On September 28, 2023, we filed for a prepackaged financial restructuring with our senior lender, Goldman Sachs under the U.S.

1 unchanged sentence

We emerged from bankruptcy on December 7, 2023, and effected a financial and organizational restructuring.

However, given our current cash position, lack of liquidity, limits to accessing capital and debt funding options, and current economic and market risks, there is substantial doubt regarding our ability to continue as a going concern and our ability to meet our financial obligations as they become due over the next twelve months from the date of issuance of the financial statements as of, and for the period ended September 30, 2024.

Given its current cash position, lack of liquidity, limits to accessing capital and debt funding options, current economic and market risks, and the continued impact of the Chapter 11 Bankruptcy and the Reorganization on customer and vendor relationships, there is substantial doubt regarding the Company’s ability to continue as a going concern and its ability to meet its financial obligations as they become due over the next twelve months from the date of issuance of the financial statements as of, and for the period ended December 31, 2024.

New Accounting Pronouncements

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis