Capstone Green Energy Holdings Inc

Previous wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation****s

Previous wording

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 months ended June 30, 2023 and to Capstone Green Energy Holdings, Inc. and its consolidated subsidiaries as of June 30, 2024 and March 31, 2024 and for the three months ended June 30, 2024.

Current wording

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.

Previous wording

During the three months ended June 30, 2024, our net loss decreased by $1.8 million, or 32%, to $3.9 million and our basic and diluted loss per share decreased by 32% to $(0.21), compared to a $5.7 million net loss and $(0.31) net loss per share during the three months ended June 30, 2023. The decrease to net loss during the three months ended June 30, 2024 was primarily due to lower interest expenses, an increase in other income, net and lower operating expenses, offset by a decrease in revenue and a decrease in contribution from our higher parts, services and rentals business.

Current wording

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.

Previous wording

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. 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.

Current wording

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. 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

Previous wording

mode microturbines, reciprocating engines, solar photovoltaic (PV), wind turbines, fuel cells and battery storage. Microgrids can be connected to larger electricity grids; however, in the event of a widespread outage, the microgrid will disconnect from the main grid and continue to operate independently to maintain the electricity supply to the homes and businesses that are connected to the microgrid’s electricity network. Our microturbines have the ability to meet the needs of microgrid end-users by lowering their overall cost to operate and by providing versatile dispatchable technology that is fuel flexible and scalable enough to fit a wide variety of applications.

Current wording

Microgrid is a group of interconnected loads and distributed energy resources that acts as a single controllable energy entity with respect to the grid. Distributed energy resources typically include other dual-mode microturbines, reciprocating engines, solar photovoltaic (PV), wind turbines, fuel cells and battery storage. Microgrids can be connected to larger electricity grids; however, in the event of a widespread outage, the microgrid will disconnect from the main grid and continue to operate independently to maintain the electricity supply to the homes and businesses that are connected to the microgrid’s electricity network. Our microturbines have the ability to meet the needs of microgrid end-users by lowering their overall cost to operate and by providing versatile dispatchable technology that is fuel flexible and scalable enough to fit a wide variety of applications.

Previous wording

Net product orders were approximately $3.4 million and $2.8 million for the three months ended June 30, 2024 and 2023, respectively. Ending backlog was approximately $12.4 million at June 30, 2024, compared to $14.2 million at March 31, 2024. The book-to-bill ratio was 0.7:1 and 0.2:1 for the three months ended June 30, 2024 and 2023, respectively. Book-to-bill ratio is the ratio of new orders we received to units shipped and billed during a period.

Current wording

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

Previous wording

We offer new and remanufactured parts through our global distribution network. Service revenue in the first quarter of Fiscal 2025 and Fiscal 2024 was approximately 29% and 21% of total revenue, respectively.

Current wording

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.

Previous wording

Revenue from microturbine products and accessories for the three months ended June 30, 2024, decreased $7.8 million, or 59%, to $5.4 million from $13.2 million for the three months ended June 30, 2023. The $7.8 million decrease was primarily driven by a decrease in megawatts and units shipped during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Megawatts shipped were 4.0 megawatts and 11.0 megawatts during the three months ended June 30, 2024 and 2023, respectively. Product demand was adversely affected by the Chapter 11 Bankruptcy as customers assessed the long-term viability of the Company. Average revenue per megawatt shipped was approximately $1.3 million and $1.2 million during the three months ended June 30, 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.

Current wording

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. 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.

Previous wording

30, 2024, respectively. Sales to Horizon Power Systems, Optimal Group Australia Pty Ltd and E-Finity Distribution Generation, accounted for 15%, 13% and 10% of our revenue for the three months ended June 30, 2023, respectively.

Current wording

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.

Previous wording

The improvement of $0.4 million in product and accessories gross profit was primarily due to higher product pricing and product mix during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

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.

Previous wording

Product and accessories gross margin as a percentage of product and accessories revenue decreased to (11)% during the three months ended June 30, 2024, from (7)% during the three months ended June 30, 2023, primarily due to lower margin product revenue in the three months ended June 30, 2024. Parts, services and rentals gross margin as a percentage of parts and service revenue increased to 43% during the three months ended June 30, 2024, compared to 41% during the three months ended June 30, 2023, primarily as a result of increases in parts prices and lower overhead costs in the three months ended June 30, 2024.

Current wording

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.

Previous wording

Selling, General, and Administrative (“SG&A”) Expenses. SG&A expenses were $6.8 million during the three months ended June 30, 2024 and 2023.

Current wording

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.

Previous wording

Interest Expense. Interest Expense for the three months ended June 30, 2024 and 2023 was $1.0 million and $1.7 million, respectively. The decrease in interest expense was primarily due to a lower average debt balance during the first quarter of Fiscal 2025 as a result of the Reorganization compared to the $51.0 million pre-petition debt balance during the first quarter of Fiscal 2024. See Liquidity and Capital Resources below for additional discussion on our interest expense.

Current wording

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.

Previous wording

Revenue. Revenue for the three months ended June 30, 2024 decreased $8.3 million to $15.6 million from $23.9 million for the three months ended June 30, 2023. The $8.3 million decrease was primarily driven by decreases in revenue of $3.5 million in Europe, $3.1 million in the United States and Canada, $1.5 million in Asia and Australia and $0.3 million in Latin America, offset by an increase of $0.1 million in the Middle East and Africa. The decreases in Europe, United States and Canada, Asia and Australia and Latin America were primarily due to decreases in product deliveries for projects during the three months ended June 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 three months ended June 30, 2023.

Current wording

Revenuefor 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.

Previous wording

Parts, service and rentals revenue (which are part of our EaaS business line and includes revenue from our parts shipments, FPP contracts, rentals, Distributor Support Subscription (“DSS”) fees, and other service revenue) decreased $0.5 million, or 5%, to $10.2 million for three months ended June 30, 2024 from $10.7 million for the three months ended June 30, 2023. The $0.5 million decrease was primarily due to a decrease of $0.7 million in rentals as a result of lower utilization, a decrease of $0.2 million in revenue from our distributor support services as this revenue is no longer reported by us, and DSS service fees are reported as Other income and a decrease of $0.2 million in revenue from our FPP contracts, partially offset by an increase of $0.6 million in spare parts revenue during the three months ended June 30, 2024, compared to the three months ended June 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.

Current wording

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 inrevenue from our FPP contracts and engineering services revenue during 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.

Previous wording

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 $3.8 million, or 24% of revenue for the three months ended June 30, 2024, compared to a gross profit of $3.4 million, or 14% of revenue for the three months ended June 30, 2023. The $0.4 million increase was primarily the result of increases in product pricing and relatively increased revenue from our higher margin parts and service revenue, and lower inventory and warranty charges, partially offset by higher direct material costs and 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.

Current wording

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

Previous wording

Research and Development (“R&D”) Expenses. R&D expenses were $0.5 million and $0.7 million during the three months ended June 30, 2024 and 2023, respectively. The decrease of $0.2 million, or 29%, was primarily due tolower labor costs incurred during the three months ended June 30, 2024.

Current wording

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 tolower labor and supplies costs incurred during the six months ended September 30, 2024.

Previous wording

Our cash requirements depend on many factors, including the execution of our business strategy and plan. Our cash increased $1.9 million during the three months ended June 30, 2024, primarily due to net cash provided by operating activities, partially offset by cash used in investing activities.

Current wording

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.

Previous wording

Operating Activities During the three months ended June 30, 2024, $2.1 million was provided by cash in our operating activities, which consisted of a net loss for the period of $3.9 million, partially offset by changes in operating assets and liabilities of $2.8 million and non-cash adjustments (primarily representing depreciation and amortization, non-cash lease expenses and paid-in-kind (“PIK”) interest) of $3.2 million. During the three months ended June 30, 2023, $4.8 million in cash was used in our operating activities, which consisted of a net loss for the period of $5.7 million, changes in

Current wording

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.

Previous wording

The change in non-cash operating activities during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily driven by an increase in paid-in-kind interest expense related to the interest incurred since issuing the Notes in December 2023. The change in accounts receivable was primarily the result of lower revenue levels and timing of collections during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The change in inventory was primarily the result of an increase in finished goods during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The change in accounts payable and accrued expenses was primarily due to lower payments to vendors during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The change in other operating assets and liabilities during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to the increases in deferred revenue attributable to customer deposits, FPP contracts and the DSS program.

Current wording

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.

Previous wording

Investing Activities Net cash used in investing activities of $0.1 million and $2.2 million during the three months ended June 30, 2024 and 2023, respectively, was primarily due to investment in operating and rental fleet assets during the three months ended June 30, 2024 and 2023.

Current wording

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.

Previous wording

Financing Activities Net cash used in financing activities during the three months ended June 30, 2024 and 2023 was for repayment of notes payable and lease obligations.

Current wording

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.

Previous wording

Going Concern In connection with preparing the Condensed Consolidated Financial Statements for the three months ended June 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 June 30, 2024, we had cash of $4.0 million and a working capital deficit of $12.0 million. We incurred a net loss of $3.9 million during the three months ended June 30, 2024.

Current wording

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.

Previous wording

On September 28, 2023, we filed for a prepackaged financial restructuring with our Senior Lender, Goldman Sachs under the U.S. Chapter 11 Bankruptcy laws. We emerged from Bankruptcy on December 7, 2023 (“Emergence”) 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 June 30, 2024.

Current wording

On September 28, 2023, we filed for a prepackaged financial restructuring with our Senior Lender, Goldman Sachs under the U.S. Chapter 11 Bankruptcy laws. 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.