Attached files
file | filename |
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EX-32.1 - EX-32.1 - Northern Power Systems Corp. | d16895dex321.htm |
EX-31.2 - EX-31.2 - Northern Power Systems Corp. | d16895dex312.htm |
EX-32.2 - EX-32.2 - Northern Power Systems Corp. | d16895dex322.htm |
EX-31.1 - EX-31.1 - Northern Power Systems Corp. | d16895dex311.htm |
Table of Contents
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15-(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15-(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-55184
NORTHERN POWER SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
British Columbia, Canada | 98-1181717 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
29 Pitman Road
Barre, Vermont 05641
(Address of principal executive offices)
(802) 461-2955
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
Common Shares, no par value per share | 23,173,884 | |
Class | Outstanding at November 12, 2015 | |
Class B Common Shares, no par value per share | 0 | |
Class | Outstanding at November 12, 2015 |
Table of Contents
Northern Power Systems Corp.
FORM 10-Q
INDEX
Page No. | ||||||
Item 1. |
3 | |||||
Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 |
3 | |||||
5 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||||
Item 3. |
38 | |||||
Item 4. |
38 | |||||
Item 1. |
39 | |||||
Item 1A. |
39 | |||||
Item 2. |
39 | |||||
Item 3. |
39 | |||||
Item 4. |
39 | |||||
Item 5. |
39 | |||||
Item 6. |
39 | |||||
40 |
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Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2015 AND DECEMBER 31, 2014
(In thousands, except share and per share amounts)
ASSETS | September 30, 2015 |
December 31, 2014 |
||||||
(Unaudited) | ||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 5,665 | $ | 13,142 | ||||
Accounts receivable net of allowance for doubtful accounts of $142 and $187 at September 30, 2015 and December 31, 2014, respectively |
5,286 | 3,491 | ||||||
Unbilled revenue |
1,782 | 2,212 | ||||||
Inventories net (Note 4) |
15,548 | 16,456 | ||||||
Deferred costs |
1,072 | 1,062 | ||||||
Prepaid expenses and other current assets |
888 | 2,737 | ||||||
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|
|
|
|||||
Total current assets |
30,241 | 39,100 | ||||||
Property, plant and equipment net (Note 5) |
2,628 | 1,854 | ||||||
Intangible assets net (Note 6) |
944 | 474 | ||||||
Goodwill |
722 | 722 | ||||||
Deferred income taxes (Note 12) |
542 | 487 | ||||||
Other assets |
1 | 217 | ||||||
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|
|
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Total Assets |
$ | 35,078 | $ | 42,854 | ||||
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|
The accompanying notes are an integral part of these consolidated financial statements.
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NORTHERN POWER SYSTEMS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2015 AND DECEMBER 31, 2014
(In thousands, except share and per share amounts)
LIABILITIES AND SHAREHOLDERS EQUITY | September 30, 2015 |
December 31, 2014 |
||||||
(Unaudited) | ||||||||
CURRENT LIABILITIES: |
||||||||
Working capital revolving line of credit |
$ | 4,000 | $ | 4,000 | ||||
Accounts payable |
6,121 | 4,153 | ||||||
Accrued expenses (Note 8) |
4,369 | 5,050 | ||||||
Accrued compensation |
2,165 | 2,529 | ||||||
Deferred revenue |
2,554 | 4,275 | ||||||
Deferred income taxes (Note 12) |
715 | 649 | ||||||
Customer deposits |
5,444 | 5,642 | ||||||
Other current liabilities |
187 | 77 | ||||||
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Total current liabilities |
25,555 | 26,375 | ||||||
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Deferred revenue, less current portion |
2,386 | 2,041 | ||||||
Other long-term liability |
280 | 308 | ||||||
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Total Liabilities |
28,221 | 28,724 | ||||||
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Commitments and Contingencies (Note 16) |
||||||||
SHAREHOLDERS EQUITY: |
||||||||
Voting common shares, no par value Unlimited shares authorized; 23,173,884 and 22,764,353 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively |
165,568 | 165,386 | ||||||
Additional paid-in capital |
8,474 | 7,972 | ||||||
Accumulated other comprehensive loss |
(41 | ) | | |||||
Accumulated deficit |
(167,144 | ) | (159,228 | ) | ||||
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Total Shareholders Equity |
6,857 | 14,130 | ||||||
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Total Liabilities and Shareholders Equity |
$ | 35,078 | $ | 42,854 | ||||
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|
The accompanying notes are an integral part of these consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(In thousands, except share and per share amounts)
(unaudited)
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
REVENUES: |
||||||||||||||||
Product |
$ | 12,969 | $ | 11,784 | $ | 27,415 | $ | 37,484 | ||||||||
License |
946 | 1,955 | 3,852 | 2,541 | ||||||||||||
Design service |
1,364 | 709 | 3,441 | 1,063 | ||||||||||||
Service |
1,388 | 584 | 2,727 | 1,470 | ||||||||||||
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Total revenues |
16,667 | 15,032 | 37,435 | 42,558 | ||||||||||||
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Cost of product revenues |
11,589 | 9,145 | 27,035 | 31,154 | ||||||||||||
Cost of service revenues |
1,675 | 1,040 | 3,993 | 3,171 | ||||||||||||
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Gross profit |
3,403 | 4,847 | 6,407 | 8,233 | ||||||||||||
OPERATING EXPENSES: |
||||||||||||||||
Sales and marketing |
947 | 990 | 3,409 | 2,668 | ||||||||||||
Research and development |
739 | 1,321 | 2,688 | 3,537 | ||||||||||||
General and administrative |
1,621 | 2,312 | 6,668 | 6,793 | ||||||||||||
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Total operating expenses |
3,307 | 4,623 | 12,765 | 12,998 | ||||||||||||
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Income (loss) from operations |
96 | 224 | (6,358 | ) | (4,765 | ) | ||||||||||
Interest income (expense) net |
(45 | ) | (40 | ) | (142 | ) | (312 | ) | ||||||||
Other income (expense) net |
(109 | ) | (61 | ) | (221 | ) | 41 | |||||||||
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|
|||||||||
(Loss) income before provision for income taxes |
(58 | ) | 123 | (6,721 | ) | (5,036 | ) | |||||||||
Provision for income taxes |
427 | 412 | 1,195 | 441 | ||||||||||||
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NET LOSS |
(485 | ) | (289 | ) | (7,916 | ) | (5,477 | ) | ||||||||
Other comprehensive loss |
||||||||||||||||
Change in cumulative translation adjustment |
(27 | ) | | (41 | ) | | ||||||||||
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COMPREHENSIVE LOSS |
$ | (512 | ) | $ | (289 | ) | $ | (7,957 | ) | $ | (5,477 | ) | ||||
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Net loss applicable to common shareholders (Note 2) |
$ | (485 | ) | $ | (289 | ) | $ | (7,916 | ) | $ | (5,477 | ) | ||||
Net loss per common share |
||||||||||||||||
Basic and diluted |
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.35 | ) | $ | (0.29 | ) | ||||
Weighted average number of common shares outstanding |
||||||||||||||||
Basic and diluted |
22,884,202 | 22,720,090 | 22,805,519 | 18,919,146 |
The accompanying notes are an integral part of these consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands except share amounts)
(unaudited)
Voting Common Shares-No Par |
Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Total Shareholders |
||||||||||||||||||||
Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
BALANCE December 31, 2014 |
22,764,353 | $ | 165,386 | $ | 7,972 | $ | | $ | (159,228 | ) | $ | 14,130 | ||||||||||||
Stock based compensation expense |
| | 681 | | | 681 | ||||||||||||||||||
Issuance of common stock restricted shares |
407,935 | 179 | (179 | ) | | | | |||||||||||||||||
Proceeds from exercise of stock options |
1,596 | 3 | | | | 3 | ||||||||||||||||||
Cumulative translation adjustment |
| | | (41 | ) | | (41 | ) | ||||||||||||||||
Net loss |
| | | | (7,916 | ) | (7,916 | ) | ||||||||||||||||
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BALANCE September 30, 2015 |
23,173,884 | $ | 165,568 | $ | 8,474 | $ | (41 | ) | $ | (167,144 | ) | $ | 6,857 | |||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(All amounts in thousands)
(unaudited)
For the nine months ended | ||||||||
September 30, 2015 | September 30, 2014 | |||||||
OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (7,916 | ) | $ | (5,477 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Provision for inventory obsolescence |
151 | 125 | ||||||
(Recovery of) provision for doubtful accounts |
(44 | ) | 224 | |||||
Stock-based compensation expense |
681 | 746 | ||||||
Depreciation and amortization |
595 | 763 | ||||||
Noncash implied license revenue |
(609 | ) | | |||||
Loss on disposal of asset |
50 | | ||||||
Deferred income taxes |
11 | 10 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable and unbilled revenue |
(1,320 | ) | (4,113 | ) | ||||
Other current and noncurrent assets |
2,065 | (317 | ) | |||||
Inventories |
755 | (3,581 | ) | |||||
Deferred costs |
(10 | ) | 492 | |||||
Accounts payable |
1,968 | (146 | ) | |||||
Accrued expenses |
(1,045 | ) | 2,171 | |||||
Customer deposits |
(198 | ) | (4,057 | ) | ||||
Deferred revenue and other short term liabilities |
(1,266 | ) | 1,168 | |||||
Other liabilities |
(27 | ) | 19 | |||||
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Net cash used in operating activities |
(6,159 | ) | (11,973 | ) | ||||
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INVESTING ACTIVITIES: |
||||||||
Proceeds from sale of property |
| 1,218 | ||||||
Purchases of property and equipment |
(1,280 | ) | (696 | ) | ||||
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Net cash (used in) provided by investing activities |
(1,280 | ) | 522 | |||||
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FINANCING ACTIVITIES: |
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Proceeds from private placement equity financing, net |
| 19,623 | ||||||
Proceeds from revolving line of credit |
4,000 | 4,000 | ||||||
Repayments on revolving line of credit |
(4,000 | ) | | |||||
Proceeds from the exercise of stock options |
3 | 53 | ||||||
Debt principal payments |
| (441 | ) | |||||
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Net cash provided by financing activities |
3 | 23,235 | ||||||
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Effect of exchange rate change on cash |
(41 | ) | | |||||
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Change in cash and cash equivalents |
(7,477 | ) | 11,784 | |||||
Cash and cash equivalent Beginning of Period |
13,142 | 4,534 | ||||||
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Cash and cash equivalent End of Period |
$ | 5,665 | $ | 16,318 | ||||
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid for interest |
$ | 35 | $ | 33 | ||||
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Cash paid for income taxes |
$ | 32 | $ | 15 | ||||
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Noncash financing activity: |
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Restricted stock awards |
$ | 179 | $ | | ||||
Settlement of stock-based compensation liability awards with equity awards |
$ | | $ | 598 | ||||
Conversion of debt to equity |
$ | | $ | 12,320 | ||||
Issuance of options to placement agents |
$ | | $ | 620 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(Unaudited, in thousands except share and per share amounts)
1. | DESCRIPTION OF BUSINESS |
Northern Power Systems Corp. (together with its consolidated subsidiaries, Northern Power Systems or the Company) is a growing provider of advanced renewable power creation and power conversion technology for the energy sector. We design, manufacture and service next-generation Permanent Magnet Direct-Drive, or PMDD, wind turbines for the distributed wind market, and we currently license our utility-class wind turbine platform, which uses the same PMDD technology as our distributed turbines, to large manufacturers on a global basis. We also provide technology development services for a wide variety of energy applications. With our predecessor companies dating back to 1974 and our new turbine development since 1977, we have decades of experience in developing advanced, innovative wind turbines, as well as technology for power conversion and integration with other energy applications.
The Companys headquarters are in Barre, Vermont and it has sales offices in Zurich, Switzerland and Bari, Italy.
The Company was originally incorporated in Delaware on August 12, 2008 as Wind Power Holdings, Inc., or WPHI. In February 2014, WPHI filed a Registration Statement on Form 10 (File No. 001-36317) with the SEC to register the shares of common stock of WPHI, which became effective on June 3, 2014. On April 16, 2014, we (as WPHI) completed a reverse takeover transaction, or RTO, with Mira III Acquisition Corp., a Canadian capital pool company incorporated in British Columbia, Canada, or Mira III, whereby all of the equity securities of WPHI were exchanged (as described below) for common shares and restricted voting shares of Mira III, which became the holding company of our corporate group. In connection with the RTO, Mira III changed its name to Northern Power Systems Corp., the WPHI business became Mira IIIs operating business, the WPHI directors and officers became Mira IIIs directors and officers, and the WPHI historical consolidated financial statements included in this Quarterly Report on Form 10-Q became the historical consolidated financial statements of Northern Power Systems Corp.
Liquidity Despite the current expiration of our line of credit on September 30, 2016, management believes that the Companys available cash and availability under the Companys line of credit will be sufficient to satisfy the Companys working capital and planned investments to support the Companys long-term growth strategy for at least one year from the date of this Quarterly Report on Form 10-Q based on the Companys current projections.
Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the Companys 2014 consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 000-55184). The condensed consolidated balance sheet as of December 31, 2014 and the condensed consolidated statement of changes in shareholders equity as of the year ended December 31, 2014 were derived from the Companys annual audited financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the timing and amount of assets, liabilities, equity, revenue, and expenses reported and disclosed. Actual amounts could differ from these estimates. All adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods have been recorded. Actual amounts could differ from these estimates. Due to differing business conditions and seasonality, operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected in subsequent quarters or for the full year ending December 31, 2015.
Comprehensive Loss Cumulative translation adjustments are excluded from net income (loss) and shown as a separate component of shareholders equity.
Goodwill and Other Intangible Assets Historically, we have conducted our annual goodwill impairment test as of September 30 for our reporting units. During the quarter ended September 30, 2015, the Company changed the date of our annual impairment test from September 30 to November 30. The change was made to more closely align the impairment testing date with our annual budgeting and forecasting process, provide a shorter time period to year end, and move the analysis after the third quarter. We believe the change in our annual impairment testing date did not delay, accelerate, or avoid an impairment charge. We have determined that this change in accounting principle is preferable under the circumstances and does not result in adjustments to our financial statements when applied retrospectively.
Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should
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apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic No. 605, Revenue Recognition, most industry-specific guidance throughout the industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type contracts. ASU 2014-09 was originally effective for public entities for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09.
In August 2015, the FASB issued Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14). ASU 2015-14 defers the effective date of the new revenue recognition standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017. All other entities have an additional year. However, early adoption is permitted for any entity that chooses to adopt the new standard as of the original effective date. The Company is currently evaluating the potential impact of adopting this guidance on the consolidated financial statements.
In May 2015, the FASB issued Accounting Standards Update No. 2015-07, Fair Value Measurement (Topic 820) (ASU 2015-07). Topic 820, Fair Value Measurement, permits a reporting entity, as a practical expedient, to measure the fair value of certain investments using the net asset value per share of the investment. Currently, investments valued using the practical expedient are categorized within the fair value hierarchy on the basis of whether the investment is redeemable with the investee at net asset value on the measurement date, never redeemable with the investee at net asset value, or redeemable with the investee at net asset value at a future date. To address the diversity in practice related to how certain investments measured at net asset value with future redemption dates are categorized, the amendments in this Update remove the requirement to categorize investments for which fair values are measured using the net asset value per share practical expedient. It also limits disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. The Company is currently evaluating the potential impact of adopting this guidance on the consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330). Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments in this Update require an entity to measure inventory within the scope of this Update at the lower of cost and net realizable value. Subsequent measurement is unchanged for inventory measured using last-in, first-out (LIFO) or the retail inventory method. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of adopting this guidance on the consolidated financial statements.
In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Interest Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Cost Associated with Line of Credit Arrangements, Amendments to SEC Paragraph Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (ASU 2015-15). This update amends SEC guidance regarding the presentation and subsequent measurement of debt issuance costs associated with line of credit arrangements. The FASB issued ASU 2015-15 to clarify the SEC staffs position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. The SEC staff has announced that it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU 2015-15 affects all SEC registrants and is effective immediately. The Company accounts for debt issuance costs associated with line of credit arrangements as assets and has been amortizing the deferred debt issuance costs over the term of the line of credit agreement. The Company has evaluated the impact of adopting this guidance and does not believe this update will have a material impact on the consolidated financial statements.
There were no other new accounting pronouncements that were issued or became effective since the issuance of our 2014 Annual Report on Form 10-K that had, or are expected to have, a material impact on our consolidated financial position, results of operations or cash flows.
2. | NET LOSS PER SHARE |
Basic loss per share is determined by dividing net loss attributable to common shareholders by the weighted average common shares outstanding during the period. Diluted loss per share is determined by dividing loss attributable to common shareholders by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and warrants, based on the treasury stock method, are included in the calculation of diluted earnings per share. For the three and nine months ended September 30, 2015 and 2014, all potential common shares were anti-dilutive due to the net loss and were excluded from the diluted net loss per share calculations.
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The calculations of basic and diluted net loss per share are as follows:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
Basic earnings per share calculation |
||||||||||||||||
Numerator |
||||||||||||||||
Net loss |
$ | (485 | ) | $ | (289 | ) | (7,916 | ) | (5,477 | ) | ||||||
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Net loss attributable to common shareholders |
$ | (485 | ) | $ | (289 | ) | (7,916 | ) | (5,477 | ) | ||||||
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Denominator |
||||||||||||||||
Weighted average common shares outstanding Basic and diluted |
22,884,202 | 22,720,090 | 22,805,519 | 18,919,146 | ||||||||||||
Net loss per share-Basic and diluted |
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.35 | ) | $ | (0.29 | ) | ||||
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The Company completed a reverse stock split effective April 16, 2014. As such, the SECs Staff Accounting Bulletin (SAB) 4c required the Company to retrospectively present and disclose the reverse stock split as if it were effective at each period presented. As a result, all share and per share data have been retroactively adjusted to give effect to this reverse stock split.
The following potentially dilutive securities were excluded from the calculation of dilutive weighted average shares outstanding because they were considered anti-dilutive due to the Companys loss position:
September 30, 2015 | September 30, 2014 | |||||||
Common share options |
3,117 | 2,461 | ||||||
Restricted stock awards |
106 | | ||||||
|
|
|
|
|||||
Total potentially dilutive securities |
3,223 | 2,461 | ||||||
|
|
|
|
The Company has 367,500 placement agent options outstanding as of September 30, 2015. In addition, the Company has 2,749,441 options outstanding and 105,734 of unvested restricted stock awards outstanding as of September 30, 2015 related to the 2014 NPS Corp. plan. As of September 30, 2014 the Company had 367,500 placement agent options outstanding, 2,057,837 and 35,938 options outstanding as of September 30, 2014 related to the 2014 NPS Corp. and the Mira III plans, respectively. Such options and restricted stock awards are considered to be potentially dilutive securities.
3. | FAIR VALUE MEASUREMENT |
The Company measures fair value using the framework specified in U.S. GAAP. This framework emphasizes that fair value is a market-based measurement, not an equity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entitys own assumptions. The hierarchy prioritizes the inputs for fair value measurement into three levels:
Level 1 Measurements utilizing unadjusted quoted prices in active markets that the entity has the ability to access for identical assets or liabilities.
Level 2 Measurements that 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, and other observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 Measurements using unobservable inputs for assets or liabilities for which little or no market information exists, and are based on the best information available and might include the entitys own data.
In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instruments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Financial Instruments The Companys financial instruments consist primarily of cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable, the working capital revolving line of credit and debt, deferred revenue and customer deposits. The carrying amounts of cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable and the working capital revolving line of credit, as of September 30, 2015 and December 31, 2014, approximate fair value due to their short-term nature and are classified within Level 3 of the valuation hierarchy. The Company defines cash equivalents as highly liquid instruments with maturities of three months or less that are regarded as high quality, low risk investments. Cash equivalents when held consist of principally FDIC insured certificates of deposits.
Nonrecurring Fair Value Measurements The Company holds certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
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During 2014, the Company entered into a technology development contract with a customer that will result in the Company receiving a royalty free license upon successful completion of the development. The Company determined the value of this license using a probability weighted analysis. The analysis applied a range of possibilities to a set of possible outcomes and attributed a value in the event of each outcome. The probabilities and weightings used in the analysis were based on managements views of the opportunities that will be available to the Company upon completion of the contract and receipt of the license, as well as a review of the outcomes that would result from the selected scenarios. The Company determined this was the most reliable approach to value the license. The license will be accreted to full value over the development period of the contract and will subsequently be amortized over its estimated useful life at the time. The value assigned to the license as of September 30, 2015 and December 31, 2014 was $760 and $151, respectively, representing a fair value measurement on a nonrecurring basis, and is included in intangible assets on the accompanying consolidated balance sheets. Due to the unobservable key inputs to the analysis, the license has been classified as Level 3.
4. | INVENTORIES |
Inventories, net of reserves, as of September 30, 2015 and December 31, 2014 consist of:
September 30, 2015 |
December 31, 2014 |
|||||||
Raw materials |
$ | 4,753 | $ | 5,383 | ||||
Work in process |
2,482 | 2,090 | ||||||
Finished goods |
8,823 | 9,548 | ||||||
Allowance for obsolescence |
(510 | ) | (565 | ) | ||||
|
|
|
|
|||||
Total inventory net |
$ | 15,548 | $ | 16,456 | ||||
|
|
|
|
For the three months ended September 30, 2015 and 2014, the Company recorded inventory provision of $19 and $32, respectively. For the nine months ended September 30, 2015 and 2014, the Company recorded inventory provision of approximately $151 and $125, respectively.
5. | PROPERTY, PLANT, AND EQUIPMENT |
Property, plant, and equipment, net of depreciation, at September 30, 2015 and December 31, 2014 consist of:
September 30, 2015 |
December 31, 2014 |
|||||||
Lease improvements |
$ | 75 | $ | 70 | ||||
Machinery and equipment |
2,879 | 1,995 | ||||||
Patterns and tooling |
1,893 | 1,617 | ||||||
Office furniture and equipment |
424 | 424 | ||||||
Information technology equipment and software |
1,336 | 1,282 | ||||||
Field service spare parts |
122 | 122 | ||||||
|
|
|
|
|||||
6,729 | 5,510 | |||||||
Less accumulated depreciation |
(4,101 | ) | (3,656 | ) | ||||
|
|
|
|
|||||
Total property, plant and equipment, net of depreciation |
$ | 2,628 | $ | 1,854 | ||||
|
|
|
|
Depreciation expense was $165 and $456 for the three and nine months ended September 30, 2015, respectively. Depreciation expense was $147 and $623 for the three and nine months ended September 30, 2014, respectively.
In March 2015, the Company disposed of a blade mold with a cost of $61 and a net book value of $50.
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Table of Contents
6. | INTANGIBLE ASSETS |
Intangible assets consist of:
September 30, 2015 | ||||||||||||||
Average Remaining Amortization Period |
Cost | Accumulated Amortization |
Net Carrying Amount End of Period |
|||||||||||
Core technology |
1.2 years | 978 | $ | (821 | ) | $ | 157 | |||||||
Trade name |
2.20 years | 89 | (62 | ) | 27 | |||||||||
Royalty license |
See below | 760 | | 760 | ||||||||||
|
|
|
|
|
|
|||||||||
$ | 1,827 | $ | (883 | ) | $ | 944 | ||||||||
|
|
|
|
|
|
December 31, 2014 | ||||||||||||||
Average Remaining Amortization Period |
Cost | Accumulated Amortization |
Net Carrying Amount End of Year |
|||||||||||
Core technology |
1.7 years | 978 | $ | (691 | ) | $ | 287 | |||||||
Trade name |
2.7 years | 89 | (53 | ) | 36 | |||||||||
Royalty license |
See below | 151 | | 151 | ||||||||||
|
|
|
|
|
|
|||||||||
$ | 1,218 | $ | (744 | ) | $ | 474 | ||||||||
|
|
|
|
|
|
As part of an agreement with WEG Equipamentos Elétricos S.A. to develop a 3.3 MW wind turbine, the Company has recorded an intangible asset of $760 representing the earned value of the royalty free license the Company will receive upon completion of the development project. The Companys estimate of the total value of this intangible asset will be capitalized over the period of the development project. Amortization of the intangible asset will commence as the Company completes the project and has the ability to license/sell the 3.3 MW wind turbine.
Amortization expense for the three and nine months ended September 30, 2015 was $46 and $139, respectively. Amortization expense for the three and nine months ended September 30, 2014 was $47 and $140, respectively.
The expected aggregate future amortization expense, excluding amortization expense related to the royalty license, is as follows:
Years | Amortization | |||
2015 |
$ | 47 | ||
2016 |
128 | |||
2017 |
9 | |||
|
|
|||
$ | 184 | |||
|
|
7. | DEBT AND SENIOR SECURED CONVERTIBLE NOTES |
Debt at September 30, 2015 and December 31, 2014 consists of:
September 30, 2015 |
December 31, 2014 |
|||||||
Working capital revolving line of credit |
$ | 4,000 | $ | 4,000 | ||||
|
|
|
|
|||||
Total debt |
4,000 | 4,000 | ||||||
Less current portion |
(4,000 | ) | (4,000 | ) | ||||
|
|
|
|
|||||
Long-term debt |
$ | | $ | | ||||
|
|
|
|
In April 2015, the Company amended its foreign working capital revolving line of credit with Comerica to extend the maturity date of June 30, 2015 by 15 months to September 30, 2016. The line of credit remains at $6,000, with the available borrowing base being limited to the amount of collateral available at the time the line is drawn. All other significant terms of the line of credit remained the same. The renegotiated loan agreement with Comerica contains a financial covenant which requires the Company to maintain unencumbered liquid assets having a value of at least $1,500 at all times.
At September 30, 2015, there was $4,000 outstanding on the revolving line of credit as well as approximately $572 outstanding in performance and warranty letters of credit guaranteed on behalf of four customers and the Company had a net maximum supported borrowing base, in excess of loans outstanding, of $282. The Company was in compliance with all covenants under this credit facility in all periods.
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8. | ACCRUED EXPENSES |
Accrued expenses consist of:
September 30, 2015 |
December 31, 2014 |
|||||||
Accrued warranties |
$ | 2,335 | $ | 1,777 | ||||
Accrued rebates, allowances and discounts |
118 | 931 | ||||||
Other accrued expenses |
1,916 | 2,342 | ||||||
|
|
|
|
|||||
Total accrued expenses |
$ | 4,369 | $ | 5,050 | ||||
|
|
|
|
Changes in the Companys product warranty accrual consisted of the following:
Three months ended | Nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
Beginning balance |
$ | 1,815 | $ | 1,047 | $ | 1,777 | $ | 545 | ||||||||
Provisions, net of reversals |
805 | 811 | 1,359 | 1,535 | ||||||||||||
Settlements |
(285 | ) | (268 | ) | (801 | ) | (490 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 2,335 | $ | 1,590 | $ | 2,335 | $ | 1,590 | ||||||||
|
|
|
|
|
|
|
|
9. | CAPITAL STRUCTURE |
Common Shares-No Par In connection with the RTO the Companys resulting authorized capital consists of an unlimited number of voting common shares and an unlimited number of class B restricted voting shares. As of September 30, 2015, there were 23,173,884 voting common shares issued and outstanding and no class B restricted voting shares issued and outstanding. The class B restricted voting shares were convertible into voting common shares on a one-for-one basis at the option of the holder thereof at any time after July 15, 2014. The holders of the class B restricted voting shares are entitled to receive notice of and to attend all meetings of the Companys shareholders and to vote on all matters properly presented at any such meeting, provided that the holders of the class B restricted voting shares are not entitled to vote for the election or removal of the Companys directors. On November 20, 2014, the Company exercised its option to convert all outstanding class B restricted voting shares to common shares, effective November 30, 2014.
10. | STOCK BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS |
Prior Plans
The Company had four equity incentive plans. As a result of the RTO all of these plans were converted in substance to the Northern Power Systems Corp. 2014 Stock Option and Incentive Plan (2014 NPS Corp Plan).
2014 Northern Power Systems Corp. Stock Option and Incentive Plan In April 2014 and as a result of the reverse takeover transaction, the Company adopted the 2014 NPS Corp Plan, which reserved 4,000,000 shares of the Companys voting common shares for both future exercise of outstanding stock options and shares available for future outstanding grants. All other relevant terms and conditions remained the same. At such time the Company considered the modification of such awards in accordance with ASC 718 and concluded that such transaction did not result in additional compensation expense. The Company is accounting for grants under the 2014 NPS Corp Plan as equity awards.
A summary of the stock option activity under the 2014 NPS Corp Plan for the nine months ended September 30, 2015, is as follows:
Shares | Weighted- Average Exercise Price |
Average Remaining Weighted-Average Contractual Term (in Years) |
Aggregate Intrinsic Value |
|||||||||||
Outstanding December 31, 2014 |
2,403,347 | $ | 2.20 | 5.97 years | $ | 2,151 | ||||||||
Granted |
412,375 | $ | 0.49 | |||||||||||
Exercised |
(1,596 | ) | $ | 1.59 | ||||||||||
Canceled |
(64,685 | ) | $ | 2.68 | ||||||||||
|
|
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Table of Contents
Shares | Weighted- Average Exercise Price |
Average Remaining Weighted-Average Contractual Term (in Years) |
Aggregate Intrinsic Value |
|||||||||||
Outstanding September 30, 2015 |
2,749,441 | $ | 1.94 | 5.38 years | $ | | ||||||||
|
|
|||||||||||||
Exercisable September 30, 2015 |
1,359,460 | $ | 2.12 | 4.76 years | $ | | ||||||||
|
|
|||||||||||||
Shares vested and expected to vest September 30, 2015 |
2,600,223 | $ | 1.95 | 5.33 years | $ | | ||||||||
|
|
As of September 30, 2015, 793,179 options were available for grant under the 2014 NPS Corp Plan.
The aggregate intrinsic value in the table above represents the difference between the fair value of common shares and the exercise price of outstanding, in-the-money, stock options.
The weighted-average grant-date fair value of options granted under the 2014 NPS Corp Plan during the nine months ended September 30, 2015 was $0.29 per share. At September 30, 2015, unrecognized stock-based compensation expense related to non-vested stock options is $1,304 which is expected to be recognized over the weighted-average remaining vesting period of 1.8 years.
The Company estimated the grant-date fair values of stock options granted in the nine months ended September 30, 2015, using the Black-Scholes option pricing model and the following assumptions:
September 30, 2015 | ||
Expected volatility |
76% | |
Risk-free interest rate |
1.09% - 1.59% | |
Expected life (years) |
4.5 | |
Dividend yield |
0.0% |
During the three months ended September 30, 2015, the Company granted 407,935 restricted common shares to its non-employee directors under the 2014 NPS Corp Plan as part of each such directors compensation for service on the Companys Board of Directors. The fair value per share for each grant was $0.44. Each non-employee director received a grant of 15,000 restricted common shares, of which (for all but one director), 75% of the shares vested on September 30, 2015 with the remaining 25% vesting on December 31, 2015. For the other non-employee director, 50% of the shares vested on September 30, 2015 with the remaining 50% vesting on December 31, 2015. Several non-employee directors also elected to receive their annual retainer compensation in restricted shares, rather than cash. For each such grant, 50% of the total stock granted vested on the grant date of August 25, 2015, with the remaining 50% vesting in two equal installments on September 30, 2015 and December 31, 2015. There were no restricted share grants issued during the three and nine months ended September 30, 2014.
The Company recognizes stock-based compensation expense net of estimated forfeitures on a straight-line basis over the requisite service period. The forfeiture rate was 10% for the three and nine months ended September 30, 2015 and 2014. Stock-based compensation expense, a non-cash expense, is included in each respective expense category as follows, for the three and nine months ended September 30, 2015 and 2014:
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Cost of revenue |
$ | 7 | $ | 29 | $ | 27 | $ | 72 | ||||||||
Sales and marketing |
16 | 47 | 48 | 68 | ||||||||||||
Research and development |
5 | | 13 | | ||||||||||||
General and administrative |
284 | 68 | 593 | 606 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation expense |
$ | 312 | $ | 144 | $ | 681 | $ | 746 | ||||||||
|
|
|
|
|
|
|
|
14
Table of Contents
Mira III Stock Option Awards The former officers and directors of Mira III had 35,938 stock options fully vested as of April 16, 2014 which provided the option to purchase shares of the Companys common shares at an exercise price of CDN$3.48 per share during a one year period ending on April 16, 2015. A placement agent from a previous offering had also been granted options to purchase 7,187 Mira III common shares which were exercised in April 2014 at an exercise price of CDN$3.48 per share. A summary of the former officers and directors of Mira III option activity for the nine months ended September 30, 2015 is as follows:
Shares | Weighted- Average Exercise Price (CDN) |
Average Remaining Weighted-Average Contractual Term |
Aggregate Intrinsic Value (USD) |
|||||||||||||
Outstanding December 31, 2014 |
35,938 | $ | 3.48 | .3 Years | | |||||||||||
Granted |
| |||||||||||||||
Exercised |
| |||||||||||||||
Canceled |
(35,938 | ) | $ | 3.48 | ||||||||||||
|
|
|||||||||||||||
Outstanding September 30, 2015 |
| $ | | | $ | | ||||||||||
|
|
|||||||||||||||
Exercisable September 30, 2015 |
| $ | | | $ | | ||||||||||
|
|
|||||||||||||||
Shares vested and expected to vest September 30, 2015 |
| $ | | | $ | | ||||||||||
|
|
As of September 30, 2015 there were no options available for grant under this plan.
11. | 401(k) PLAN |
The Company has a defined contribution plan covering substantially all of its employees, subject to certain eligibility requirements. Under the plan, participating employees may defer up to 15% of their pre-tax compensation, as defined. The Company contributes 50% of the amount contributed by a participating employee, up to a maximum of 6% of the participants pre-tax compensation. Company matching contributions for the three and nine months ended September 30, 2015 were $45 and $160, respectively, and $46 and $145 for the three and nine months ended September 30, 2014, respectively.
12. | INCOME TAXES |
For the three and nine months ended September 30, 2015, the Company recorded income tax expense of $427 and $1,195, respectively, which is comprised of $424 current expense and $3 deferred expense for the 3 months ended September 30, 2015 and is comprised of $1,185 current expense and $10 deferred expense for the nine months ended September 30, 2015.
For the three and nine months ended September 30, 2014, the Company recorded income tax expense of $412 and $441, respectively, which is comprised of $409 current expense and $3 deferred expense for the three months ended September 30, 2014 and is comprised of $431 current expense and $10 deferred expense for the nine months ended September 30, 2014.
For the three and nine months ended September 30, 2015 the current income tax expense included $405 and $1,129, respectively, of foreign tax expense related to Brazilian withholding taxes. For the three and nine months ended September 30, 2014, the current income tax expense included $399 Brazilian withholding taxes. Such taxes are applicable to licensing, technology services and royalty revenues earned within Brazil. The tax rate for such taxes is between 15%-18% and is based upon the character of the revenue and the jurisdiction of where it was earned.
As of December 31, 2014, the Company had $116,216 of federal net operating loss carryforwards that expire beginning in 2028, $69,698 of state net operating loss carryforwards that expire from 2015 through 2034, and $1,312 of research and development tax credits that expire beginning in 2028. The net operating loss carryforwards include approximately $71 for which a benefit will be recorded in additional paid-in capital when realized. In addition, the amount of the net operating loss and research and development tax credit carryforwards that may be utilized annually to offset future taxable income and tax liability may be limited as a result of certain ownership changes pursuant to Section 382 of the Internal Revenue Code. We have not completed an updated Section 382 study, since November 30, 2014, and as such are not able to assess whether an ownership change has occurred that could cause limitations to our net operating loss carryforwards.
The Company has completed a study, through November 30, 2014, to assess if any ownership changes would have caused limitations to net operating loss carryforwards. Based upon that study, the Company has concluded an ownership change occurred on September 19, 2008 and therefore there is the potential for $2,600 of net operating loss to be limited. For the period September 20, 2008 through November 30, 2014, the Company has determined that it is more likely than not that there has not been an ownership change under Section 382 through November 30, 2014.
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Table of Contents
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established for any deferred tax asset for which realization is not more likely than not. The net deferred tax liability as of September 30, 2015 and 2014 includes deferred tax liabilities related to amortizable goodwill, which are anticipated to reverse in an indefinite period and which are not currently available as a source of taxable income.
The Company recognizes in its consolidated financial statements only those tax positions that are more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. As of September 30, 2015, there are no uncertain tax positions. In addition, there are no amounts required to be included in the financial statements for interest or penalties on uncertain tax positions.
13. | RELATED-PARTY TRANSACTIONS |
In 2013 the Company issued convertible notes to Rockport Capital Partners, Allen & Company, LLC and CWE LLC. On April 16, 2014, these notes were valued collectively at $8,399 which consisted of $4,765 in cash and $3,634 in non-cash ascribed to the conversion of the Series C-1 preferred shares. In connection with the private placement on April 16, 2014, such notes were automatically converted into 629,061 voting common shares and 1,678,786 class B restricted voting common shares in accordance with the terms of the notes. Interest expense related to such notes was $0 and $62 for the nine months ended September 30, 2015 and 2014, respectively.
14. | SEGMENT REPORTING |
The Companys segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The performance of the segments is evaluated based upon several factors, of which the primary financial measures are segment revenues, gross profits, and loss from operations. The disaggregated financial results of the segments reflect the allocation of certain functional expense categories consistent with the basis and manner in which management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In addition, certain expenses and other shared costs which management does not believe are specifically and directly attributable or allocable to any of the business segments have been excluded from the presented segment contribution margins. The accounting policies of the business segments are the same as those for the consolidated Company. The Company assigns revenues to individual countries based on the customers shipment location.
The Company manages its business with the four following segments:
| Product Sales and Service Included in this business segment are the Companys sales of distributed turbines along with related services, other products produced and sold to customers, as well as, in the future, the Companys direct sales of utility-class turbines. |
| Technology Licensing Included in this business segment is the licensing of packages of the Companys developed technology. |
| Technology Development Included in this business segment is the Companys development of technology for customers. |
| Shared Services These costs and expenses are comprised mainly of the general and administrative departments including executive, finance and accounting, legal, human resources, and information technology support, as well as certain shared engineering, and in certain circumstances, sales and marketing activities. |
Unallocated costs and expenses include depreciation and amortization, stock compensation, and certain other non-cash charges, such as restructuring and impairment charges.
Revenue for the business segments are shown as follows:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
Product Sales and Service |
$ | 14,357 | $ | 12,368 | $ | 30,142 | $ | 38,954 | ||||||||
Technology Licensing |
946 | 1,955 | 3,852 | 2,541 | ||||||||||||
Technology Development |
1,364 | 709 | 3,441 | 1,063 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 16,667 | $ | 15,032 | $ | 37,435 | $ | 42,558 | ||||||||
|
|
|
|
|
|
|
|
16
Table of Contents
Income (loss) from operations for the business segments and unallocated costs and expenses are as follows:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
Product Sales and Service |
$ | 633 | $ | 604 | $ | (2,985 | ) | $ | 841 | |||||||
Technology Licensing |
868 | 1,756 | 2,954 | 1,445 | ||||||||||||
Technology Development |
873 | 555 | 2,606 | 793 | ||||||||||||
Shared Services |
(1,542 | ) | (2,190 | ) | (7,006 | ) | (6,102 | ) | ||||||||
Unallocated costs and expenses |
(736 | ) | (501 | ) | (1,927 | ) | (1,742 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income/(loss) from operations |
$ | 96 | $ | 224 | $ | (6,358 | ) | $ | (4,765 | ) | ||||||
|
|
|
|
|
|
|
|
Unallocated costs and expenses consist of:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
Depreciation and amortization |
$ | (212 | ) | $ | (194 | ) | $ | (595 | ) | $ | (763 | ) | ||||
Stock-based compensation expense |
(313 | ) | (144 | ) | (681 | ) | (746 | ) | ||||||||
Other |
(211 | ) | (163 | ) | (651 | ) | (233 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (736 | ) | $ | (501 | ) | $ | (1,927 | ) | $ | (1,742 | ) | ||||
|
|
|
|
|
|
|
|
Total business segment assets are as follow:
September 30, 2015 | December 31, 2014 | |||||||
Product Sales and Service |
$ | 25,885 | $ | 26,041 | ||||
Technology Licensing |
1,085 | 523 | ||||||
Technology Development |
1,735 | 1,629 | ||||||
Shared Services |
424 | 836 | ||||||
Unallocated assets |
5,949 | 13,825 | ||||||
|
|
|
|
|||||
Total |
$ | 35,078 | $ | 42,854 | ||||
|
|
|
|
Unallocated assets consist of the following:
September 30, 2015 | December 31, 2014 | |||||||
Cash |
$ | 5,388 | $ | 12,863 | ||||
Other current assets |
| 450 | ||||||
Property, plant and equipment, net |
19 | 25 | ||||||
Deferred tax assets |
542 | 487 | ||||||
|
|
|
|
|||||
Total |
$ | 5,949 | $ | 13,825 | ||||
|
|
|
|
Geographic information about revenue, based on shipments and/or services to customers by region, is as follows:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2015 | September 30, 2014 | September 30, 2015 | September 30, 2014 | |||||||||||||
United States |
$ | 828 | $ | 3,268 | $ | 4,743 | $ | 5,048 | ||||||||
United Kingdom |
5,628 | 7,076 | 11,385 | 15,865 | ||||||||||||
Italy |
7,900 | 2,362 | 14,114 | 13,914 | ||||||||||||
Brazil |
2,310 | 2,169 | 7,188 | 6,269 | ||||||||||||
Asia |
| 110 | | 1,406 | ||||||||||||
Rest of the world |
1 | 47 | 5 | 56 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 16,667 | $ | 15,032 | $ | 37,435 | $ | 42,558 | ||||||||
|
|
|
|
|
|
|
|
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Table of Contents
For the three and nine months ended September 30, 2015, 95% and 87% of revenues, respectively, were recognized from sales outside the United States. For the three and nine months ended September 30, 2014, 78% and 88% of revenues, respectively, were recognized from sales outside the United States.
Geographic information about long-lived assets associated with particular regions is as follows:
September 30, 2015 |
December 31, 2014 |
|||||||
United States |
$ | 4,258 | $ | 3,003 | ||||
Rest of the world |
36 | 47 | ||||||
|
|
|
|
|||||
Consolidated Total |
$ | 4,294 | $ | 3,050 | ||||
|
|
|
|
15. | SUBSEQUENT EVENTS |
Except as disclosed, the Company evaluates subsequent events through the date of this filing and had no additional subsequent events to report.
16. | COMMITMENTS AND CONTINGENCIES |
The Company has sold two prototype turbines to a customer resulting in a potential cost to perform a separately priced maintenance agreement. The Company is accounting for this contract under ASC 460 Guarantees, which requires that the measurement of a guarantee liability be the fair value of the obligation at each reporting period. If the consideration of the fair value of an obligation results in the potential of a contingent loss, consideration of the probable and estimable criteria of ASC 450-20-25 is appropriate. Furthermore, for longer-term obligations, such as this, the Company considers the use of a discount factor in determining the estimated liability to be appropriate. The Company originally estimated the discounted value of such exposure at $562, using a discount rate of 9% over approximately 10 years. The agreement was extended to December 2025 in the first quarter of 2015. The total liability related to this exposure, as of September 30, 2015 and 2014, is $408 and $333, respectively, of which $128 and $54, respectively, is recorded as a current liability.
The Defense Contract Auditing Agency (DCAA) is currently auditing the years 2004 through 2007 and an external independent audit firm is auditing 2010. These audits are in various stages of completion. During the nine months ended September 30, 2015 field work on the 2004 audit was completed and a final report issued to the National Renewable Energy Laboratory (NREL). NREL has not issued a final determination related to the findings as of September 30, 2015. There has been no activity related to audits of any other year and although the Company has not received formal notification that such audits are on hold, management believes that as of the date of these financial statements these audits have been delayed or placed on hold. Based upon the lack of a final determination from NREL on the 2004 audit and lack of activity on later audits, the Company does not have adequate information at the date of issuance of these financial statements to determine if the outcome of any of these remaining open audits will result in a cost to the Company. The Company, however, does not expect a material impact based on the results of previous audits.
The Company has entered into several operating lease agreements, primarily for the lease of office facilities, and office equipment, expiring through 2019. Rental expense under these operating lease arrangements for the three and nine months ended September 30, 2015 was $311 and $103, respectively. Rental expense under these operating lease arrangements for the three and nine months ended September 30, 2014 was $47 and $132, respectively. As described in Note 5, Property, Plant and Equipment, the Company has leased its headquarters and production facility back from the buyer for up to a five year term. The Company can terminate the lease after two years without penalty. Therefore, only one year of rental expense is included in the table below. Future minimum lease payments under noncancelable lease agreements (with initial or remaining lease terms in excess of one year) are as follows:
Years Ending December 31 | ||||
2015 |
$ | 104 | ||
2016 |
209 | |||
2017 |
16 | |||
2018 |
15 | |||
Thereafter |
3 | |||
|
|
|||
Total |
$ | 347 | ||
|
|
If the Company continues to lease the Barre facility after the two year cancellation period, it would have additional annual lease payment obligations of $201 in 2016, $345 in 2017, $345 in 2018 and $144 in 2019.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K (Annual Report) filed with the Securities and Exchange Commission (the SEC) on March 31, 2015.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including those described in this discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q and those set forth under Risk Factors in our Annual Report. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition and results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. The use of words such as anticipates, estimates, expects, intends, plans and believes, among others, generally identify forward-looking statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
Overview
We are a growing provider of advanced renewable power creation and power conversion technology for the energy sector. We design, manufacture and service next-generation Permanent Magnet Direct-Drive, or PMDD, wind turbines for the distributed wind market, and we currently license our utility-class wind turbine platform, which uses the same PMDD technology as our distributed turbines, to large manufacturers on a global basis. We also provide technology development services for a wide variety of energy applications. With our predecessor companies dating back to 1974 and our new turbine development since 1977, we have decades of experience in developing advanced, innovative wind turbines, as well as technology for power conversion and integration with other energy applications.
Our PMDD wind turbine technology is based on a simplified architecture that utilizes a unique combination of a permanent magnet generator and direct-drive design. The permanent magnet generator provides higher efficiency and higher energy capture than units that utilize a traditional gearbox design. Importantly, the direct-drive design of our turbine utilizes significantly fewer moving parts than traditional geared turbines, which increases reliability due to reduced maintenance and downtime costs.
The substantial majority of our current sales are in the small wind subset of the distributed wind market in Italy, the U.K. and the U.S., a market which commonly consists of turbines with rated capacities of 500 kW output or smaller. Since the introduction of our second generation 60 kW and 100 kW PMDD wind turbines in late 2008, we have shipped over 550 of these turbines. To date, these shipped units have run for over eight and a half million hours in the aggregate.
We have developed a 2 MW turbine platform based upon our PMDD technology. In 2013, we launched a strategy of partnering with large-scale manufacturers in developing regions, starting with a multi-billion dollar (in revenue) industrial equipment manufacturer based in Brazil (WEG Equipamentos Elétricos S.A., or WEG). We have licensed our technology to WEG exclusively for Brazil, but retain our right to sell Northern Power-branded utility-class turbines produced by WEG on a rest-of-world basis. WEG has accumulated a backlog of orders comprising over 500 MW of turbines built using our design. The first of these units were installed in Brazil in 2014, and production and installation are continuing. We are also seeking a limited number of similar partnership structures in other regions. We expect that the large-scale manufacturers we partner with will produce and sell turbines for their domestic market and expand our ability to sell turbines in new regions. We believe this approach will allow us to expand our participation in the utility-class wind turbine market without a significant investment in capital equipment that would otherwise be required.
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We have been developing our power converter technology since the early 2000s and currently sell our MW power converters under the branded name of FlexPhase. We have offerings that range in size from 500 kVA to 2.0 MVA, and that can be readily paralleled for applications of 5 MW and above. Our power converters are modular in nature allowing for a common platform to service multiple applications. As of September 30, 2015, we have deployed over 100 MW of wind related products based on this technology and intend to commercialize sales of these products outside of the wind industry for applications such as microgrids and grid storage.
In addition to wind turbine and power converter development, we provide technology development services to customers to develop products and technology for a variety of complex energy applications, including energy storage, microgrids, and grid stabilization. While the customer owns the developed technology for a limited field of use, we typically maintain a license for all other applications and all other markets. While we do not expect material revenue from these services, they fund the expansion of our intellectual property portfolio and support the development of proprietary products.
For the three months ended September 30, 2015 and 2014, respectively, we generated $16.7 million, and $15.0 million in revenue. For the three months ended September 30, 2015 and 2014 we incurred net losses of $0.5 million, and $0.3 million, respectively. We have an accumulated deficit of $167.1 million as of September 30, 2015.
We are headquartered in Barre, Vermont and lease additional office space in Waltham, Massachusetts, Zurich, Switzerland, and Bari, Italy.
We were originally incorporated in Delaware on August 12, 2008 as Wind Power Holdings, Inc., or WPHI. In February 2014, WPHI filed a Registration Statement on Form 10 (File No. 001-36317) with the SEC to register the shares of common stock of WPHI, which became effective on June 3, 2014. On April 16, 2014, we (as WPHI) completed a reverse takeover transaction, or RTO, with Mira III Acquisition Corp., a Canadian capital pool company incorporated in British Columbia, Canada, or Mira III, whereby all of the equity securities of WPHI were exchanged (as described below) for common shares and restricted voting shares of Mira III, which became the holding company of our corporate group. In connection with the RTO, Mira III changed its name to Northern Power Systems Corp., the WPHI business became Mira IIIs operating business, the WPHI directors and officers became Mira IIIs directors and officers, and the WPHI historical consolidated financial statements included in this Quarterly Report on Form 10-Q became the historical consolidated financial statements of Northern Power Systems Corp.
Upon completion of the RTO, Northern Power Systems Corp. succeeded to WPHIs status as a reporting company under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, which permits us to continue to prepare our financial statements in accordance with generally accepted accounting principles in the U.S., or GAAP. In connection with the RTO, our common shares were listed on the Toronto Stock Exchange under the symbol NPS. You may access our periodic reports and other SEC filings on EDGAR or on our website www.ir.northernpower.com, which also provides links to our Canadian securities filings on SEDAR and the SEC filings of our predecessor reporting company Wind Power Holdings, Inc. on EDGAR. This is a textual reference only. We do not incorporate the information on, or accessible through, our website into this Quarterly Report on Form 10-Q, and you should not consider any information on, or that can be accessed through, our website as part of this Quarterly Report on Form 10-Q.
On January 6, 2015, we announced that we had filed a registration statement with the SEC relating to a proposed initial U.S. public offering of our common shares. Due to unfavorable market conditions, we decided in February 2015 not to proceed with that offering.
How We Conduct Our Business
We manage our business under four business segments:
| Product Sales and Service Included in this business line are our sales of distributed-class turbines along with related services, other products produced and sold to customers, as well as in the future our direct sales of utility-class turbines. This business line reflects 86% and 81% of our revenues for the three and nine months ended September 30, 2015, respectively, and 82% and 92% for the three and nine months ended September 30, 2014, respectively. |
| Technology Licensing Included in this business line is the licensing of packages of our developed technology. This business line reflects 6% and 10% of our revenues for the three and nine months ended September 30, 2015, respectively, and 13% and 6% for the three and nine months ended September 30, 2014, respectively. |
| Technology Development Included in this business line is our development of technology for specific customer needs. This business line reflects 8% and 9% of our revenues for the three and nine months ended September 30, 2015, respectively, and 5% and 2% for the three and nine months ended September 30, 2014. |
| Shared Services These costs and expenses are comprised mainly of the general and administrative departments including executive, finance and accounting, legal, human resources, and information technology support, as well as certain shared engineering, and in certain circumstances, sales and marketing activities. |
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Unallocated costs and expenses include depreciation and amortization, stock compensation, and certain other non-cash charges, such as restructuring and impairment charges.
We have certain customer segments that are specific to each of our business offerings but we also have customers that see significant value in our ability to bring full suite licensing, development and prototype production of projects and could therefore leverage offerings across all of these capabilities.
Our international revenue was $15.8 million and $32.7 million for the three and nine months ended September 30, 2015, respectively and $11.8 million and $37.5 million for the three and nine months ended September 30, 2014, respectively, representing 95%, 87%, 78% and 88% of our revenues for those periods, respectively. We expect the majority of our revenue to continue to be outside of the U.S. for the foreseeable future. A portion of our revenues continue to be denominated in currencies other than our reporting currency, the U.S. dollar, which increased to 47% of total revenues for the three months ended September 30, 2015 as compared to 22% of total revenues for the same period in 2014 and decreasing to 38% of total revenues for the nine months ended September 30, 2015 as compared to 12% of total revenues for the same period in 2014. We expect to see a continued significant proportion of our revenues denominated in euro and other non-U.S. dollar currencies over time as we continue to expand our international sales. We are currently experiencing negative movement between the euro and the U.S. dollar, which has an adverse effect on our revenue and profitability. In October 2015, we began employing hedging strategies to reduce currency fluctuation risk.
How We Evaluate Our Operations
In managing our business we use a variety of financial and operational metrics to assess our performance, including:
| Backlog value of our offerings; |
| Deferred revenues; |
| Segment revenue, gross profits and income (loss) from operations; and |
| Non-GAAP adjusted EBITDA. |
Backlog Value of Our Offerings
We track the value of turbine product orders executed with our customers during a period, as well as the cumulative balance of backlog for all of our offerings as leading indicators of our revenue performance. We consider an order executed when a contract has been duly signed and a deposit for such contract has been received.
| Product Sales We determine order value for our turbine backlog as the turbine sale price along with our best estimate of other services expected to be rendered, such as shipping, installation and other services to ensure the effective initial operation of the turbine. Our backlog of orders for distributed turbines generally, but not always, converts to revenue within a one year period. The timing of such revenue recognition is impacted by customer specific installation conditions such as site preparation and readiness by local utilities for grid connection. In our backlog, we do not include the value of subsequent services such as operations and maintenance support that we might provide for such turbines. We track order value of other products that we sell based upon our proprietary technologies in aggregate. Other products include non-turbine products such as maintenance kits, generators and converters we assemble and sell to customers. |
| License & Development Activity We track the value of our license and development activity based on our best estimates on what will be earned in the next twelve months. The timing of revenue recognized is impacted by the achievement of contractual milestones or the percentage of the work completed as a percentage of the total costs. |
Deferred Revenues
We believe that deferred revenue is a leading indicator of our revenue performance. We present values on our balance sheet as deferred revenue at such time as cash has been collected from our customer and certain aspects of the earnings process have been completed but recognition as revenue has not been achieved in conformity with GAAP. Each of our three customer facing lines typically has deferred revenue balances, including:
| Product Sales and Service When sales of our products involve transferring title of the equipment at delivery, which we have determined to be the correct point for recognition of revenue, we present products which have been produced and billed but not delivered as deferred revenue. We also defer the recognition of revenue for our operations and maintenance services that are performed over a period of time; revenue from such contracts is recognized ratably over the contract period. We present cash values collected from customers of such contracts, net of the related recognized revenue, as deferred revenue. |
| Technology Licensing and Technology Development Our license and technology development agreements frequently result in our collection of cash for our delivery of certain milestones; however, such milestones do not always reflect the culmination of the earnings process and we therefore present the related cash collections as deferred revenue. |
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Segment Revenues, Gross Profits and Income (Loss) from Operations
We define segment gross profit as segment revenues less certain direct cost of sales and services. We define segment income (loss) from operations as segment gross profit less operating expenses excluding non-cash items such as depreciation, amortization, impairments, share-based compensation or restructuring charges. We use these profitability measures internally to track our business performance.
Non-GAAP adjusted EBITDA
We believe it is useful to exclude non-cash charges, such as depreciation and amortization and share-based compensation, from our non-GAAP adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. Because of the aforementioned limitations, you should consider non-GAAP adjusted EBITDA alongside other financial performance measures, including net income (loss), cash flow metrics and our financial results presented in accordance with GAAP.
We define non-GAAP adjusted EBITDA as earnings before interest expense, income taxes, depreciation, amortization, non-cash compensation expense, changes in the fair value of certain liability classified instruments, and certain other one-time non-cash charges.
Generally, a non-GAAP financial measure is a numerical measure of a Companys performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this Quarterly Report on Form 10-Q, however, should be considered in addition to, and not as a substitute for, or superior to, the comparable measure prepared in accordance with GAAP.
Non-GAAP adjusted EBITDA is a key financial measure used by our management and by external users of our financial statements, such as investors, commercial banks and others, to:
| assess our operating performance as compared to that of other companies in our industry, without regard to financing methods, capital structure or historical cost basis; |
| assess our ability to incur and service debt and fund capital expenditures; and |
| generate future operating plans and make strategic decisions. |
Non-GAAP adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our non-GAAP adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate non-GAAP adjusted EBITDA in the same manner. Some of the limitations in non-GAAP adjusted EBITDA are:
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; |
| non-GAAP adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| non-GAAP adjusted EBITDA does not include the impact of share-based compensation; |
| non-GAAP adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; and |
| other companies, including companies in our industry, may calculate non-GAAP adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. |
Factors Affecting Our Results of Operations
We believe that the most significant factors that affect our financial performance and results of operations are as follows:
UK and Italian Government Feed-in-Tariff and Blade Supply Impact on Near-term Results
In August 2015, the U.K. Department of Energy and Climate Change commenced a process to solicit comments on a proposed 60% reduction to the feed-in-tariff for wind turbines ranging in capacity from 50 kW to 1.5MW. If enacted, this reduction would be
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effective on January 1, 2016. Although we cannot be certain whether this or other changes to the U.K. feed-in-tariff will be enacted, we expect the current uncertainty to drive increased orders in the fourth quarter of 2015. If the change to the feed-in-tariff is enacted as proposed, this could have a negative impact on orders in the U.K. market in 2016, and a corresponding adverse effect on our financial results in one or more fiscal quarters during 2016.
In November 2014, the Italian governmental authorities announced that a clarification of the feed-in-tariff applicable to distributed-class turbines would be issued in the near term. The Italian feed-in-tariff currently runs until December 31, 2015 and under the current law will automatically extend until December 31, 2016. With drafts of the revision of the feed-in-tariff law being circulated in June, indication is that a revised feed-in-tariff decree that will be valid until December 31, 2016 may be announced and published shortly. The ongoing uncertainty caused a portion of our Italian order negotiations to be delayed. Despite this uncertainty, the pace of order closures in Italy continued to be strong in our third quarter, although delay in final implementation of this extension had a corresponding adverse effect on our revenue, net income, earnings per share and gross margin for the nine months ended September 30, 2015. In the beginning of 2015, we committed a large amount of our working capital to build up substantial inventory in anticipation of distributed-class turbine orders for the Italian market. During the quarter ended September 30, 2015, we began to see a reduction in our committed working capital as order activity in the Italian market began to increase. There are further indications that the Ministry of Economy will implement a new feed-in-tariff law in June 2016 that supports small wind deployment from January 2017 until December 31, 2020.
Our revenue during the nine months of 2015 was negatively impacted by our primary supplier of blades ceasing operations, which occurred in February 2015, and our resulting decision to transition to two new suppliers. As of the end of our third quarter, these new blade suppliers are effectively producing and supplying blades but at an increased cost to us from our prior supplier. We currently believe that the majority of the cost of our blade supply transition has been incurred but we expect certain continued increased costs to exist, which will have a limited adverse effect on our net income, earnings per share and gross margin for the remainder of 2015.
Foreign Currency Fluctuations Could Impact Profitability
A substantial amount of our business in 2015 could be non-U.S. dollar denominated sales transactions, which we currently expect to be predominantly denominated in euros. This can result in a significant proportion of our receivables being denominated in foreign currencies. While a majority of our costs will be in the U.S. dollar, we do incur a portion of our costs in euros, Chinese renminbi, Canadian dollars, Swiss francs and British pounds. In addition, we expect to be entering into extended duration operations and maintenance contracts, which would obligate us to perform services in the future based upon currently negotiated non-U.S. dollar denominated pricing terms. Although we are pursuing economic hedging strategies, including increasing our euro-denominated costs and entering into euro-based forward contracts, there can be no assurance that we can execute these strategies to effectively control the economic exposure of currency movements. Negative movements in the exchange rate between foreign currencies and the U.S. dollar, such as those recently affecting the euro, could have an adverse effect on our revenues and delay our achieving profitability.
Our Ability to Source and Manage Working Capital Requirements
Our business operations require significant working capital. Our operating results and future growth depend on our ability to optimize the working capital cycle time and to source adequate working capital commensurate with the size of our business. Some of our suppliers require us to make prepayments in advance of shipment. We have currently started providing our customers with alternative payment options, such as letters of guarantee. Historically, we have managed to optimize our working capital cycle time and to source the required working capital from banks and capital financings.
Government Policies Including Incentives, Tariffs, Taxes and Duties Affecting the Wind Power Sector
Government incentives continue to be one of the main drivers for developing wind energy technology and increasing capacity. Although government support programs differ from country to country, a number of countries have implemented incentive schemes, thus providing various types of subsidies and long-term tariffs to wind power developers. Historically, we and our customers have benefited from fiscal benefits applicable to investments in the wind power industry by federal, state and local governments in the U.S. and Europe. Changes in these policies have affected, and will continue to affect, the investment plans of our customers and us, as well as our business, financial condition and results of operations.
Currently there are certain feed-in-tariff regimes in Italy and the U.K. supporting the installation and operation of distributed-class wind turbines. Since these regimes were clarified recently relative to the sales cycles of our turbines and our distributed-class turbines are well suited for these installations, our orders for distributed-class turbines increased in the nine months ended September 30, 2015 as compared to same period in 2014. The U.K. Government announced in September 2015 a 5% reduction to the feed-in-tariff for the period from October 1, 2015 until December 31, 2015, followed by a further decline of 60% as of January 1, 2016. As disclosed above, this announcement is under comment. The Italian feed-in-tariff currently runs until December 31, 2015 and under the current law will automatically extend until December 31, 2016. There are further indications that the Ministry of Economy will implement a new feed-in-tariff law in June 2016 that supports small wind deployment from January 2017 until December 31, 2020.
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Our third generation distributed turbine offers customers meaningfully improved economics that make the turbines more relevant for regions that do not have economic incentives. As we continue sales in our core markets we expect to continue to expand our product offering and sales force to increase our sales in other regions.
Demand for Renewable Energy and Specifically for Wind Power Energy
Changes in prices of oil, coal, natural gas and other conventional energy sources influence the demand for electricity and for renewable energy sources. Our business expansion and revenue growth has depended, and will continue to depend, on demand for renewable energy, specifically wind power energy products and future growth of the wind turbine market which will be affected by the growth of the global and regional economies, the stability of financial markets and the ability of wind turbine manufacturers to further expand production capacity and reduce manufacturing costs.
In addition to competition from other industry participants and to traditional fossil fuel sources, we face competition from other renewable energy sources such as solar power. The competition depends on the resources available within the specific markets. Although the cost to produce clean, reliable, wind energy is becoming more competitive, we must also compete with the production of solar power, hydroelectric, geothermal, and other forms of renewable energy. However, deregulation, legislative mandates for renewable energy, and consumer preference for environmentally more benign energy sources are becoming important factors in increasing the development of wind energy projects.
Wind Turbine Sales to Customers
We began commercial delivery of our platform of distributed-class wind turbines in 2008. We recognize revenue based on the value of the turbine product when title is transferred assuming all other criteria for revenue recognition have been met. Consequently, our results of operations have been and will continue to be significantly affected by the number of units of wind turbines we sell and the timing of revenue recognition on such sales at any given period. In addition, since certain of our wind turbine products are sold at different prices and we are developing other models of wind turbines, we expect changes to our product mix will also affect our results of operations and margins.
Development of the Distributed Wind Market
Applications for distributed energy, and as a subset distributed wind, continue to evolve globally. Many regions of the world have notable proportions of their population with either no access to electrical power or with unstable power access. It is important to the growth of our business to have offerings that are well suited to support such distributed energy needs. We expect to continue to invest in both research and development to refine our distributed-class turbine offerings as well as in our sales force to develop opportunities globally for the sales of our turbines.
International Expansion
We intend to invest in the expansion of our international sales and marketing efforts as we see opportunities for us to expand direct turbine sales, and technology licensing and development offerings. Certain regions are expanding wind power as a source of energy driven either by the natural cost of energy in such regions or by certain incentive regimes. We currently derive a significant proportion of our revenues outside of the U.S., and we expect this to continue. We currently intend to increase our sales and marketing investment on targeted regions with strong wind resources within any of Asia, Europe, and North America.
Pricing of Wind Turbines
Pricing of our wind turbines is principally affected by the overall demand and supply in the wind power equipment industry and by the average wind turbine manufacturing cost. We price our wind turbines with reference to the prevailing market prices when we enter into sales contracts with our customers, taking into consideration our estimated costs and an appropriate expected gross profit margin.
Prices of Raw Materials and Components and Their Availability
Raw materials and components used in the production of our wind turbines are sourced from domestic suppliers as well as international suppliers, and their prices are dependent on various factors in addition to supply and demand. The fluctuations in prices of such raw materials and components and their availability will affect our operating results. In addition, the primary raw materials used in some of our components include steel and copper. Consequently, the prices we pay to our suppliers for such components may be affected by movements in prices for these raw materials.
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We generally engage two suppliers for each of our major components to minimize the dependency on any single supplier. We currently have certain critical components for which we only have a single source supplier. As noted above, the primary supplier of blades for our distributed-class turbines ceased operations in February 2015, and the resulting supply constraint had an adverse effect on our revenues for the nine months ended September 30, 2015. We have transitioned to two new suppliers and as of the end of our third quarter these new blade suppliers are effectively producing and supplying blades but at an increased cost to us from our prior supplier.
Ability to Design and Market Technologically Advanced and Cost-Competitive Turbine Models
Although we have successfully launched three generations of our distributed-class wind turbines, our operating results and future growth depend on our ability to continue to develop and license technologies, and market technologically advanced and cost competitive wind turbines. We expect to continue to optimize the performance of our products under diverse operating conditions such as in low and high temperatures, low wind velocity and coastal areas, as well as reduce the cost of our offerings. Our ability to design and develop new products that meet these changing requirements has been and will continue to be critical to our ability to maintain and increase our installed capacity sold and profitability. As a result, we expect to continue to make significant investments in research and development, particularly with respect to designing and developing more technologically advanced and cost-competitive products and core components.
Seasonality in Our Operations
Wind turbine sales in the regions in which we currently sell our turbines are affected by seasonal variations and the timing of government incentive structures. To satisfy the delivery schedules, we manufacture most of our wind turbines during the second and third quarters of each year for delivery and installation in the third and fourth quarters. This schedule is due primarily to the weather conditions, which are more favorable in these quarters for installation in northern areas to which we supply most of our wind turbines. We expect that the seasonality will gradually lessen as we obtain more purchase orders for sale of wind turbines in additional geographies.
Investment in People
As of September 30, 2015, we had 109 full-time employees, a decrease of 7 full-time employees, or approximately 6%, from September 30, 2014. We must retain our high-performing personnel in order to continue to develop, sell and market our products and services and manage our business.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the Companys 2014 consolidated financial statements and related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (File No. 000-55184). The condensed consolidated balance sheet as of December 31, 2014 and the condensed consolidated statement of changes in shareholders equity as of the year ended December 31, 2014 were derived from the Companys annual audited financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the timing and amount of assets, liabilities, equity, revenue, and expenses reported and disclosed. Actual amounts could differ from these estimates. All adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods have been recorded. Actual amounts could differ from these estimates. Due to differing business conditions and seasonality, operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected in subsequent quarters or for the full year ending December 31, 2015.
Share-based Compensation
We previously had four equity incentive plans. As a result of the RTO all of these plans were converted in substance to the Northern Power Systems Corp. 2014 Stock Option and Incentive Plan (2014 NPS Corp Plan), which was adopted in April 2014. The 2014 NPS Corp Plan provides for the grant of incentive stock options, non-statutory share options, and other types of share awards to our officers, employees, non-employee directors and consultants. 4,000,000 common shares are reserved for issuance upon the grant or exercise of awards under this plan.
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Significant Accounting Estimates
We review all significant estimates affecting our consolidated financial statements on a recurring basis and record the effects of any necessary adjustments prior to their publication. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of consolidated financial statements; accordingly, it is possible that actual results could differ from those estimates and changes to estimates could occur in the near term. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We use estimates and assumptions in accounting for the following significant matters, among others: revenue recorded from licensing and development agreements; realizability of accounts receivable; and valuation of inventory, goodwill and long-lived assets, warranty reserves, deferred income tax assets, share-based compensation and contingencies.
Results of Operations of the three months ended September 30, 2015 compared to the three months ended September 30, 2014
Overview
Our general activity during the three months ended September 30, 2015 was primarily focused on: expanding our order backlog of distributed turbines in key European markets, especially in Italy; optimizing our supply chain and operating profile to improve our margins; and continuing to expand our technology licensing and development business.
Our general activity during the third quarter of 2014 was primarily focused on: expanding our order backlog of distributed turbines in key European markets, continuing to expand our technology licensing and development business, commercializing our next generation platform of our distributed class turbine which is projected to reduce our cost of the turbine while increasing energy capture, and expanding our key leadership resources to expand our sales efforts into new geographies.
Revenue, Orders and Deferred Revenue (dollars in millions)
Total revenues from Product Sales and Service, Technology Licensing and Technology Development increased by $1.7 million, or 11%, to $16.7 million for the three months ended September 30, 2015 from $15.0 million for the three months ended September 30, 2014. Our overall backlog decreased to approximately $36 million at September 30, 2015 as compared to approximately $47 million at September 30, 2014. Our backlog of orders generally, but not always, converts to revenue for us within a one year period. The timing of such revenue recognition is impacted by customer specific installation conditions such as site preparation and readiness by local utilities for grid connection.
A comparison of our revenues for the three months ended September 30, 2015 and 2014 is as follows:
Three Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 14.3 | $ | 12.4 | $ | 1.9 | 15 | % | ||||||||
Technology Licensing |
1.0 | 1.9 | (0.9 | ) | (47 | ) | ||||||||||
Technology Development |
1.4 | 0.7 | 0.7 | 100 | ||||||||||||
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Total |
$ | 16.7 | $ | 15.0 | $ | 1.7 | 11 | % | ||||||||
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Product Sales and Service
Product sales and service revenue increased by $1.9 million to $14.3 million for the three months ended September 30, 2015, from $12.4 million for the same period in 2014. The increase in our Product Sales and Service revenue was primarily attributed to recognizing higher revenue on sales of our distributed-class turbines which totaled $13.0 million for the three months ended September 30, 2015 as compared to $10.9 million and $0.9 million for turbines and non-turbine products, respectively, for the three months ended September 30, 2014. Related service revenue totaled $1.3 million for the three months ended September 30, 2015 and $0.6 million for the same period in 2014. We recognized revenue on 51 units for the three months ended September 30, 2015 as compared to 33 units for the three months ended September 30, 2014 This increase was partially offset by an increase in the U.S. dollar relative to the Euro over the periods resulted in lower revenue for the period ended September 30, 2015.
During the three months ended September 30, 2015, we executed 42 new distributed-class turbine sales orders. During the three months ended September 30, 2014, we executed 55 new distributed-class turbine sales orders. Our deferred revenue balance associated with Product Sales and Service at September 30, 2015 was $4.9 million which is included in the backlog value disclosed above. At September 30, 2014, such balance was $3.8 million.
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Technology Licensing Revenue
Technology licensing revenue decreased by $0.9 million to $1.0 million for the three months ended September 30, 2015 from $1.9 million for the same period in 2014. This decrease is attributed to recognizing $0.6 million in royalty fees and $0.3 million in license fees related to our licensing agreement with a significant customer, as compared to $1.8 million in the same period for 2014. Our contract with this customer provides for payment of approximately $3 million in license fees and potentially in excess of $10 million in royalty revenues over time, for the license of our 2.X MW platform exclusively in Brazil and non-exclusively in the rest of South America. Our deferred revenue balance associated with Technology Licensing was $0 million as of September 30, 2015. At September 30, 2014, such balance was $0.9 million.
Technology Development Revenue
Technology development revenue increased by $0.7 million to $1.4 million for the three months ended September 30, 2015 from $0.7 million for the same period in 2014. This increase is attributed to recognizing $1.2 million of revenue related to a contract with a significant customer to develop a 3.3 MW turbine executed in 2014. We determined that the contract milestones were non-substantive because they did not correlate with the level of effort expended. Therefore, we are recognizing revenue on the contract using the percentage of completion method. The degree of completion is determined based on costs incurred, excluding costs that are not representative of progress to completion, as a percentage of total costs anticipated for the contract. There is a risk that costs could exceed billings in which case costs would be deferred until such time as the associated revenue is recognized. Deferred revenue would result when amounts billed exceed costs incurred under the contract. Our total deferred revenue balance associated with Technology Development was $0 million as of September 30, 2015. At September 30, 2014, such balance was $1.9 million.
Cost of Goods Sold and Cost of Service Revenues (dollars in millions)
Cost of goods sold and cost of services revenues collectively increased by $3.1 million or 30% in the three months ended September 30, 2015 to $13.3 million as compared to $10.2 million in the three months ended September 30, 2014.
A comparison of our costs of goods sold and cost of services for the three months ended September 30, 2015 and 2014 is as follows:
Three Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 12.6 | $ | 9.7 | $ | 2.9 | 30 | % | ||||||||
Technology Licensing |
| 0.1 | (0.1 | ) | | |||||||||||
Technology Development |
0.5 | 0.2 | 0.3 | 150 | ||||||||||||
Unallocated |
0.2 | 0.2 | 0.0 | | ||||||||||||
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Total |
$ | 13.3 | $ | 10.2 | $ | 3.1 | 30 | % | ||||||||
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Product Sales and Service Cost of Goods and Costs of Service Sold
Product sales and service cost for the three months ended September 30, 2015 increased by $2.9 million to $12.6 million for the three months ended September 30, 2015, from $9.7 million for the same period in 2014. The increase is attributable to recognizing cost of sale on 51 units in the three months ended September 30, 2015 as compared to 33 units for the same period in 2014. Although we have seen an improvement in costs in blades in the quarter ended September 30, 2015 compared to the quarter ended June 30, 2015, these costs were higher than the costs for blades incurred in the quarter ended September 30, 2014, as a result of our primary blade supplier ceasing operations in February 2015. These increases in cost were offset by certain cost reduction efforts and lower costs from non-turbine sales. Our cost of goods sold was $11.6 million for product sales along with $1.0 million of related service costs for the three months ended September 30, 2015 and $9.0 million for product sales and $0.7 million for related service costs for the same period in 2014.
Technology Licensing Cost of Service
Technology licensing cost of services for the three months ended September 30, 2015 decreased by $0.1 million to $0 million from $0.1 million for the same period in 2014. The decrease reflects reduced costs associated with license and royalty revenue in the three months ended September 30, 2015 as compared to 2014.
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Technology Development Cost of Service
Technology development cost of services for the three months ended September 30, 2015 increased by $0.3 million to $0.5 million from $0.2 million for the same period in 2014. This increase is related to increased development activity with other parties.
Unallocated
The costs from unallocated expenses for the three months ended September 30, 2015 remained consistent at $0.2 million for the three months ended September 30, 2015 as for the same period in 2014.
Segment Gross Profit (Loss) (dollars in millions)
Three Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 1.7 | $ | 2.7 | $ | (1.0 | ) | (37 | )% | |||||||
Technology Licensing |
1.0 | 1.8 | (0.8 | ) | (44 | ) | ||||||||||
Technology Development |
0.9 | 0.5 | 0.4 | 80 | ||||||||||||
Unallocated |
(0.2 | ) | (0.2 | ) | 0.0 | | ||||||||||
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Total |
$ | 3.4 | $ | 4.8 | $ | (1.4 | ) | 29 | % | |||||||
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Product Sales and Service
Gross profit from product sales and service for the three months ended September 30, 2015 decreased by $1.0 million to a profit of $1.7 million compared to a profit of $2.7 million for the same period in 2014. This change was principally due to the $2.9 million increase in cost of goods sold more than offsetting the $1.9 million increase in revenues of product sales for the three months ended September 30, 2015.
Technology Licensing
Gross profit from technology licensing for the three months ended September 30, 2015 decreased by $0.8 million to $1.0 million from $1.8 million for the same period in 2014. The decrease is principally due to lower revenue recognition in 2015 from third party licensing and royalty arrangements offset by lower related cost of sales.
Technology Development
Gross profit from technology development for the three months ended September 30, 2015 increased by $0.4 million to $0.9 million from $0.5 million for the same period in 2014, as higher revenues from contract technology development services were partially offset by an increase in cost of sales.
Unallocated
Gross loss from unallocated expenses for the three months ended September 30, 2015 was unchanged at ($0.2) million as compared to the same period in 2014.
Operating Expenses
Research and Development Expenses
Research and development expenses decreased by $0.6 million or 38% to $0.7 million from $1.3 million for the three months ended September 30, 2015 as compared to the same period in 2014. This decrease reflects success of cost cutting efforts enacted during 2015.
Sales and Marketing
Sales and marketing expenses decreased by $0.1 million or 10% to $0.9 million for the three months ended September 30, 2015 from $1.0 million for the same period in 2014.
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General and Administrative Expenses
General and administrative expenses decreased by $0.7 million or 30% to $1.6 million for the three months ended September 30, 2015 from $2.3 million for the same period in 2014. This decrease reflects success of cost cutting efforts associated with employee related and consulting costs, enacted during 2015.
Income/(loss) from Operations
Our income from operations decreased by $0.1 million to $0.1 million for the three months ended September 30, 2015 compared to $0.2 million for the same period in 2014. The decreased income is principally due to lower gross profit of $1.4 million offset by a $1.3 million decrease in operating expenses.
Segment Income (Loss) from Operations (dollars in millions)
Three Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 0.6 | $ | 0.6 | $ | 0.0 | | % | ||||||||
Technology Licensing |
0.9 | 1.7 | (0.8 | ) | 47 | |||||||||||
Technology Development |
0.9 | 0.6 | 0.3 | 50 | ||||||||||||
Shared Service |
(1.6 | ) | (2.2 | ) | 0.6 | 27 | ||||||||||
Unallocated |
(0.7 | ) | (0.5 | ) | (0.2 | ) | (40 | ) | ||||||||
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Loss from operations |
$ | 0.1 | $ | 0.2 | $ | (0.1 | ) | 50 | % | |||||||
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Product Sales and Service
Income from operations from product sales and service for the three months ended September 30, 2015 remained consistent at $0.6 million for the three months ended September 30, 2015 and for the same period in 2014.
Technology Licensing
Income from operations from technology licensing for the three months ended September 30, 2015 decreased by $0.8 million to $0.9 million compared to $1.7 million for the same period in 2014, due to a decrease in gross profit of $0.8 million from revenue license fees and royalties under our 2.X license agreement.
Technology Development
Income from operations from technology development for the three months ended September 30, 2015 increased by $0.3 million to $0.9 million compared to $0.6 million for the same period in 2014, due to an increase in development revenue resulting in higher margin in 2015.
Shared Services
Corporate shared general and administrative loss for the three months ended September 30, 2015 decreased by $0.6 million to ($1.6) million compared to ($2.2) million for the same period in 2014 principally due to decreased consulting and professional fees.
Unallocated
The loss from unallocated expenses for the three months ended September 30, 2015 increased by $0.2 million to ($0.7) million compared to ($0.5) million in the same period in 2014 due to a higher stock compensation.
The table below breaks out the unallocated expenses by category for the periods reported (dollars in millions).
Three Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Depreciation and amortization |
$ | 0.2 | $ | 0.2 | $ | | | % | ||||||||
Stock-based compensation |
0.3 | 0.1 | 0.2 | 200 | ||||||||||||
Other |
0.2 | 0.2 | | | ||||||||||||
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Total charges |
$ | 0.7 | $ | 0.5 | $ | 0.2 | 40 | % | ||||||||
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Other Expense and Income Tax Expense
Other expense increased by $0.1 million to $0.2 million for the three months ended September 30, 2015 as compared to $0.1 million for the same period in 2014. This increase is primarily the result of an increase in foreign currency loss expense in the three months ended September 30, 2015 when compared to the same time period in 2014.
Income tax expense was $0.4 million for the three months ended September 30, 2015 and $0.4 million for the same period in 2014.
Net Loss
Net loss increased by $0.2 million or 67%, to ($0.5) million for the three months ended September 30, 2015 from a net loss of ($0.3) million for the same period in 2014.
The increase in our net loss for the three months ended September 30, 2015, is primarily due to the increase in loss from operations of $0.1 million and an increase in other expense and income tax expense of $0.1 million.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a companys performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measure prepared in accordance with GAAP. We utilize the non-GAAP measure of non-GAAP adjusted EBITDA which we define as earnings before interest expense, income taxes, depreciation, amortization, non-cash compensation expense, changes in the fair valuation of certain liability classified instruments, and certain other one-time non-cash charges.
Non-GAAP Adjusted EBITDA (Loss) (dollars in millions)
Three Months Ended September 30, |
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2015 | 2014 | |||||||
Net loss |
$ | (0.5 | ) | $ | (0.3 | ) | ||
Provision for income tax |
0.5 | 0.4 | ||||||
Interest expense |
0.0 | 0.1 | ||||||
Depreciation and amortization |
0.2 | 0.2 | ||||||
Stock-based compensation |
0.3 | 0.1 | ||||||
Non cash implied license revenue |
(0.2 | ) | | |||||
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Total noncash addbacks, net |
0.8 | 0.8 | ||||||
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Non-GAAP Adjusted EBITDA Income |
$ | 0.3 | $ | 0.5 | ||||
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Non-GAAP adjusted EBITDA was an income of $0.3 million for the three months ended September 30, 2015 and income of $0.5 million for the same period in 2014. The change in non-GAAP adjusted EBITDA income for the period ending September 30, 2015 is primarily attributable to a decrease in net income resulting from lower gross margins partially offset by lower operating costs as compared to the same period in 2014.
Results of Operations of the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014
Overview
Our general activity during the nine months ended September 30, 2015 was primarily focused on: expanding our order backlog of distributed turbines in key European markets, especially in Italy; stabilizing our supply chain for blades with two new suppliers; continued support of our release of our third generation products turbine which is projected to reduce our cost of the turbine while increasing energy capture; optimizing our supply chain and operating profile to improve our margins; and continuing to expand our technology licensing and development business. In addition, we pursued an equity capital raise in the first quarter; however, due to then current market conditions, we decided not to complete this capital raise at that time.
Our general activity during the first nine months of 2014 was primarily focused on: concluding our capital raise and public listing on the TSX; expanding our order backlog of distributed turbines in key European markets; continuing to expand our technology licensing and development business including closing a 3.3 MW development agreement with WEG; building our first prototypes of our next generation platform of our distributed class turbine which is projected to reduce our cost of the turbine while increasing energy capture; and expanding our key leadership resources to expand our sales efforts into new geographies.
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Revenue, Orders and Deferred Revenue (dollars in millions)
Total revenues from Product Sales and Service, Technology Licensing and Technology Development decreased by $5.2 million, or 12%, to $37.4 million for the nine months ended September 30, 2015 from $42.6 million for the nine months ended September 30, 2014. Our overall backlog decreased by 23% to approximately $36 million at September 30, 2015 as compared to approximately $47 million at September 30, 2014. Our backlog of orders generally, but not always, converts to revenue for us within a one year period. The timing of such revenue recognition is impacted by customer specific installation conditions such as site preparation and readiness by local utilities for grid connection.
A comparison of our revenues for the nine months ended September 30, 2015 and 2014 is as follows:
Nine Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 30.1 | $ | 39.0 | $ | (8.9 | ) | (23 | )% | |||||||
Technology Licensing |
3.9 | 2.5 | 1.4 | 56 | ||||||||||||
Technology Development |
3.4 | 1.1 | 2.3 | 209 | ||||||||||||
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Total |
$ | 37.4 | $ | 42.6 | $ | (5.2 | ) | (12 | )% | |||||||
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Product Sales and Service
Product sales and service revenue decreased by $8.9 million to $30.1 million for the nine months ended September 30, 2015, from $39.0 million for the same period in 2014. The decrease in our Product Sales and Service revenue was primarily attributed to recognizing lower revenue on sales of our distributed-class turbines which totaled $25.6 million along with a decrease in sales of our non-turbine products which totaled $1.8 million for the nine months ended September 30, 2015 as compared to $32.8 million and $4.7 million for turbines and non-turbine products, respectively, for the nine months ended September 30, 2014. Declines in distributed class and non-turbine revenues were partially offset by a $0.9 million increase in utility scale turbine revenue resulting from the sale of a prototype 2.2 MW unit during Q1 2015. Related service revenue totaled $2.7 million for the nine months ended September 30, 2015 and $1.5 million for the same period in 2014. We recognized revenue on 99 units for the nine months ended September 30, 2015 as compared to 110 units for the nine months ended September 30, 2014. The 11 unit decrease in turbine sales period over period reflects the recognition of revenue for certain distributed-class turbines which were delivered just after year-end 2013. In addition, the increase in the U.S. dollar relative to the Euro over the periods resulted in lower revenue for the latter period.
During the nine months ended September 30, 2015, we executed 113 new distributed-class turbine sales orders. During the nine months ended September 30, 2014, we executed 101 new distributed-class turbine sales orders. Our deferred revenue balance associated with Product Sales and Service at September 30, 2015 was $4.9 million which is included in the backlog value disclosed above. At September 30, 2014, such balance was $3.8 million.
Technology Licensing Revenue
Technology licensing revenue increased by $1.4 million to $3.9 million for the nine months ended September 30, 2015 from $2.5 million for the same period in 2014. This increase is attributed to recognizing $2.4 million in license and $1.4 million in royalty revenues related to our licensing agreement with a significant customer, as well as $0.1 million in license revenue from other customers. For the nine months ended September 30, 2014 revenues related to our licensing agreement with this customer were $1.5 million in license fees and $0.3 million in royalty revenues. Our contract with this customer provides for payment of approximately $3 million in license fees and potentially in excess of $10 million in royalty revenues over time, for the license of our 2.X MW platform exclusively in Brazil and non-exclusively in the rest of South America. Our deferred revenue balance associated with Technology Licensing was $0 million as of September 30, 2015. At September 30, 2014, such balance was $0.9 million.
Technology Development Revenue
Technology development revenue increased by $2.3 million to $3.4 million for the nine months ended September 30, 2015 from $1.1 million for the same period in 2014. This increase is attributed to recognizing $3.4 million of revenue related to a contract with a significant customer to develop a 3.3 MW turbine executed in 2014. We determined that the contract milestones were non-substantive
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because they did not correlate with the level of effort expended. Therefore, we are recognizing revenue on the contract using the percentage of completion method. The degree of completion is determined based on costs incurred, excluding costs that are not representative of progress to completion, as a percentage of total costs anticipated for the contract. There is a risk that costs could exceed billings in which case costs would be deferred until such time as the associated revenue is recognized. Deferred revenue would result when amounts billed exceed costs incurred under the contract. Our total deferred revenue balance associated with Technology Development was $0 million as of September 30, 2015. At September 30, 2014, such balance was $1.9 million.
Cost of Goods Sold and Cost of Service Revenues (dollars in millions)
Cost of goods sold and cost of services revenues collectively decreased by $3.3 million or 10% in the nine months ended September 30, 2015 to $31.0 million as compared to $34.3 million in the nine months ended September 30, 2014.
A comparison of our costs of goods sold and cost of services for the nine months ended September 30, 2015 and 2014 is as follows:
Nine Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 29.3 | $ | 32.6 | $ | (3.3 | ) | (10 | )% | |||||||
Technology Licensing |
0.3 | 0.6 | (0.3 | ) | (50 | ) | ||||||||||
Technology Development |
0.8 | 0.3 | 0.5 | 167 | ||||||||||||
Shared Service |
0.1 | 0.1 | 0.0 | | ||||||||||||
Unallocated |
0.5 | 0.7 | (0.2 | ) | (29 | ) | ||||||||||
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Total |
$ | 31.0 | $ | 34.3 | $ | (3.3 | ) | (10 | )% | |||||||
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Product Sales and Service Cost of Goods and Costs of Service Sold
Product sales and service cost for the nine months ended September 30, 2015 decreased by $3.3 million to $29.3 million from $32.6 million for the same period in 2014. The decrease in product sales and service cost is primarily attributed to the recognition of a lower volume related to our distributed-class turbine sales and decreased sales of non-turbine products for the nine months ended September 30, 2015 as compared to the same period in 2014. Although we have seen an improvement in costs in blades in the nine months ended September 30, 2015, these costs were higher than the costs incurred as compared to the quarter ended September 30, 2014, as a result of our primary blade supplier ceasing operations in February 2015. In addition, we incurred one-time costs to transition to two new blade suppliers within the second quarter. Our cost of goods sold was $26.6 million for product sales along with $2.7 million of related service costs for the nine months ended September 30, 2015 and $30.6 million for product sales and $2.0 million for related service costs for the same period in 2014.
Technology Licensing Cost of Service
Technology licensing cost of services for the nine months ended September 30, 2015 decreased by $0.3 million to $0.3 million from $0.6 million for the same period in 2014. The decrease reflects reduced costs associated with license milestone and royalty revenue in the nine months ended September 30, 2015 as compared to 2014.
Technology Development Cost of Service
Technology development cost of services for the nine months ended September 30, 2015 increased by $0.5 million to $0.8 million from $0.3 million for the same period in 2014. This increase is related to increased activity related to development of a 3.3 MW turbine and an increase in development activity with other parties.
Shared Service
Shared service cost of services for the nine months ended September 30, 2015 remained consistent at $0.1 million compared to the same period in 2014. This reflects the success of cost cutting measures enacted in 2015.
Unallocated
The costs from unallocated expenses for the nine months ended September 30, 2015 decreased by $0.2 million to $0.5 million from $0.7 million for the same period in 2014. This reflects lower property depreciation as the production facility was sold in June 2014.
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Segment Gross Profit (Loss) (dollars in millions)
Nine Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 0.8 | $ | 6.4 | $ | (5.6 | ) | (88 | )% | |||||||
Technology Licensing |
3.6 | 1.9 | 1.7 | 89 | ||||||||||||
Technology Development |
2.6 | 0.8 | 1.8 | 225 | ||||||||||||
Shared Service |
(0.1 | ) | (0.1 | ) | 0.0 | | ||||||||||
Unallocated |
(0.5 | ) | (0.7 | ) | 0.2 | 29 | ||||||||||
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Total |
$ | 6.4 | $ | 8.3 | $ | (1.9 | ) | (23 | )% | |||||||
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Product Sales and Service
Gross profit from product sales and service for the nine months ended September 30, 2015 decreased by $5.6 million to $0.8 million compared to $6.4 million for the same period in 2014. This change was principally due to a decrease in sales of distributed-class turbines and non-turbine products of $8.9 million, partially offset by lower cost of goods sold of $3.3 million in the nine months ended September 30, 2015.
Technology Licensing
Gross profit from technology licensing for the nine months ended September 30, 2015 increased by $1.7 million to $3.6 million from $1.9 million for the same period in 2014. The improvement is principally due to higher revenue recognition in 2015 from third party licensing and royalty arrangements along with lower related cost of sales.
Technology Development
Gross profit from technology development for the nine months ended September 30, 2015 increased by $1.8 million to $2.6 million compared to $0.8 million for the same period in 2014, principally due to higher revenues from contract technology development services provided to a significant customer and other third parties in 2014.
Shared Service
Gross loss from shared service for the nine months ended September 30, 2015 remained consistent at ($0.1) million as for the same period in 2014.
Unallocated
Gross loss from unallocated expenses for the nine months ended September 30, 2015 decreased by $0.2 million to ($0.5) million from ($0.7) million for the same time period in 2014.
Operating Expenses
Research and Development Expenses
Research and development expenses decreased by $0.8 million or 23% to $2.7 million for the nine months ended September 30, 2015 as compared to $3.5 million for the same time period in 2014. The reduction in research and development expense is primarily the result of a decrease in consulting expense of $0.6 million and a decrease in other research and development costs of $0.2 million.
Sales and Marketing
Sales and marketing expenses increased by $0.7 million or 26% to $3.4 million for the nine months ended September 30, 2015 from $2.7 million for the same period in 2014. The increase in sales and marketing expenses was driven by an expansion in worldwide business development efforts and resources.
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General and Administrative Expenses
General and administrative expenses decreased by $0.1 million or 1% to $6.7 million for the nine months ended September 30, 2015 from $6.8 million for the same period in 2014. The decrease in our general and administrative expenses is primarily explained by a $0.7 million reduction in consulting and professional fees partially offset by recognizing $0.6 million in expenses related to an uncompleted capital raise in 2015.
Loss from Operations
Our loss from operations increased by $1.5 million to ($6.3) million for the nine months ended September 30, 2015 compared to ($4.8) million for the same period in 2014. The increased loss is principally due to lower gross profit of $1.9 million, a $1.3 million decrease in consulting and professional fees, a $0.6 million increase in expenses related to an uncompleted capital raise, and a $0.3 million increase in other operating expenses.
Segment Income (Loss) from Operations (dollars in millions)
Nine Months Ended September 30, |
||||||||||||||||
2015 | 2014 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | (3.0 | ) | $ | 0.8 | $ | (3.8 | ) | (475 | )% | ||||||
Technology Licensing |
3.0 | 1.4 | 1.6 | 114 | ||||||||||||
Technology Development |
2.6 | 0.8 | 1.8 | 225 | ||||||||||||
Shared Service |
(7.0 | ) | (6.1 | ) | (0.9 | ) | (15 | ) | ||||||||
Unallocated |
(1.9 | ) | (1.7 | ) | (0.2 | ) | (12 | ) | ||||||||
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Loss from operations |
$ | (6.3 | ) | $ | (4.8 | ) | $ | (1.5 | ) | (31 | )% | |||||
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Product Sales and Service
Loss from operations from product sales and service for the nine months ended September 30, 2015 increased by $3.8 million to a loss of ($3.0) million compared to income of $0.8 million for the same period in 2014 principally due to the decrease in gross profit of $5.6 million from decreased sales partially offset by decreased operating expenses of $1.8 million.
Technology Licensing
Income from operations from technology licensing for the nine months ended September 30, 2015 increased by $1.6 million to income of $3.0 million compared to $1.4 million for the same period in 2014, due to an increase in gross profit of $1.7 million from increased revenue from license fees and royalties under our 2.X license agreement, partially offset by an increase of $0.1 million in operating expenses for research and development expenses attributable to technology licensing in the nine months ended September 30, 2015.
Technology Development
Income from operations from technology development for the nine months ended September 30, 2015 increased by $1.8 million to $2.6 million compared to $0.8 million for the same period in 2014, due to an increase in gross profit of $1.8 million from increased development revenue in 2015.
Shared Services
Corporate shared general and administrative loss for the nine months ended September 30, 2015 increased by $0.9 million to ($7.0) million compared to ($6.1) million for the same period in 2014 principally due to expensing $0.6 million in costs related to an uncompleted capital raise and an increase in other corporate and shared services expenses of $0.3 million.
Unallocated
The loss from unallocated expenses for the nine months ended September 30, 2015 increased by $0.2 million to ($1.9) million from ($1.7) million as compared to the same period in 2014.
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The table below breaks out the unallocated expenses by category for the periods reported (dollars in millions).
Nine Months Ended September 30, |
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2015 | 2014 | Change | % Change | |||||||||||||
Depreciation and amortization |
$ | 0.6 | $ | 0.8 | $ | (0.2 | ) | 25 | % | |||||||
Stock-based compensation |
0.7 | 0.7 | 0.0 | | ||||||||||||
Other |
0.6 | 0.2 | 0.4 | 200 | ||||||||||||
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Total charges |
$ | 1.9 | $ | 1.7 | $ | 0.2 | 12 | % | ||||||||
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Other Expense and Income Tax Expense
Other expense for the nine months ended September 30, 2015 increased by $0.1 million to $0.4 million from $0.3 million as compared to the same time period in 2014. This increase is primarily the result of an increase in foreign currency loss expense in the nine months ended September 30, 2015 when compared to the same time period in 2014. Income tax expense increased to $1.2 million for the nine months ended September 30, 2015 as compared to $0.4 million for the same period in 2014. The increase is the result of Brazilian tax expense incurred on certain license and royalty revenue earned in Brazil in 2015.
Net Loss
Net loss increased by $2.4 million or 44%, to ($7.9) million for the nine months ended September 30, 2015 from a net loss of ($5.5) million for the same period in 2014. The increase in our net loss for the nine months ended September 30, 2015, is primarily due to the increase in loss from operations of $1.5 million and an increase in other expense and income tax expense of $0.9 million.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a companys performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this Quarterly Report on Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measure prepared in accordance with GAAP. We utilize the non-GAAP measure of non-GAAP adjusted EBITDA which we define as earnings before interest expense, income taxes, depreciation, amortization, non-cash compensation expense, changes in the fair valuation of certain liability classified instruments, and certain other one-time non-cash charges.
Non-GAAP Adjusted EBITDA (Loss) (dollars in millions)
Nine Months Ended September 30, |
||||||||
2015 | 2014 | |||||||
Net loss |
$ | (7.9 | ) | $ | (5.5 | ) | ||
Provision for income tax |
1.2 | 0.4 | ||||||
Interest expense |
0.1 | 0.4 | ||||||
Depreciation and amortization |
0.6 | 0.8 | ||||||
Stock-based compensation |
0.7 | 0.7 | ||||||
Non-cash implied license revenue |
(0.6 | ) | | |||||
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Total noncash addbacks, net |
2.0 | 2.3 | ||||||
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Non-GAAP Adjusted EBITDA Loss |
$ | (5.9 | ) | $ | (3.2 | ) | ||
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Non-GAAP adjusted EBITDA was a loss of ($5.9) million for the nine months ended September 30, 2015 and ($3.2) million for the same period in 2014. The change in non-GAAP adjusted EBITDA loss is primarily attributable to an increase in net loss resulting from lower sales for the period ending September 30, 2015 as compared to the same period in 2014 as well as $0.6 million of costs related to the uncompleted capital raise.
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Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data (dollars in millions)
Nine Months Ended September 30, |
||||||||
2015 | 2014 | |||||||
Net loss |
$ | (7.9 | ) | $ | (5.5 | ) | ||
Net cash used in operating activities |
(6.2 | ) | (12.0 | ) | ||||
Net cash (used in) provided by investing activities |
(1.3 | ) | 0.5 | |||||
Net cash provided by financing activities |
0.0 | 23.2 |
Cash and Cash Equivalents
As of September 30, 2015, we had cash and cash equivalents of $5.7 million of which $0.3 million was held by a foreign holding company and subsidiaries. We had cash and cash equivalents of $16.3 million of which $0.3 million was held by a foreign subsidiary for the same period in 2014.
Prior to April 16, 2014, our principal source of liquidity had been private sales of convertible preferred stock. From inception to December 31, 2013, we completed four rounds of equity financing through issuance of our convertible preferred stock with total cash proceeds to us of $123.0 million. We also issued convertible notes totaling $6.5 million in two offerings during the year ended December 31, 2013. We closed a private equity placement in connection with the RTO. The private placement provided gross proceeds of CDN$24,500 (USD$22,273) received on April 16, 2014. Proceeds from our financing transactions have been used primarily to fund working capital needs and our operations. We believe that our available cash and availability under our line of credit will be sufficient to satisfy our working capital and planned investments to sustain our growth strategy for at least one year from the date of this Quarterly Report on Form 10-Q based on our current projections.
A substantial amount of our business in 2015 could be non-U.S. dollar denominated sales transactions, which we currently expect to be predominantly denominated in euros. We are pursuing economic hedging strategies, including increasing our euro-denominated costs and entering into euro-based forward contracts, however there can be no assurance that we can execute these strategies to effectively control the economic exposure of currency movements.
Operating Activities
Cash used in operating activities consists of net loss adjusted for certain non-cash items including depreciation and amortization, impairment losses, share-based compensation, and changes in working capital and other activities. In addition to the increase in net loss, cash used in operations increased as described below as a result of working capital needs.
For the nine months ended September 30, 2015, net cash used in operating activities decreased by $5.8 million to $6.2 million from $12.0 million for the nine months ended September 30, 2014. The decrease in cash used in operating activities for 2015 is primarily due to the net loss incurred partially offset by the effect of changes in assets and liabilities resulting in a cash inflow of $1.8 million. Included in these changes were a decrease of $2.1 million in other assets, an increase of $2.0 million in accounts payable, and a decrease of $0.7 million in inventories partially offset by, a $1.3 million increase in accounts receivable and $1.7 million of changes in other balance sheet accounts. These changes in cash from operations were funded in part by the $4.0 million draw on the line of credit noted below.
Investing Activities
Net cash (used in) provided by investing activities was ($1.3) million for the nine months ended September 30, 2015 as compared to $0.5 million for the same period in 2014. Cash used in investing activities consisted of purchasing certain equipment required to maintain operations, while 2014 included cash proceeds from the sale-leaseback of the building.
Financing Activities
For the nine months ended September 30, 2015, net cash provided by financing activities was $0.0 compared to net cash provided of $23.2 million for the nine months ended September 30, 2014. We had repayments of ($4.0) million and borrowings of $4 million on our working capital revolving line of credit for the period ended September 30, 2015, while the 2014 period included proceeds from the private placement offering and borrowings of $4 million.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements and did not have any such arrangements at September 30, 2015.
Contractual Obligations
As described below, our long-term debt obligations were zero as of September 30, 2015 and December 31, 2014. We have $4.0 million outstanding on our working capital revolving line of credit and a $0.6 million outstanding performance letter of credit and warranty guarantee, as of September 30, 2015, which is described below in the Comerica Credit Facility section.
On April 16, 2014, at the closing of our reverse takeover transaction, our convertible note obligations met the automatic conversion criteria contained within the note agreement of an equity financing resulting in aggregate gross proceeds of at least $10.0 million. As a result, these notes converted to capital shares upon such closing. The convertible notes were collateralized by a pledge of our capital shares and certain of our intellectual property.
We previously had a mortgage on our production facility with the Vermont Economic Development Authority, or VEDA. The VEDA mortgage was a variable interest rate loan bearing interest of 3.75%, maturing on October 6, 2015. During June 2014 we sold the facility and paid off the mortgage obligation. There were no early payment penalties on the mortgage. Contemporaneously, we leased the facility back from the buyer for a five year term. We have the right to terminate the lease without penalty upon at least nine months prior notice effective at the end of the second, third or fourth year of the lease term.
Comerica Credit Facility
Our working capital line of credit is $6.0 million, with the available borrowing base being limited to the amount of collateral available at the time the line is drawn. The credit facility is scheduled to mature on September 30, 2016. This line is guaranteed by the U.S. Export-Import Bank, as well as by us. As of September 30, 2015 and September 30, 2014, we had $4.0 million and $0 million, respectively, outstanding on the working capital revolving line of credit. At September 30, 2015, we had a net maximum supported borrowing base of $0.3 remaining. To facilitate certain financing arrangements that our Italian customers have with third parties, we have agreed to provide performance and warranty letters of credit to such customers. The performance letters of credit are payable if we fail to meet contractual terms such as delivery schedules. Such letters of credit decreased the borrowing base by 25% of the face value. The warranty letter of credit guarantees uptime and power curve performance over a one year period starting at commissioning date. Such letters of credit decreased the borrowing base by 100% less the amount of cash collateral held by the bank to secure warranty letters of credit. At September 30, 2015, we had $0.6 million of such performance and warranty guarantees outstanding with four customers.
The loan agreement with Comerica contains a financial covenant which requires us to maintain unencumbered liquid assets having a value of at least $1.5 million at all times. At September 30, 2015, we had unencumbered liquid assets having a value of $5.4 million.
The loan agreement also contains various covenants that limit or prohibit our ability, among other things, to:
| incur or guarantee additional indebtedness; |
| pay dividends on our capital shares or redeem, repurchase, retire or make distributions in respect of our capital shares or subordinated indebtedness or make certain other restricted payments; |
| make certain loans, acquisitions, capital expenditures or investments; |
| create or incur certain liens; |
| consolidate, merge, sell, transfer or otherwise dispose of all or substantially all of our assets; and |
| enter into certain transactions with our affiliates. |
For the nine months ended September 30, 2015, we were in compliance with all covenants under this credit facility.
Our current line of credit expires on September 30, 2016. Based on our ability to service our debt and relationship with our lender we believe that we will be able to renew our line of credit prior to September 30, 2016 or obtain alternative financing. However, we cannot guarantee that we will be able to procure additional financing upon favorable terms, if at all.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for Smaller Reporting Company as defined by 229.10(f)(1)
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2015. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As more fully set forth in Part II Item 9A, Controls and Procedures, of the Companys Annual Report on Form 10-K for the year ended December 31, 2014, management concluded that the Companys internal control over financial reporting was not effective as of December 31, 2014 because we did not have adequate processes to ensure timely and accurate preparation of reconciliations and reviews of various complex, non-routine transactions necessary to provide reasonable assurance that financial statements and related disclosures could be prepared in accordance with generally accepted accounting principles. The Company continues to make enhancements to existing internal controls, improve the quality and timing of the accounting close process and is in the process of assessing the resource needs of the department and engaging the appropriate accounting and financial expertise. Further work, however, is required to develop appropriate operational and procedural controls and in our review process to provide reasonable assurance that our financial controls over financial reporting are designed in the most effective and efficient manner possible. Therefore, while we believe these changes reduce the risk of financial statement misstatement, there continues to be additional work required for us to conclude that reasonable assurance has been obtained that certain controls are operating effectively and in a timely manner. We expect to continue to undertake these actions as appropriate throughout 2015.
The Audit Committee is monitoring managements continuing development and implementation of its remediation plan. In addition, under the direction of the Audit Committee, management will continue to review and make necessary changes to the overall design of our internal control environment, as well as the continued development of policies and procedures to improve the overall effectiveness of internal control over financial reporting.
Management is committed to continuous improvement of our internal control processes and will continue to diligently review our reporting controls and procedures. As management continues to evaluate and work to improve internal control over financial reporting, we may determine to take additional measures to address control deficiencies to modify, or in appropriate circumstances not to complete, certain of the remediation measures. We expect our remediation efforts will continue throughout 2015.
Based on the evaluation of our financial reporting controls, our Chief Financial Officer and Chief Executive Officer concluded that, our financial reporting controls were not effective as of September 30, 2015. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
There have been no material changes in the Companys internal control over financial reporting during the three months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
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Item 1. | Legal Proceedings |
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings, incidental to the normal course of our business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. | Risk Factors |
There are no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 000-55184) filed with the SEC on March 31, 2015.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
Item 3. | Defaults Upon Senior Securities |
None
Item 4. | Mine Safety Disclosures |
Not applicable
Item 5. | Other Information |
On October 26, 2015, the Company received a continuous disclosure review letter issued by the British Columbia Securities Commission related to certain of our recent periodic filings. We have responded to this letter and, as of the date of the filing of this quarterly report, we do not expect that any amendments to our prior filings will be required.
Item 6. | Exhibits |
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this quarterly report, which Exhibit Index is incorporated herein by this reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Northern Power Systems Corp. | ||||||
(Registrant) | ||||||
Date: November 12, 2015 | By: | /s/ Troy C. Patton | ||||
Troy C. Patton | ||||||
Chief Executive Officer | ||||||
Date: November 12, 2015 | By: | /s/ Ciel R. Caldwell | ||||
Ciel R. Caldwell | ||||||
Chief Financial Officer |
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EXHIBIT INDEX
Incorporated by Reference | ||||||||||||
Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed Herewith | ||||||
31.1 | Chief Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||
31.2 | Chief Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||
32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | * | ||||||||||
32.2 | Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | * | ||||||||||
101.INS | XBRL Instance Document. | ** | ||||||||||
101.SCH | XBRL Taxonomy Extension Schema Document. | ** | ||||||||||
101.CAL | XBRL Taxonomy Calculation Linkbase Document. | ** | ||||||||||
101.DEF | XBRL Definition Linkbase Document. | ** | ||||||||||
101.LAB | XBRL Taxonomy Label Linkbase Document. | ** | ||||||||||
101.PRE | XBRL Taxonomy Presentation Linkbase Document. | ** |
* | Furnished herewith |
** | Submitted electronically herewith |
Attached as Exhibits 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 and (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014 (unaudited), (iii) Condensed Consolidated Statements of Changes in Shareholders Equity for the nine months ended September 30, 2015 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited), and (v) Notes to Condensed Consolidated Financial Statements (unaudited).
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