Nextpower Inc.NXT
Nextpower Inc. Stock Compensation Disclosure
Stock-based compensation
The Company adopted the First Amended and Restated 2022 Nextracker LLC Equity Incentive Plan in April 2022 (the “LLC Plan”), which provides for the issuance of options, unit appreciation rights, performance units, performance incentive units, restricted incentive units and other unit-based awards to employees, directors, and consultants of the Company. Additionally, in connection with the IPO in February 2023, the Company approved the Second Amended and Restated 2022 Nextracker Inc. Equity Incentive Plan (together with the LLC Plan, the “2022 Plan”) to reflect, among other things, that the underlying equity interests with respect to awards issued under the LLC Plan shall, in lieu of common units of Nextracker LLC, relate to Class A common stock of Nextracker for periods from and after the closing of the IPO.
The 2022 Plan is administered by the Board or such other committee appointed by the Board. Awards granted under the 2022 Plan expire no more than 10 years from the grant date. The 2022 Plan authorized the grant of 24.0 million equity-based awards. As of March 31, 2025, the Company had approximately 13.4 million equity-based awards available for grant under the 2022 Plan.
During fiscal year 2025, the Company granted the following three types of equity-based compensation awards to its employees under the 2022 Plan:
•Restricted incentive unit awards ("RSU"), whereby vesting is generally contingent upon time-based vesting with continued service over a three-year period from the grant date, with a portion of the awards vesting at the end of each year.
•Options awards, whereby such awards will cliff-vest on the third anniversary of the grant date, subject generally to continuous service through vesting date; and
•Performance based vesting awards ("PSUs") whereby vesting is generally contingent upon (i) time-based vesting with continued service through March 31, 2027, and (ii) the achievement of certain metrics specific to the Company, which could result in a range of 0 - 300% of such PSUs ultimately vesting. The earned PSUs will cliff-vest on March 31, 2027.
The service period of options and PSU awards granted in fiscal year 2024 is three years. The service period of options and PSU awards granted in fiscal year 2023 is four years, and three years, respectively.
On the date any performance-based vesting requirement is satisfied, the award holder will become vested in the number of awards that have satisfied the time-based vesting requirement, if any.
Stock-based compensation expense
The following table summarizes the Company’s stock-based compensation expense:
| Fiscal year ended March 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Cost of sales | $ | 11,927 | $ | 10,764 | $ | 12,794 | |||||||||||
| Selling, general and administrative expenses | 98,532 | 38,325 | 19,200 | ||||||||||||||
| Research and development | 8,421 | 7,694 | — | ||||||||||||||
| Total stock-based compensation expense | $ | 118,880 | $ | 56,783 | $ | 31,994 | |||||||||||
During the fourth quarter of fiscal year 2025, the Company recognized net incremental stock-based compensation expense of approximately $14.8 million for certain PSU awards for which the performance conditions were achieved. Such expense is included in the amounts above.
Cumulative expense upon IPO and modification of awards
In connection with the IPO and the approval of the NI Plan, all awards previously issued under the LLC Plan were determined to be modified. The modification of the awards granted under the LLC Plan, pre-IPO, were concluded to qualify as a Type I probable-to-probable modification (in accordance with ASC 718-20-55), which resulted in an increase in the total fair value of such awards of $12.3 million, with the Company recording an immaterial amount of incremental stock-based compensation expense related to such modification during the fiscal year ended March 31, 2023.
Considering that the vesting of the awards granted under the 2022 Plan was contingent on an IPO, which occurred on February 9, 2023, the Company recognized $23.3 million of cumulative stock-based compensation expense for all awards outstanding under the 2022 Plan as of that date.
As of March 31, 2025, the total unrecognized compensation expense for unvested awards under the 2022 Plan and the related remaining weighted average period for expensing is summarized as follow:
Unrecognized compensation expense (in thousands) | Weighted average remaining period (in years) | ||||||||||
| Options | $ | 14,840 | 1.5 | ||||||||
| RSU | 78,486 | 2.0 | |||||||||
| PSU | 37,856 | 1.5 | |||||||||
| Total unrecognized compensation expense | $ | 131,182 | |||||||||
Determining fair value — RSU awards
Valuation and Amortization Method - The Company determined the fair value of RSUs granted in fiscal year 2025 under the 2022 Plan based on the closing price per share of its Class A common stock as of the grant date of the awards. The compensation expense is generally recognized on a straight-line basis over the respective vesting period.
The valuation of RSUs granted under the 2022 Plan, during fiscal year 2023 (prior to the IPO) was determined in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.” Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding the Company's expected future revenue and EBITDA, discount rates, market multiples, the selection of comparable companies and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact the Company's valuations as of each valuation date and may have a material impact on the valuation of its common stock.
Determining fair value — Options and PSU awards
Valuation - The Company estimated the fair value of Options awards granted in fiscal years 2025 and 2024 under the 2022 Plan, using a Black-Scholes option pricing model.
The fair values of Options awards granted in fiscal year 2023 and PSU awards granted in fiscal years 2025, 2024 and 2023, under the 2022 Plan, were estimated using Monte-Carlo simulation models, which is a probabilistic approach for calculating the fair value of the awards.
Expected volatility - Volatility used in the Black-Scholes option pricing, or in the Monte Carlo simulation, is derived from the historical volatility of Nextracker's Peer Group.
Risk-Free Rate assumptions - The Company bases the risk-free interest rate used in the Monte Carlo simulation based on the continuously compounded risk-free rate in the Monte Carlo simulations to calculate the drift rate of the Company and peer group stock prices. The risk-free rate of return was calculated using the U.S. Treasury daily yield curve.
The fair value of the Company's awards granted under the 2022 Plan was estimated based on the following assumptions:
| Fiscal year ended March 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Expected volatility | 52% - 60% | 65.0% | 65% - 70% | ||||||||||||||
| Expected dividends | —% | —% | —% | ||||||||||||||
| Risk-free interest rate | 4.4% - 5.0% | 3.8% - 4.6% | 2.5% - 2.7% | ||||||||||||||
Awards activity
The following table summarizes the RSU awards activity under the 2022 Plan for the fiscal year ended March 31, 2025:
| Fiscal year ended March 31, | |||||||||||
| 2025 | |||||||||||
| Number of RSUs | Weighted average grant date fair value per share | ||||||||||
| Unvested RSU awards outstanding, beginning of fiscal year | 2,718,133 | $31.37 | |||||||||
| Granted | 1,727,191 | 41.52 | |||||||||
| Vested | (999,928) | 30.32 | |||||||||
| Forfeited (1) | (205,025) | 34.54 | |||||||||
| Unvested RSU awards outstanding, end of fiscal year | 3,240,371 | $37.04 | |||||||||
(1)Awards forfeited due to employee terminations.
The weighted average grant date fair value of RSU awards granted during the fiscal years ended March 31, 2024 and 2023 was $41.55 and $17.03 per award, respectively, and the weighted average modification date fair value was $20.40 per award as of February 9, 2023. The total fair value of RSUs vested during the fiscal years ended March 31, 2025 and 2024 was $30.3 million and $13.2 million, respectively. There were no RSUs vested during the fiscal year ended March 31, 2023.
The following table summarizes the PSU awards activity under the 2022 Plan for the fiscal year ended March 31, 2025:
| Fiscal year ended March 31, | |||||||||||
| 2025 | |||||||||||
| Number of PSUs | Weighted average grant date fair value per share | ||||||||||
| Unvested PSU awards outstanding, beginning of fiscal year | 1,007,476 | $47.01 | |||||||||
| Granted (1) | 940,217 | 74.18 | |||||||||
| Vested | — | — | |||||||||
| Forfeited | (27,970) | 58.30 | |||||||||
| Unvested PSU awards outstanding, end of fiscal year | 1,919,723 | $59.70 | |||||||||
(1)Includes 292,958 PSU awards related to the third tranche of performance-based awards granted in fiscal year 2023 that met the criteria for a grant date under ASC 718 as the performance metrics for these awards were determined during fiscal year 2025. Additionally, includes 219,709 PSU awards representing the number of awards achieved above target levels based on the achievement of the performance-based metrics for the second tranche of PSU awards granted in fiscal year 2023.
The weighted average grant date fair value of the PSU awards granted during the fiscal years ended March 31, 2024 and 2023 was $54.77 and $19.35 per award, respectively, and the weighted average modification date fair value was $23.01 per award as of February 9, 2023.
Additional information for the PSUs awarded in fiscal year 2025 is further detailed in the table below:
| Range of shares that may be issued | |||||||||||||||||||||||||||||||||||
| Year of grant | Performance end date | Targeted number of awards as of March 31, 2025 | Weighted average grant date fair value per share | Minimum | Maximum | ||||||||||||||||||||||||||||||
| Fiscal Year 2023 | March 31, 2025 | 512,667 | $87.43 | — | 1,025,334 | (1) | |||||||||||||||||||||||||||||
| Fiscal Year 2025 | March 31, 2027 | 399,580 | $58.30 | — | 1,198,740 | (2) | |||||||||||||||||||||||||||||
(1)Payouts can range from 0% to 200% of the applicable tranche targets based on the achievement levels of the Company's Total Shareholder Return ("TSR"), as determined in the Restricted Incentive Unit Award Agreement under the 2022 Plan for performance-based vesting awards.
(2)Payouts can range from 0% to 300% based on the achievement of certain metrics specific to the Company.
The following table summarizes the Options awards activity under the 2022 Plan for the fiscal year ended March 31, 2025:
| Fiscal year ended March 31, | |||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| Number of Options | Weighted average exercise price | Weighted average remaining contractual term | Aggregate intrinsic value (in thousands) | ||||||||||||||||||||
| Options awards outstanding, beginning of fiscal year | 3,151,402 | $23.84 | |||||||||||||||||||||
| Granted | 296,493 | 47.05 | |||||||||||||||||||||
| Exercised | (18,905) | 10.39 | |||||||||||||||||||||
| Forfeited (1) | (66,492) | 29.33 | |||||||||||||||||||||
| Options awards outstanding, end of fiscal year | 3,362,498 | $25.85 | 3.1 | $ | 56,121 | ||||||||||||||||||
| Options awards exercisable as of end of fiscal year | 712 | $10.39 | 2.2 | $ | 25 | ||||||||||||||||||
| Options awards vested and expected to vest, end of fiscal year | 3,362,498 | $25.85 | 3.1 | $ | 56,121 | ||||||||||||||||||
(1)Awards forfeited due to employee terminations.
The weighted average grant date fair value of Options awards granted during the fiscal years ended March 31, 2025, 2024 and 2023 was $29.05, $24.95 and $5.17 per award, respectively and the weighted average modification date fair value was $6.30 per award as of February 9, 2023. The aggregate intrinsic value of Options awards exercised during the fiscal years ended March 31, 2025 was $0.6 million. The total fair value of Options awards vested during the fiscal year ended March 31, 2025 was immaterial. No Options awards vested or exercised during the fiscal years ended March 31, 2024 or 2023. Cash received from Options awards exercised and the tax benefit for the tax deductions from Option awards exercised during the fiscal year ended March 31, 2025 was immaterial.
The following table presents the composition of options outstanding and exercisable as of March 31, 2025:
| Options outstanding | Options exercisable | ||||||||||||||||||||||||||||
| Range of Exercise Price | Number of Shares Outstanding | Weighted average remaining contractual life (in years) | Weighted average exercise price | Number of shares exercisable | Weighted average exercise price | ||||||||||||||||||||||||
| <$20 | 712 | 2.2 | $10.39 | 712 | $10.39 | ||||||||||||||||||||||||
| $20.00 - $40.00 | 2,616,432 | 1.8 | 21.00 | — | N/A | ||||||||||||||||||||||||
| $40.00 - $60.00 | 745,354 | 7.5 | 42.90 | — | N/A | ||||||||||||||||||||||||
| 3,362,498 | 3.1 | $25.85 | 712 | $10.39 | |||||||||||||||||||||||||
Out of the 3.4 million options outstanding as of March 31, 2025, approximately 2.6 million options were granted in fiscal year 2023 whereby vesting was tied to certain performance metrics specific to the Company. The vesting information for these shares is further detailed in the table below.
| Range of shares that may be issued | ||||||||||||||||||||||||||||||||
| Year of grant | Options performance period end date | Targeted number of awards as of March 31, 2025 | Weighted average grant date fair value per share | Minimum | Maximum | |||||||||||||||||||||||||||
| Fiscal Year 2023 | March 31, 2026 | 2,616,432 | $6.30 | — | 2,616,432 | |||||||||||||||||||||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.