American Superconductor Corporation — Q1 FY2020 Form 10-Q
Reporting period: Three months ended June 30, 2019; comparisons are to the three months ended June 30, 2018 unless stated otherwise. Amounts are in U.S. dollars. AMSC provides Grid solutions for utilities, industry, renewable energy and the U.S. Navy, and Wind power electronics, designs and services.
Financial performance and position
| Metric | Q1 FY2020 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $13.8 million | $12.6 million | Up 9%; Grid revenue was $9.9 million and Wind revenue $3.9 million. |
| Gross profit / margin | $1.6 million / 11% | $3.9 million / 31% | Margin fell primarily due to less favorable product mix, especially in Grid. |
| Operating expenses | $7.8 million | $9.0 million | Lower R&D and SG&A; no restructuring charge versus $0.3 million in the prior year. |
| Operating loss | $6.2 million | $5.1 million | Worsened despite lower operating expenses, reflecting reduced gross profit. |
| Net loss | $3.5 million; $0.17 per share | $4.7 million; $0.23 per share | Improved in part because of a $2.9 million warrant fair-value gain, versus a $0.5 million loss. |
| Non-GAAP net loss | $6.2 million; $0.30 per share | $3.6 million; $0.18 per share | Worsened, primarily due to less favorable product mix. |
| Operating cash flow | $(5.9) million | $(6.9) million | Cash use decreased, primarily due to timing of Grid project milestone receipts. |
| Cash, cash equivalents and restricted cash | $74.7 million | $78.2 million at March 31, 2019 | Decreased $3.5 million during the quarter; cash and cash equivalents were $74.0 million. |
At June 30, 2019, total assets were $120.2 million, current assets $100.7 million, current liabilities $28.7 million and stockholders’ equity $78.4 million. The company reported no outstanding debt other than ordinary trade payables. It had $3.8 million of operating lease liabilities, recognized following adoption of the new lease standard. Accumulated deficit was $965.1 million.
Material changes and operating developments
- Grid revenue increased 10%, driven mainly by higher D-VAR sales and the start of the ComEd Resilient Electric Grid project; lower license revenue partly offset growth. Grid operating loss widened to $4.7 million from $2.7 million, principally due to product mix and higher cost of sales.
- Wind revenue rose 6%, primarily from development work on Inox’s 3MW turbine platform. Wind operating loss narrowed slightly to $1.3 million from $1.4 million.
- Customers representing at least 10% of revenue were Inox Wind at 27% and Micron Technology at 25%. Inox represented 25% in the prior-year quarter; Vestas represented 36% then but less than 10% this quarter.
- Investing cash flow was positive $2.3 million, including the final $3.0 million installment on the Devens property sale note, partly offset by $0.8 million of capital spending. Financing cash use was $0.3 million.
Outlook, risks and notable items
- Management believes available liquidity is sufficient for operations and capital expenditures for the next 12 months, but emphasizes that liquidity depends on revenue growth, collections (including Inox-related revenue), cost control and potentially raising additional capital. The company has a history of operating losses and negative operating cash flow.
- As of June 30, remaining performance obligations were approximately $54.7 million expected to be recognized within 12 months and $9.8 million over months 13–60. Timing depends on customer actions. The near-term amount includes anticipated Inox shipments; only the first three months of Inox’s rolling forecast are firm and irrevocable.
- AMSC’s ComEd REG subcontract became effective after DHS approval on June 20, 2019. Expected DHS funding is $9–$11 million over the contract term, including up to $1 million to reimburse ComEd. A $5 million irrevocable letter of credit was funded with escrow deposits on July 1, 2019; the system is expected to be operational in 2021.
- Management cited uncertainty around Inox’s ability to execute on Indian SECI and state-auction orders, which could reduce electrical-control-system shipments. Other disclosed risks include variable quarterly results, customer and market adoption, government funding, foreign exchange, suppliers, competition, and performance-bond or letter-of-credit requirements.
- The $2.9 million warrant fair-value gain is a non-cash valuation item and materially benefited reported GAAP net loss; the warrant liability was $1.7 million at quarter-end. There were no restructuring charges in the quarter, no material change to previously disclosed risk factors, and no legal proceedings reported in Part II.
- AMSC adopted lease accounting (ASC 842) on April 1, 2019, recording a $3.8 million right-of-use asset and lease liability, with no reported impact on earnings or equity. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the sharp year-over-year gross-margin decline reflects temporary project and product mix or persists, particularly in Grid.
- Inox’s shipment outlook and execution of Indian auction orders, and how much of the disclosed performance-obligation balance converts to revenue and cash.
- Cash burn, collections and the basis for management’s 12-month liquidity assessment, including any need for additional capital.
- The ComEd project’s funding, schedule, costs and obligations secured by the $5 million letter of credit.
- How warrant remeasurement affects reported earnings: compare GAAP results with non-GAAP loss and operating cash flow rather than treating the warrant gain as operating improvement.