American Superconductor Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2017; comparisons are with the corresponding 2016 periods. AMSC supplies products and services for wind power and electric-grid markets.
Financial performance
| Metric | Three months ended Sept. 30, 2017 | Prior year | Six months ended Sept. 30, 2017 | Prior year |
|---|---|---|---|---|
| Revenue | $11.0 million | $18.5 million | $20.0 million | $31.9 million |
| Gross margin | $0.3 million; 2% | $2.1 million; 11% | $(4.2) million; (21)% | $3.0 million; 9% |
| Operating loss | $(7.8) million | $(7.2) million | $(22.5) million | $(16.5) million |
| Net loss | $(7.3) million | $(7.3) million | $(22.5) million | $(17.7) million |
| Basic and diluted loss per share | $(0.38) | $(0.53) | $(1.26) | $(1.29) |
- Revenue fell 40% in the quarter and 37% in the six-month period. Wind revenue declined 57% and 58%, respectively, primarily from fewer electrical control system shipments to Inox. Grid revenue decreased 2% and 9%, respectively.
- Quarterly net loss was nearly unchanged year over year, while the six-month loss widened. Lower revenue and gross margin weighed on results; the quarter also included a $0.95 million gain on sale of a minority interest and a $0.14 million warrant fair-value gain.
- Six-month operating cash used was $13.5 million, versus $10.9 million in 2016. Investing activities provided $1.3 million, and financing activities provided $15.2 million, including $17.0 million net proceeds from a May equity offering. Cash and cash equivalents increased to $30.3 million from $26.8 million at March 31, 2017.
- At September 30, current assets were $57.8 million and current liabilities $31.3 million. Total liabilities were $39.9 million and stockholders’ equity $60.7 million. The company reported no outstanding debt after repaying its final term loan in June 2017.
- Cost of revenue included accelerated depreciation of $1.6 million for the quarter and $4.1 million for six months, following revised estimates of certain manufacturing equipment’s remaining useful lives. This contributed to Grid operating losses and the six-month gross loss.
Changes, outlook, and significant items
- Management attributed lower Wind shipments to Inox to a demand dislocation in parts of India following a national wind-energy auction that produced a record-low power purchase tariff; management described the issue as temporary based on discussions with Inox.
- Inox represented 46% of quarterly and 35% of six-month revenue, versus 68% and 51% in the prior-year periods. The U.S. Navy contributed 16% of six-month revenue. This customer concentration makes results sensitive to shipment timing and customer demand.
- AMSC acquired Infinia Technology Corporation on September 25 for consideration valued at approximately $4.2 million excluding acquisition costs, including cash, 884,890 shares, and contingent consideration. ITC’s cryo-cooler technology was integrated into the Grid business. The acquisition added $3.4 million of intangible assets, $1.7 million of goodwill, and a $1.1 million deferred tax liability. The make-whole liability was valued at $0.4 million at quarter-end.
- The company raised approximately $17.0 million net through an offering of 4.6 million shares and terminated its ATM arrangement. The equity financing increased liquidity but diluted shareholders.
- An approximately 8% workforce reduction announced in April resulted in $1.3 million of six-month severance charges. Management said it would monitor costs and could further reduce operating costs and capital spending.
- Management stated that available liquidity was sufficient for operations and capital expenditures for the next 12 months. It also noted liquidity depends on revenue growth, cost control, and potentially raising further capital; no assurance of additional financing was given. No specific revenue or earnings guidance was provided.
- AMSC has recurring operating losses, negative operating cash flows, and an accumulated deficit of $978.1 million. Management identified dependence on Inox demand, commercialization and customer adoption, government funding, suppliers, and wind-market incentives among relevant risks.
- Sinovel-related proceedings in China remain unresolved. AMSC seeks approximately $73 million for alleged contract breaches and has other intellectual-property claims; Sinovel asserts counterclaims, including claims of approximately $180 million and $16 million. AMSC said it cannot reasonably estimate possible losses or a loss range for the arbitration. Separate copyright and trade-secret cases also remain pending or subject to appeal.
- AMSC expects adoption of the new revenue-recognition standard in fiscal 2018 and anticipates changes to identifying deliverables and allocating transaction prices; timing of recognition could change. The filing states the overall impact was still being evaluated.
Important facts for investors to verify
- Whether and when Inox’s demand and AMSC’s Wind shipments recover, and how customer concentration evolves.
- Cash burn, available liquidity, and whether management can reach operating improvements without further financing or dilution.
- The effect of accelerated depreciation and other manufacturing costs on gross margins and future results.
- Final accounting and potential cash cost of the ITC acquisition make-whole provision, and the performance of the acquired business.
- Developments and potential outcomes in the Sinovel disputes, which the company cannot currently quantify.
- The impact of adopting the revenue-recognition standard on revenue timing, reported results, and controls.