American Superconductor Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2017; fiscal year ends March 31. Financial statements are unaudited. AMSC provides wind-turbine engineering, power electronics and related products and services, as well as grid solutions.
Financial performance and position
| Metric | Three months ended Dec. 31, 2017 | Nine months ended Dec. 31, 2017 |
|---|---|---|
| Revenue | $14.9 million | $34.9 million |
| Gross margin | $5.0 million; 34% | $0.8 million; 2% |
| Operating loss | $3.9 million | $26.4 million |
| Net loss | $4.2 million; $0.21 per share | $26.8 million; $1.44 per share |
| Operating cash flow | Not separately reported for the quarter | $(20.2) million |
- At December 31, cash and cash equivalents were $22.1 million; restricted cash was $0.2 million. Current assets were $54.1 million and current liabilities $30.8 million.
- Total liabilities were $39.4 million. The company reported no outstanding debt; its Hercules term loans had been repaid by June 2017. Accumulated deficit was $982.3 million.
- Nine-month investing cash flow was a $0.3 million use; financing cash flow was $15.2 million provided, mainly from a May 2017 stock offering that generated $17.0 million net. Cash and cash equivalents declined $4.7 million from March 31.
Changes versus comparable 2016 periods
- Revenue fell 45% in the quarter and 41% year to date. Wind revenue declined 86% and 72%, respectively, mainly because of fewer or no electrical control system shipments to Inox. Grid revenue rose 38% in the quarter and 10% year to date, driven chiefly by D-VAR systems and, year to date, U.S. Navy revenue.
- Quarterly gross margin improved from 19% to 34%, reflecting increased royalty revenue and a more favorable product mix. Nine-month gross margin fell from 14% to 2%, primarily due to lower Inox demand and included $4.1 million of accelerated depreciation on manufacturing equipment.
- Quarterly net loss increased from $2.8 million to $4.2 million; the nine-month net loss increased from $20.4 million to $26.8 million. Nine-month operating cash used rose from $10.5 million to $20.2 million.
- SG&A declined 10% in the quarter and 14% year to date. The nine-month period included $1.3 million of restructuring expense.
Outlook, risks and unusual items
- Management provided no specific revenue or earnings guidance. It believed available liquidity would fund operations and capital expenditures for the next 12 months, while noting liquidity depends on higher revenue, cost control and potentially additional financing. Further cost and capital-spending reductions may be considered.
- Management said the sharp reduction in Indian wind demand followed a transition from fixed tariffs to government auctions; it could not predict when the disruption would be resolved. Inox represented 27% of nine-month revenue, versus 58% a year earlier, and remains a significant customer concentration.
- AMSC acquired Infinia Technology Corporation in September for consideration valued at approximately $4.2 million, including stock and contingent consideration. The acquisition added $1.7 million of goodwill and $3.4 million of identifiable intangible assets. A $0.7 million make-whole payment was paid in January 2018.
- On February 1, 2018, a subsidiary agreed to sell the Devens headquarters property for $23.0 million: $17.0 million cash and a $6.0 million subordinated note. Closing was anticipated for March 30, 2018, but was not assured. The move to a smaller leased facility in Ayer was underway, with anticipated cost savings not quantified in the filing.
- AMSC is pursuing claims against Sinovel in China, including a contract claim of approximately $75 million; Sinovel has asserted counterclaims, including approximately $184 million in damages. AMSC said it could not reasonably estimate possible losses or a loss range. Other related intellectual-property proceedings remain pending or subject to appeal.
- The company reported recurring operating losses and negative operating cash flows. Other risks include reliance on wind-market demand and government support, execution of the facility move, customer collections, and foreign-currency losses. The 2017 U.S. tax reform’s transition-tax impact was still being assessed; management did not anticipate a material impact.
- Revenue standard Topic 606 was scheduled for adoption April 1, 2018. AMSC expected no material consolidated impact based on its preliminary assessment, but the review was not complete. Management reported disclosure controls were effective and no material internal-control changes during the quarter.
Important facts for investors to verify
- Whether Inox demand recovers and how customer concentration and the Indian auction-policy transition affect future wind revenue.
- Cash burn, collections and operating-cost reductions against management’s stated 12-month liquidity assessment; whether additional capital is needed.
- Completion and proceeds of the Devens property sale, repayment terms and collectability of the seller note, and costs or savings from the Ayer move.
- Final tax-reform and Topic 606 accounting impacts, as well as the annual goodwill impairment assessment.
- Developments in Sinovel litigation and any resulting financial exposure; the filing does not provide a clear estimate of potential losses.
- Share dilution: the May offering issued 4.6 million shares, and 20,936,769 common shares were outstanding on February 1, 2018.