American Superconductor Corporation — Form 10-Q Summary
Reporting period: Three months ended June 30, 2017 (fiscal 2018 first quarter); unaudited. Comparative period is the three months ended June 30, 2016. The company supplies wind-turbine power electronics, engineering and support, and power-grid products and services.
Financial performance and position
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Revenue | $8.9 million | $13.3 million |
| Gross profit (loss) / margin | $(4.5) million / (50.3)% | $0.9 million / 6.5% |
| Operating loss | $(14.7) million | $(9.3) million |
| Net loss | $(15.3) million | $(10.4) million |
| Basic and diluted loss per share | $(0.91) | $(0.76) |
| Cash used in operating activities | $(5.4) million | $(2.1) million |
- At June 30, 2017, cash and cash equivalents were $37.5 million; restricted cash was $0.3 million. Total assets were $104.6 million, total liabilities $41.3 million, and stockholders’ equity $63.3 million.
- The company reported an accumulated deficit of $970.8 million and recurring operating losses and negative operating cash flows.
- Term Loan C matured and was repaid in full on June 1, 2017. The balance sheet showed no note payable at quarter-end. Warrant derivative liabilities were $1.0 million.
- Financing cash flow was $15.1 million, primarily reflecting approximately $17.0 million net proceeds from a May offering of 4.6 million shares. The company terminated its ATM sales agreement in connection with the offering.
Material changes and operating trends
- Revenue fell 33%. Wind revenue declined 60% to $2.3 million, primarily due to fewer electrical control system shipments to Inox. Management attributed this to a potentially temporary demand disruption following a record-low wind power purchase tariff auction in India.
- Grid revenue declined 13% to $6.6 million, as lower D-VAR system revenue was partly offset by higher U.S. Navy revenue. The Navy represented 35% of total revenue; Inox represented 22%.
- Gross margin swung from positive 6.5% to negative 50.3%. Lower revenue and product mix contributed, as did approximately $2.5 million of accelerated depreciation on manufacturing equipment whose estimated remaining useful lives were revised.
- Operating expenses were $10.2 million, broadly unchanged overall: lower R&D and SG&A costs were offset by a $1.3 million restructuring charge. An approximately 8% workforce reduction was announced effective April 4, 2017.
- Other expense was $1.4 million, primarily from higher foreign-currency losses. A $0.9 million gain from changes in warrant fair value partly offset losses; this non-cash fair-value item is subject to market-driven valuation changes.
Outlook, risks and contingencies
- Management said available liquidity was sufficient to fund operations and capital expenditures for the next 12 months. It also said liquidity depends heavily on revenue growth, cost control and access to additional capital, with no assurance further financing will be available. Management may further reduce operating costs and capital spending if needed.
- Key uncertainties include the timing of recovery in Inox demand, customer adoption and commercialization of products, collection of receivables, government funding for superconducting-product development, and realization of sales from backlog. The filing provides no quantitative revenue or earnings guidance.
- Sinovel-related proceedings in China include AMSC claims for approximately $72 million for past shipments and retention, plus other claims involving alleged intellectual-property infringement. Sinovel has asserted counterclaims; the company said it could not reasonably estimate potential losses or a range of losses. Certain separate copyright claims had been dismissed, with appeals or further proceedings described as pending.
- The company’s strategic agreements with Inox were valued at approximately $210 million and include a multi-year supply arrangement, but future business remains exposed to Inox concentration and demand volatility.
- Management expected adoption of the new revenue-recognition standard in fiscal 2018 to change the identification of contract deliverables and allocation of transaction price; the impact was still under evaluation.
Important facts for investors to verify
- Whether Inox shipments and wind-segment revenue recover, and how customer concentration evolves.
- Whether gross margins improve after the accelerated depreciation charge and workforce restructuring.
- Cash burn, liquidity runway and any need for additional capital; the quarter’s cash increase was substantially supported by equity issuance.
- Progress in Grid sales, including D-VAR systems and U.S. Navy contracts, and any effects of customer or contract concentration.
- Developments and potential financial exposure in Sinovel-related litigation and other commitments.
- The eventual financial-statement impact of adopting the revenue-recognition standard.