American Superconductor Corporation — Form 10-Q Summary
Business context and reporting period
Unaudited results for the quarter and six months ended September 30, 2010 (the second quarter of fiscal 2011; the filing describes fiscal 2010 as ending March 31, 2011). AMSC operates AMSC Power Systems, serving wind and power-grid markets, and AMSC Superconductors, developing and supplying high-temperature superconductor products.
Financial performance and liquidity
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue | $101.5 million, up 36% year over year | $198.7 million, up 35% |
| Gross margin | 40.7%, versus 38.9% | 40.4%, versus 35.0% |
| Operating income | $15.9 million, versus $10.3 million | $32.0 million, versus $16.7 million |
| Net income / diluted EPS | $10.0 million / $0.22, versus $4.3 million / $0.10 | $19.2 million / $0.42, versus $6.1 million / $0.14 |
- AMSC Power Systems generated $98.5 million of quarterly revenue and $26.8 million of operating income. Superconductors generated $3.0 million of revenue and had a $6.5 million operating loss.
- Six-month operating cash flow was negative $1.9 million, versus positive $21.7 million in the prior-year period. The company attributed the change primarily to working-capital use, especially receivables; receivables rose to $96.0 million from $62.2 million at March 31.
- Six-month investing cash outflow was $37.3 million, including $18.0 million of capital expenditures and an $8.0 million Blade Dynamics investment. Cash and cash equivalents fell to $52.6 million from $87.6 million.
- Cash, marketable securities and restricted cash totaled $131.2 million at September 30, down from $155.1 million at March 31. The balance sheet lists no borrowings; liabilities were principally accounts payable/accruals and deferred revenue.
- Gross-margin improvement reflected product mix, China-based component sourcing and favorable foreign-exchange effects. Operating expenses increased, including R&D and SG&A, mainly from higher staffing, development activity and stock-based compensation.
Changes, outlook, risks and unusual items
- Backlog increased to approximately $956 million from $588 million at March 31, primarily following a new Sinovel order. Management said backlog and its business pipeline supported continued revenue growth for the remainder of fiscal 2010; this is management’s stated outlook, not quantified financial guidance.
- Sinovel accounted for 79% of quarterly revenue and 76% of six-month revenue, compared with 76% and 65%, respectively, a year earlier. A May 2010 supply contract for Sinovel’s 1.5 MW turbines was valued at approximately $445 million and runs through late 2013.
- Other income included significant foreign-exchange hedge gains. Management reported $8.0 million of hedge-contract gains for the quarter and $4.0 million for six months in other income, alongside currency-translation losses. These items contributed to reported results and may fluctuate.
- AMSC reported $8.6 million of quarterly and $15.9 million of six-month income-tax expense, primarily on foreign earnings, while maintaining a valuation allowance against U.S. deferred tax assets due to its U.S. loss history.
- Management said available cash should fund working capital, capital expenditures and other requirements for at least the next 12 months. It also expects to increase operating expenses to support growth and may pursue acquisitions or joint ventures.
- Commitments included five performance bonds totaling $2.0 million and $5.5 million of restricted cash. No performance-bond liability was recorded. Management reported no material change in previously disclosed risk factors and concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether Sinovel orders, collections and customer concentration remain sustainable, given its share of revenue and the large contract-backed backlog.
- Whether receivables convert to cash and working-capital demands ease; six-month operating cash flow was negative despite higher earnings.
- Whether gross-margin gains persist as product mix, localization and currency effects change, and whether Superconductors losses narrow.
- How much reported earnings depend on foreign-exchange gains, and the potential effect of currency moves and hedge settlements.
- Whether planned capacity spending and operating-expense growth can be funded while preserving the stated 12-month liquidity outlook.