American Superconductor Corporation — Q2 FY2020 Form 10-Q
Reporting period: Three and six months ended September 30, 2019. AMSC supplies megawatt-scale power-grid, U.S. Navy, and wind-power solutions through its Grid and Wind segments. Figures below are in millions of dollars, except per-share data.
Financial performance and position
| Metric | Q2 FY2020 | Q2 FY2019 | Six months FY2020 | Six months FY2019 |
|---|---|---|---|---|
| Revenue | $14.0 | $14.9 | $27.8 | $27.5 |
| Gross margin | $3.8; 27% | $3.6; 24% | $5.3; 19% | $7.5; 27% |
| Operating income (loss) | $(4.1) | $24.7 | $(10.4) | $19.6 |
| Net income (loss) | $(0.8) | $22.6 | $(4.4) | $17.8 |
| Basic EPS | $(0.04) | $1.11 | $(0.21) | $0.88 |
- Q2 Grid revenue rose 52% to $11.5 million, while Wind revenue fell 65% to $2.5 million. For the six-month period, Grid revenue increased 29% to $21.3 million and Wind revenue decreased 41% to $6.4 million.
- Q2 gross margin improved primarily on favorable Grid product mix; the six-month margin declined chiefly because of less favorable mix and fewer Wind electrical control system shipments.
- Cash used in operating activities was $10.5 million for the six months, versus $23.6 million provided in the prior-year period. Investing used $8.7 million, including $10.0 million to purchase marketable securities and $1.7 million in capital expenditures; financing used $0.4 million.
- At September 30, cash and cash equivalents were $52.8 million, marketable securities $10.0 million, and restricted cash $5.7 million. Total cash, equivalents, marketable securities and restricted cash was $68.6 million. The filing reports no outstanding debt other than ordinary trade payables.
- Total assets were $117.4 million and stockholders’ equity $76.7 million. Current liabilities were $28.0 million; deferred revenue totaled $16.0 million. The company reported an accumulated deficit of $965.9 million.
Material changes and unusual items
- Prior-year Q2 and six-month results included a $28.7 million net gain on the Sinovel settlement. The settlement’s $57.5 million total cash payment was received in 2018; no comparable settlement gain occurred in FY2020. This largely explains the swing from prior-year operating and net income to losses.
- Excluding specified items, including stock compensation, warrant fair-value changes and the Sinovel gain, non-GAAP net loss was $1.5 million for Q2 and $7.6 million for the six months, compared with $2.7 million and $6.1 million, respectively, in the prior-year periods.
- Warrant fair-value changes generated gains of $1.1 million in Q2 and $4.1 million in the six-month period. These non-cash gains affected reported earnings.
- Cash and cash equivalents declined from $77.5 million at March 31, 2019 to $52.8 million at September 30; marketable securities and restricted cash increased. The company received the final $3.0 million installment on its Devens property note in May 2019.
Outlook, risks and contingencies
- Management believes available liquidity can fund operations and capital expenditures for the next twelve months, but says liquidity depends on revenue growth, cost control, collections from Inox and, if needed, additional capital. The company has a history of operating losses and negative operating cash flows.
- Inox is delinquent in posting letters of credit required for forecasted electrical control system shipments. AMSC says it cannot predict when Inox will resume posting them; failure to post letters of credit or take delivery could reduce revenue and liquidity. Inox accounted for 17% of six-month revenue, versus 36% in the prior-year period.
- AMSC cited more than 900 MW of Inox orders from four Indian central auctions and 50 MW from a Maharashtra auction, but cautioned that execution, turbine delivery delays, or failure to win further orders could limit shipments to Inox.
- Remaining performance obligations were approximately $50.4 million expected to be recognized within twelve months and $7.2 million over months 13–60; timing depends on customer actions. The near-term amount includes anticipated Inox shipments based on its rolling forecast.
- The ComEd Resilient Electric Grid project is expected to generate $9–$11 million of revenue over its term, with operations expected in 2021. AMSC deposited $5.0 million to secure a required letter of credit; project construction was expected to commence within six months after DHS approval, obtained June 20, 2019.
- Other disclosed risks include customer concentration, fluctuating results, restricted cash tied to letters of credit and performance bonds, dependence on U.S. government funding, market adoption of new products, and supplier, foreign-exchange and international-market risks. The filing reported no material changes to the risk factors in the prior 10-K and no legal proceedings in Part II.
Important facts for investors to verify
- Whether Inox posts the required letters of credit and fulfills forecasted purchases, and the resulting Wind revenue and cash collections.
- Whether Grid growth, including D-VAR and the ComEd project, can offset weaker Wind shipments and improve consolidated operating performance.
- Operating cash burn, restricted cash availability, and management’s stated twelve-month liquidity assessment, including any need for additional financing.
- How much reported earnings are affected by non-cash warrant remeasurement and how the non-GAAP reconciliations compare with GAAP results.
- Execution of the ComEd project, including the $5.0 million letter-of-credit collateral and expected timing toward 2021 operation.