American Superconductor Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2015. The company supplies wind-turbine systems and services and power-grid products and services through its Wind and Grid segments. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2015 | Prior-year quarter | Nine months ended Dec. 31, 2015 | Prior-year period |
|---|---|---|---|---|
| Revenue | $25.8 | $21.3 | $68.5 | $45.4 |
| Gross profit / margin | $6.5 / 25.3% | $3.2 / 14.9% | $12.7 / 18.6% | $1.4 / 3.2% |
| Operating loss | $(3.3) | $(7.7) | $(18.4) | $(46.8) |
| Net loss | $(3.0) | $(6.4) | $(19.8) | $(45.3) |
| Net loss per share, diluted | $(0.22) | $(0.72) | $(1.52) | $(5.50) |
- Quarterly revenue grew 21%; nine-month revenue grew 51%. Wind revenue was $17.2 million for the quarter and $49.0 million year to date; Grid revenue was $8.5 million and $19.5 million, respectively.
- Gross-margin improvement reflected higher revenue, favorable D-VAR product mix, and, for the nine-month period, higher Wind royalty revenue. Operating expenses fell year over year, including lower SG&A.
- For the nine months, operating cash used was $7.8 million, versus $20.9 million in the prior year. Investing activities provided $4.9 million and financing activities provided $19.2 million. Cash and cash equivalents ended at $36.4 million; including restricted cash, total cash was $37.7 million.
- At December 31, current assets were $74.8 million and current liabilities were $45.4 million. Total liabilities were $50.8 million. Note payable, net of discount, totaled approximately $4.9 million, with $3.6 million current and $1.3 million long term. The loans are secured by substantially all company assets and bear interest at 11% plus any applicable prime-rate increment.
- Accumulated deficit was $924.8 million. The company reported recurring operating losses and negative operating cash flows.
Material changes and unusual items
- Revenue growth was primarily driven by higher Wind sales to Inox in India and JCNE in China, and higher Grid D-VAR system revenue. Inox represented 64% of quarterly revenue and 58% of nine-month revenue; Fuji Bridex represented 18% of quarterly revenue.
- Prior-year results included a $10.2 million Ghodawat arbitration award expense in the nine-month period. Its settlement was paid in fiscal 2014. The company also recorded prior-year impairment and restructuring charges, including a $3.5 million Blade Dynamics investment impairment.
- In the current quarter, the company recorded a $2.5 million gain on the sale of its Blade Dynamics investment. It may receive up to an additional $1.6 million if specified milestones are achieved over three years. It fully impaired its remaining Tres Amigas investment, recording a $0.7 million charge in the first fiscal quarter.
- Fair-value changes in derivatives and warrants produced a $1.1 million quarterly loss and a $0.4 million nine-month gain. These non-cash results are sensitive to changes in the company’s stock price.
- An April 2015 public offering of 4.0 million shares generated net proceeds of approximately $22.3 million. The company reported 14,042,359 common shares outstanding on February 4, 2016.
Outlook, management commentary and risks
- In December 2015, AMSC entered strategic agreements with Inox valued at approximately $210 million. They include a multi-year supply contract and a license allowing limited Inox manufacturing for three to four years, followed by a period in which AMSC is preferred supplier and Inox must purchase a majority of its requirements from AMSC. The stated agreement value is not reported revenue or guaranteed cash receipts.
- Management believes available liquidity is sufficient for operations, capital expenditures and scheduled debt payments for the next twelve months. No numerical revenue or earnings guidance is provided. Management says liquidity depends on revenue growth, cost control, debt-covenant compliance and, if necessary, access to additional capital.
- Project REG requires agreement among the parties before its construction and deployment phase begins; the filing says there is no assurance they will proceed. The company also cited anticipated U.S. Navy business, but did not provide quantified guidance.
- Key risks include customer concentration, continued losses and cash use, debt covenants and default remedies, dependence on financing, restricted cash for bonds and letters of credit, foreign-exchange exposure, and uncertainty around order backlog and market adoption. The company reported compliance with loan covenants as of December 31, 2015.
- Sinovel proceedings in China remain unresolved, including AMSC claims for unpaid shipments and alleged intellectual-property misuse, and Sinovel counterclaims. AMSC says potential losses on the contract proceedings cannot be reasonably estimated. Appeals in copyright-related cases and a trade-secret case were pending; claimed amounts are not assured recoveries.
- Management assessed disclosure controls as effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Inox agreements convert into deliveries, recognized revenue and cash receipts on the expected timetable, and how customer concentration evolves.
- Quarterly cash burn, working-capital movements, and the company’s ability to maintain liquidity and comply with secured-loan covenants as debt maturities approach.
- Progress and funding decisions for Project REG, and the extent of anticipated U.S. Navy business.
- Outcomes and financial implications of the Sinovel litigation and appeals; the filing does not quantify a reliable loss estimate or recovery value.
- Whether Blade Dynamics milestone conditions are met and any additional proceeds are received.