American Superconductor Corporation — Form 10-Q Summary
Business context and reporting period
AMSC provides megawatt-scale power solutions through its Grid and Wind segments, including grid systems and services, U.S. Navy products, and wind-turbine control systems. This report covers the quarter and nine months ended December 31, 2019 (the company’s fiscal third quarter and year to date for fiscal 2020). Unless noted otherwise, amounts below are in millions of dollars.
Financial performance and position
- Revenue: Q3 revenue rose 27% to $17.9 million; nine-month revenue rose 10% to $45.7 million. Grid revenue was $15.2 million in Q3 and $36.6 million year to date; Wind revenue was $2.7 million and $9.1 million, respectively.
- Profitability: Q3 gross margin fell to 9% from 26%; nine-month gross margin fell to 15% from 27%. The company recorded a Q3 net loss of $6.8 million ($0.32 basic loss per share) and a nine-month net loss of $11.2 million ($0.54 basic loss per share). Operating losses were $6.6 million and $17.0 million, respectively.
- Cash flow: Operating cash use was $17.8 million for the nine months, compared with $47.8 million of cash provided in the prior-year period. Investing activities used $34.9 million, primarily reflecting purchases of marketable securities and capital spending; financing provided $5.7 million, mainly from warrant exercises.
- Liquidity and debt: At December 31, cash, cash equivalents and marketable securities totaled $60.5 million; adding $5.8 million of restricted cash gives total cash, investments and restricted cash of $66.3 million. The company reported no outstanding debt other than ordinary trade payables. Current assets were $89.3 million and current liabilities $35.0 million.
- Other balance-sheet items: Accounts receivable increased to $16.5 million from $7.9 million at March 31, 2019, and inventory rose to $18.6 million from $12.1 million. Deferred revenue totaled $23.1 million, including $15.2 million current.
Material changes versus the prior comparable period
- Grid revenue more than doubled in Q3, primarily from D-VAR, ship protection systems and the Resilient Electric Grid (REG) project. Wind revenue declined 63% in Q3 and 50% year to date, primarily due to fewer electrical control system shipments to Inox.
- Lower gross margins reflected increased revenue from cost-share projects with the Department of Homeland Security and a less favorable product mix.
- Prior-year results included Sinovel settlement gains of $25.0 million in Q3 and $53.7 million for the nine months. This one-time gain materially boosts prior-year reported operating and net income; it was absent in 2019.
- Excluding specified items, non-GAAP net loss was $6.7 million in Q3 versus $2.3 million in the prior-year quarter, and $14.4 million for nine months versus $8.4 million. The filing attributes the deterioration primarily to less favorable product mix.
- Cash and cash equivalents declined from $77.5 million at March 31 to $25.5 million at December 31, while the company invested $35.0 million in marketable securities. Warrant exercises generated $6.1 million and issued 786,000 shares; no warrants remained outstanding at quarter end.
Outlook, management commentary and risks
- Management believes available liquidity is sufficient for operations and capital expenditures for the next 12 months, but says liquidity depends on revenue growth, collections (including from Inox), cost control and potential access to additional capital. A history of operating losses and negative operating cash flows is disclosed.
- Inox was delinquent in posting letters of credit for forecasted shipments. A continued failure to post letters of credit and take delivery could reduce revenue and harm liquidity. Inox has reported more than 900 MW of orders from four central auctions and 50 MW from a Maharashtra auction, but AMSC cautions that execution, future orders and turbine delivery are uncertain.
- Remaining performance obligations were approximately $76.2 million expected to be recognized within 12 months and $7.0 million over months 13–60. These amounts are subject to customer actions; the near-term figure includes anticipated Inox shipments based on its rolling forecast.
- The REG project is expected to be operational in 2021. DHS funding is expected to total $9–$11 million over the subcontract, and AMSC has restricted $5.0 million as collateral for a required letter of credit. Substation work began in late 2019.
- Other disclosed risks include dependence on government funding and customer adoption, wind-market conditions and incentives, foreign exchange, suppliers and collaborators, product quality, and the company’s ability to re-establish HTS wire production. Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. No material changes to the prior annual report’s risk factors were reported.
Most important facts for investors to verify
- Whether Inox cures its letter-of-credit delinquency and converts forecasted purchases and auction orders into shipments and collections.
- Whether Grid growth, including REG and Navy-related work, can improve margins and offset weakness in Wind revenue.
- Cash burn, working-capital movements, and the availability and maturity profile of marketable securities; $5.8 million of cash was restricted at quarter end.
- The timing and collectability of the $76.2 million of near-term remaining performance obligations, particularly the Inox-dependent portion.
- How reported results compare with normalized performance: prior-year Sinovel gains were substantial, while current-period warrant fair-value changes also affected earnings.