American Superconductor Corporation — Form 10-Q Summary
Business context and reporting period
Quarter ended June 30, 2018 (the first quarter of fiscal 2019); comparisons are with the three months ended June 30, 2017. AMSC supplies wind-turbine power electronics, engineering and related services, and power-grid products and services, including U.S. Navy ship-protection systems. It reports Wind and Grid segments. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Quarter ended June 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $12.6 million | $8.9 million |
| Gross margin | $3.9 million; 31% | $(4.5) million; (50)% |
| Operating loss | $(5.1) million | $(14.7) million |
| Net loss | $(4.7) million; $(0.23) per diluted share | $(15.3) million; $(0.91) per diluted share |
| Operating cash flow | $(6.9) million | $(5.4) million |
- Revenue rose 41%. Wind revenue increased 61% to $3.7 million, mainly on higher shipments to Inox; Grid revenue increased 34% to $8.9 million, primarily on higher D-VAR system sales.
- Gross-margin improvement reflected higher revenue and more favorable product mix, prior-year accelerated depreciation, and lower fixed factory overhead following the move to Ayer.
- Cash and cash equivalents were $26.8 million at June 30; cash, cash equivalents and restricted cash totaled $26.9 million, down $7.3 million from March 31. The company reported no outstanding debt other than ordinary trade payables.
- Operating cash use increased year over year, primarily because accounts receivable rose; receivables were $11.5 million at quarter-end, versus $7.4 million at March 31.
- Total assets were $84.4 million, total liabilities $36.5 million, and stockholders’ equity $47.9 million. Accumulated deficit was $993.0 million.
- Non-GAAP net loss was $3.6 million, or $0.18 per share, versus $15.4 million, or $0.92 per share. This company-defined measure excludes specified items and is supplementary to GAAP results.
Material changes and unusual items
- Wind and Grid operating losses narrowed to $1.4 million and $2.7 million, respectively, from $4.4 million and $8.2 million. The company attributed the improvement to higher segment revenues and lower costs.
- On July 3, after quarter-end, AMSC and subsidiaries settled litigation and arbitration with Sinovel for RMB equivalent to $57.5 million. Sinovel paid $32.5 million on July 4; the remaining $25.0 million is due by May 6, 2019, with a personal guarantee from former Sinovel chairman Wenyuan Wei. On July 24, AMSC China transferred $30.7 million to AMSC Austria to settle intercompany balances.
- The settlement grants Sinovel a non-exclusive license to specified intellectual property for use in its doubly fed wind turbines. The license terminates if the second payment is not made by the due date. The settlement’s cash receipts are subsequent events, not quarter-end cash.
- AMSC adopted ASC 606 revenue recognition on April 1 using the modified retrospective method; the opening accumulated-deficit adjustment was less than $0.1 million and the reported-quarter impact was immaterial.
- Restructuring expense was $0.3 million, related to corporate-office exit costs, versus $1.3 million of primarily severance costs a year earlier. AMSC also disclosed BASF will not extend its joint development agreement beyond March 3, 2019, eliminating a scheduled $1.0 million payment in 2019.
Outlook, management commentary and risks
Management said it believes available liquidity is sufficient for operations and capital expenditures for the next 12 months, but noted liquidity depends on revenue growth, collecting amounts due under customer agreements, expense control and potentially raising capital. The company has recurring operating losses and negative operating cash flows and may further reduce operating costs and capital spending.
- AMSC reported approximately $50.6 million of remaining performance obligations expected to be recognized within 12 months and $8.1 million over 13–60 months. Timing is subject to customer actions; Inox forecast quantities are firm and irrevocable only for the first three months of its rolling forecast.
- Inox represented 25% of quarterly revenue; Vestas represented 36%. Management cited continuing uncertainty about Inox demand amid India’s transition to government auctions.
- Key risks include nonpayment or delay of Sinovel’s second installment, dependence on major customers, continuing cash burn and financing needs, revenue and backlog uncertainty, wind-market and policy conditions, supplier exposure, and commercialization and government-funding risks. AMSC also cautioned that Sinovel-related tax treatment may be challenged.
- There was no specific revenue or earnings guidance in the provided filing text. Management stated the market-risk profile had not materially changed from March 31.
Important facts for investors to verify
- Whether Sinovel or its guarantor pays the $25.0 million installment by May 6, 2019, and any related tax or foreign-exchange effects.
- Whether Inox demand improves and whether the company can collect receivables and convert stated performance obligations into revenue and cash.
- Cash burn, expense reductions and financing requirements relative to management’s 12-month liquidity assessment.
- Customer concentration and quarterly revenue mix, particularly Inox and Vestas, and the effect of BASF’s non-extension.
- Potential dilution: 21,228,071 common shares were outstanding as of July 27, 2018; warrants and stock-based awards also exist.