American Superconductor Corporation — Form 10-Q Summary
Business context and period. AMSC supplies wind-turbine power electronics, designs and support services, and power-grid products and services, including D-VAR and superconducting systems. This unaudited report covers the three and six months ended September 30, 2015 (fiscal Q2 and first half of fiscal 2015). Unless noted, amounts below are in millions of dollars.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2015 | Six months ended Sep. 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $19.0 | $42.7 | $12.5 quarter; $24.2 six months |
| Gross margin | 15.8% | 14.6% | (10.6)% quarter; (7.1)% six months |
| Operating loss | $(6.8) | $(15.1) | $(26.4) quarter; $(39.1) six months |
| Net loss | $(7.7) | $(16.8) | $(25.4) quarter; $(38.9) six months |
| Basic and diluted loss per share | $(0.57) | $(1.31) | $(3.12) quarter; $(4.89) six months |
| Operating cash flow | Not presented separately for the quarter | $(7.8) | $(11.4) six months |
- For the quarter, Wind revenue was $13.6 million and Grid revenue was $5.4 million. For the first half, Wind revenue was $31.7 million and Grid revenue was $11.0 million.
- At September 30, cash and cash equivalents were $32.6 million; restricted cash was $4.1 million. Current assets were $71.4 million and current liabilities $40.9 million. Total assets were $134.3 million and stockholders’ equity $87.6 million.
- Balance-sheet note payable, net of discount, totaled $5.8 million, comprising $3.9 million current and $2.0 million long-term. Term loans are secured by substantially all company assets and carry interest at 11% plus any applicable prime-rate excess over 3.75%.
- Six-month investing cash flow was $(0.2) million; financing cash flow was $20.2 million. Cash increased $12.1 million, largely due to the April 2015 equity offering.
- Management reported a $921.9 million accumulated deficit and recurring operating losses and negative operating cash flows.
Material changes versus prior periods
- Revenue rose 53% for the quarter and 77% for the first half. Wind revenue increased mainly on higher sales to Inox in India and, year to date, Beijing JINGCHENG New Energy in China. Grid growth reflected higher D-VAR revenue, partly offset by lower HTS wire sales.
- Gross margin improved substantially, attributed to higher revenue and product mix, including D-VAR in the quarter and Wind royalties in the first half. A portion of current-period Grid margin improvement also reflected D-VAR costs expensed in an earlier period.
- Operating losses narrowed, but comparison benefited from the prior-year $10.2 million Ghodawat arbitration charge and $3.5 million Blade Dynamics impairment, as well as higher current-period revenue and lower expenses. Selling, general and administrative expense declined; research and development expense was broadly flat.
- Non-GAAP net loss was $8.7 million for the quarter and $17.5 million for the first half, versus $11.8 million and $23.6 million in 2014, respectively. These company-defined measures exclude various items and should be considered alongside GAAP results.
- Foreign-currency effects were losses of $0.4 million for the quarter and $1.0 million for the first half, compared with gains in the corresponding 2014 periods.
Outlook, risks and unusual items
- Management believed available liquidity would fund operations, capital expenditures and scheduled debt payments for the next 12 months. This assessment depends on revenue growth, cost control, debt-covenant compliance and, if needed, access to additional capital; the company cautioned that additional financing is not assured. It planned to monitor expenses and reduce costs or capital spending if required.
- Customer concentration is significant: Inox represented 66% of quarterly revenue and 55% of first-half revenue. Management identified dependence on wind-turbine licensees, uncertain backlog conversion, market adoption, government funding and incentives, supplier availability, foreign exchange, and debt covenants among business risks.
- Project REG was in engineering and planning; DHS committed a further $3.7 million in the quarter, bringing funding committed for the first phase to $5.2 million. The larger construction and deployment phase requires agreement by all parties, which is not assured. Management also cited expected additional U.S. Navy business but gave no quantified guidance.
- On October 6, 2015, GE acquired Blade Dynamics. AMSC received $2.5 million net, expected to be recorded as a gain in the following quarter, and could receive up to another $1.6 million if milestones are achieved. The company fully impaired its $0.7 million remaining Tres Amigas investment during the first half.
- AMSC’s Sinovel proceedings in China remain unresolved. A Chinese court dismissed two claims; appeals were pending, and a trade-secret case was refiled in Beijing with a hearing scheduled for January 2016. AMSC’s contract arbitration seeks approximately $76 million, while Sinovel has asserted counterclaims. The filing says possible losses on Sinovel claims cannot currently be reasonably estimated. Ghodawat’s prior award was settled and paid in fiscal 2015.
- AMSC reported compliance with debt covenants as of September 30, 2015, but disclosed that default could permit accelerated repayment and enforcement against collateral. Restricted cash primarily secures letters of credit and performance obligations.
Important facts for investors to verify
- Whether revenue growth, especially sales to Inox, continues and whether AMSC can reduce customer concentration.
- Whether the company can improve gross margins and operating cash flow without further financing or additional cost reductions.
- Cash availability after restricted balances, debt amortization and covenant requirements; confirm debt principal and repayment schedules in the debt note.
- Progress and funding decisions for Project REG, and the timing and economics of prospective U.S. Navy work.
- Developments in the Sinovel litigation and any change in the estimated exposure or potential recovery.
- Whether Blade Dynamics achieves the milestones required for any contingent proceeds.