American Superconductor Corporation — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the quarter ended June 30, 2015, the first quarter of the company’s fiscal 2016. AMSC supplies products, engineering and services for wind power and electric grids through its Wind and Grid segments. Figures below are in U.S. dollars.
Financial performance and position
- Revenue: $23.7 million, up 103% from $11.7 million. Wind revenue rose to $18.2 million from $7.7 million; Grid revenue rose to $5.6 million from $4.0 million.
- Profitability: Gross margin improved to 13.6% from negative 3.3%. Operating loss narrowed to $8.3 million from $12.7 million; net loss narrowed to $9.1 million from $13.5 million. Basic and diluted loss per share were $0.75 versus $1.74.
- Segment results: Wind reported $0.1 million operating income versus a $3.5 million loss. Grid reported a $6.5 million operating loss, slightly worse than the prior-year $6.4 million loss.
- Cash flow: Operating cash use was $3.0 million versus $5.5 million. Investing cash use was $0.1 million. Financing provided $21.2 million, mainly from the April 2015 equity offering.
- Liquidity: Cash and cash equivalents were $38.6 million at June 30, up from $20.5 million at March 31; including restricted cash, total cash was $42.6 million. Working capital was approximately $35.2 million.
- Debt and liabilities: Note payable was $6.7 million net of discounts ($3.8 million current and $2.9 million long-term). The Term Loans bear interest at 11% plus any prime-rate amount above 3.75%, are secured by substantially all company assets, and include financial and other covenants. Total liabilities were $48.3 million, down from $53.9 million at March 31.
- Other metrics: AMSC raised $22.3 million net by issuing approximately 4.0 million shares at $6.00 per share. It recorded a $0.7 million impairment that fully wrote off its remaining Tres Amigas investment. Inventory fell to $17.1 million from $20.6 million.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by higher Wind sales to INOX Wind in India and Beijing JINGCHENG New Energy in China, plus higher D-VAR system revenue in Grid.
- Improved gross margin reflected higher revenue and a more favorable mix, including higher Wind royalty revenue. Grid results were pressured by deferred D-VAR project revenue while related costs were expensed.
- Lower operating cash use reflected the smaller net loss and favorable working-capital movements, including reductions in receivables and inventory.
- The net loss comparison also benefited from a $0.8 million gain on the fair value of derivatives and warrants; the company attributed the gain primarily to a lower share price. Other expense increased to $0.8 million, mainly due to foreign-currency losses and Tres Amigas losses.
- Revenue concentration remained significant: INOX accounted for 47% of quarterly revenue and Beijing JINGCHENG for 25%, compared with INOX at 48% and Beijing JINGCHENG below 10% a year earlier.
Outlook, commentary, risks and contingencies
- Management said it believed available liquidity was sufficient for operations, capital spending and scheduled debt payments for the next 12 months. It also disclosed recurring operating losses, negative operating cash flows and a $914.2 million accumulated deficit; liquidity depends on revenue growth, cost control, covenant compliance and potential access to further capital.
- Management described continuing cost controls and facility consolidation, and said it may further reduce operating costs and capital spending if required. The global workforce was 308 at quarter-end.
- The filing cited potential opportunities involving a Washington, D.C. Pepco deployment study for the Resilient Electric Grid system, further D-VAR and U.S. Navy business, and a decision on whether to advance Project REG to its construction and deployment phase. Project REG’s next phase depends on agreement by all parties; no assurance was given that it will proceed. The filing provides no quantified revenue or earnings guidance.
- AMSC fully impaired its Tres Amigas investment because of project financing delays and adverse market indicators. Its Blade Dynamics investment had been fully impaired in a prior period.
- Sinovel disputes remain material and uncertain. AMSC is pursuing contract claims of approximately $76 million and other intellectual-property claims, while Sinovel has asserted counterclaims; the company said it could not reasonably estimate possible losses. A Chinese court dismissed certain copyright-related cases for lack of evidence, and AMSC appealed. A trade-secret complaint was withdrawn and refiled in a different Beijing court. Amounts sought in litigation are claims, not assured recoveries.
- AMSC settled the Ghodawat arbitration for €7.45 million, paid in fiscal 2015’s fourth quarter. Restricted cash of $4.1 million primarily secures letters of credit for supply contracts. Foreign-currency losses affected quarterly net loss by $0.6 million.
- Management reported effective disclosure controls as of June 30, 2015 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether quarterly revenue growth and gross-margin improvement are sustainable, particularly given deferred Grid project revenue and customer concentration.
- Cash burn, the availability of unrestricted cash, and management’s 12-month liquidity assessment under weaker revenue or delayed project scenarios.
- Debt principal, repayment schedule, interest cost, collateral and covenant compliance; the filing states the company believed it was compliant.
- Progress and funding commitments for Project REG and other prospective orders, distinguishing opportunities from contracted revenue.
- Developments in the Sinovel litigation, related appeals and counterclaims, and any resulting financial exposure or recoveries.