American Superconductor Corporation — Form 10-Q
Reporting period: Quarter and nine months ended December 31, 2014; fiscal year ends March 31. Amounts are in U.S. dollars unless stated otherwise. The company provides wind-turbine engineering, power electronics and services, and power-grid solutions through its Wind and Grid segments.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2014 | Nine months ended Dec. 31, 2014 | Prior-year comparable |
|---|---|---|---|
| Revenue | $21.3 million | $45.4 million | $20.6 million and $67.8 million |
| Gross margin | 14.9% | 3.2% | 22.9% and 16.8% |
| Operating loss | $7.7 million | $46.8 million | $6.7 million and $26.6 million |
| Net loss | $6.4 million | $45.3 million | $8.4 million and $33.6 million |
| Net loss per share | $0.07 | $0.55 | $0.14 and $0.55 |
| Operating cash used | Not reported separately | $20.9 million | $18.4 million |
Quarterly revenue rose 3% year over year, while nine-month revenue fell 33%. Quarterly net loss narrowed, but nine-month net loss widened. The nine-month operating loss included a $10.2 million Ghodawat arbitration charge and $3.5 million impairment of the Blade Dynamics investment. Quarterly results also included a $2.3 million gain from revaluing derivatives and warrants.
- Segments: Quarterly Wind revenue increased 12% to $15.1 million; Grid revenue declined 13% to $6.1 million. For nine months, Wind revenue declined 30% to $30.2 million and Grid revenue declined 39% to $15.2 million. Management attributed Grid weakness mainly to lower D-VAR system revenue and Wind’s year-to-date decline mainly to lower China sales.
- Liquidity: Cash and cash equivalents were $36.0 million at December 31, down from $43.1 million at March 31. Including restricted cash, total cash was $37.6 million, compared with $49.4 million. Current assets were $86.5 million and current liabilities $65.8 million.
- Debt and equity financing: Term-loan principal outstanding was approximately $9.2 million. The loans are secured by substantially all company assets and carry an interest rate of 11% plus any prime-rate excess over 3.75%. November’s equity offering raised $9.1 million net and issued approximately 9.1 million shares plus warrants for about 8.2 million shares. ATM sales generated a further $1.0 million net in the quarter; the ATM was terminated in November.
- Balance sheet: Total assets were $157.0 million, total liabilities $74.5 million, and stockholders’ equity $82.5 million. Accumulated deficit was $901.7 million.
Changes, outlook and material matters
- Cost reductions lowered quarterly and nine-month SG&A to $7.6 million and $23.5 million, respectively. The company continued consolidating facilities and restructuring operations; remaining restructuring amounts were expected to be paid by August 31, 2015.
- Management said financing completed in the quarter provided sufficient liquidity for operations, the arbitration settlement, capital expenditures and scheduled debt payments through December 31, 2015. This depends on revenue growth, cost control, continued covenant compliance and, if needed, access to additional capital; management cautioned there is no assurance additional funding will be available.
- After quarter-end, AMSC Austria agreed to settle the Ghodawat award for €7.45 million (approximately $8.5 million), payable in the fourth quarter of fiscal 2014. The company expected to reverse about $1.3 million of the accrued liability. A separate January 2015 settlement with insurer Catlin was expected to permit reversal of approximately $2.0 million previously accrued for reimbursed arbitration expenses.
- Customer concentration is significant: INOX Wind represented 61% of quarterly revenue and 54% of nine-month revenue. The company continues to pursue substantial claims against Sinovel in China; Sinovel’s counterclaims remain unresolved, and the company said potential losses could not be reasonably estimated.
- The company had recurring operating losses and negative operating cash flows. Other risks include debt covenants and minimum-cash requirements, dependence on additional financing and customer adoption, execution of manufacturing consolidation, and foreign-exchange exposure. Nasdaq notified the company in January 2015 that its share price was below the $1.00 minimum bid requirement; it had until July 13, 2015 to regain compliance and was considering a reverse stock split.
- Management reported disclosure controls were effective as of December 31, 2014, with no material change in internal control over financial reporting during the quarter. No specific revenue or earnings guidance was provided.
Investor verification points
- Confirm subsequent payment and accounting for the €7.45 million Ghodawat settlement and the expected arbitration-related reversals.
- Monitor cash burn, unrestricted U.S. cash against the loan covenant, debt repayment terms and liquidity beyond management’s stated December 31, 2015 horizon.
- Assess whether revenue and margins can recover, particularly given the nine-month decline and reliance on INOX Wind.
- Track the status and potential outcomes of Sinovel litigation and counterclaims; any recovery remains uncertain.
- Verify Nasdaq bid-price compliance, any reverse-stock-split action, and dilution from outstanding warrants and equity financing.