American Superconductor Corporation — Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended June 30, 2014, the company’s first fiscal quarter. AMSC supplies products, engineering and services to wind-power manufacturers and electric-grid customers through its Wind and Grid segments.
Financial results and liquidity
- Revenue: $11.7 million, down 49% from $23.1 million in the prior-year quarter. Wind revenue was $7.7 million (down 48%); Grid revenue was $4.0 million (down 52%).
- Profitability: Gross margin was negative 3.3%, versus positive 22.1%. Operating loss was $12.7 million, compared with $8.9 million; net loss was $13.5 million, compared with $10.5 million. Basic and diluted loss per share were $0.17 versus $0.18.
- Expenses and segments: Cost of revenue was $12.1 million. SG&A fell 27% to $7.9 million, while restructuring charges rose to $1.2 million from less than $0.1 million. Wind operating loss increased to $3.5 million from $1.8 million; Grid operating loss increased to $6.4 million from $4.9 million.
- Cash flow: Operating cash use was $5.5 million, improved from $9.3 million. Investing activities used $0.3 million, versus $3.8 million provided; financing activities used $0.6 million, versus $1.2 million used. Cash and cash equivalents fell $6.5 million during the quarter to $36.6 million.
- Balance sheet and debt: Current assets were $81.0 million and current liabilities $49.9 million. Cash, cash equivalents and restricted cash totaled $42.8 million; $6.2 million was restricted, principally to secure letters of credit. Reported note payable carrying value was $11.4 million, including current and long-term portions. Total liabilities were $58.1 million and stockholders’ equity $102.5 million.
Material changes versus the prior comparable period
- Revenue declined in both segments: Wind was affected primarily by lower Chinese customer revenue, partly offset by higher sales to Inox Wind in India; Grid was affected mainly by lower D-VAR system revenue.
- The lower gross margin reflected prior-year revenue that had a 100% margin. AMSC said lower SG&A reflected savings from earlier cost reductions and reduced audit and legal costs.
- Interest expense declined to $0.5 million from $2.1 million, primarily because the convertible note was extinguished in March 2014.
- Inox Wind represented 48% of quarterly revenue, compared with 15% a year earlier, increasing customer concentration.
Outlook, commentary, risks and unusual items
- Management said available liquidity should fund operations, capital expenditures and scheduled debt payments through June 30, 2015. This assessment depends on revenue growth, cost control, potential ATM sales and continued compliance with debt covenants; it is not a revenue or earnings forecast.
- The company had $20.8 million of remaining capacity under its $30 million at-the-market equity program and raised net proceeds of $1.2 million by selling about 0.8 million shares at an average $1.63 per share during the quarter. It was also seeking buyers for its minority investments in Tres Amigas and Blade Dynamics, with no assurance of a sale.
- AMSC reported recurring operating losses, an accumulated deficit of $869.9 million and recurring negative operating cash flows. It was consolidating Grid manufacturing, reducing its workforce and planning further expense or capital-spending cuts if needed. The global workforce was about 281.
- The secured term loans bear interest at 11% plus any prime-rate excess over 3.75%, and include a minimum U.S. unrestricted-cash covenant, set at $12.5 million at June 30, 2014. Failure to meet covenants or other defaults could permit acceleration and enforcement against collateral. The company said it believed it was compliant.
- The securities class action settlement became effective in June: AMSC issued 944,882 shares and paid about $0.5 million in cash; the stated $10 million settlement was otherwise largely funded by insurers. Related derivative actions were also settled, with fees funded by insurers and corporate-governance changes.
- Material unresolved litigation includes Sinovel contract and intellectual-property disputes in China. AMSC seeks substantial damages, while Sinovel has asserted counterclaims; the company said it could not reasonably estimate potential losses. Ghodawat arbitration remained pending, with an immaterial loss contingency recorded.
- Other notable items included $0.6 million of inventory write-downs and $1.2 million of restructuring charges. Management stated that disclosure controls were effective and that there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue and gross margin recover, especially in Grid and Chinese Wind markets, and whether reliance on Inox Wind remains elevated.
- Whether operating cash use continues to improve and whether restricted cash, ATM proceeds or investment sales provide usable liquidity as planned.
- Compliance with the secured-loan cash covenant, debt repayment schedule and any conditions that could accelerate repayment.
- Developments and potential financial effects of Sinovel and Ghodawat proceedings, and completion of restructuring and facility consolidation.