American Superconductor Corporation — FY2013 Form 10-K
Reporting period: Fiscal year ended March 31, 2013 (April 1, 2012–March 31, 2013), compared primarily with FY2012. The filing describes the business in Wind and Grid segments. This is an annual filing, not a standalone fourth-quarter report.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $87.4 million | $76.5 million |
| Gross margin | 17.7% | (8.3)% |
| Operating loss | $57.7 million | $136.4 million |
| Net loss | $66.1 million; $1.25 per share | $136.8 million; $2.69 per share |
| Cash used in operating activities | $45.3 million | $141.0 million |
| Cash, cash equivalents, marketable securities and restricted cash at year-end | $50.2 million | $66.2 million |
- Revenue increased 14%. Wind revenue was $44.2 million, down 1%; Grid revenue was $43.2 million, up 35%, chiefly on higher D-VAR system sales in the U.K. and Australia.
- Gross margin improved from negative to positive, reflecting cost reductions and recoveries of adverse purchase commitments. Both segments remained loss-making: Wind operating loss was $16.1 million and Grid operating loss was $23.8 million.
- Year-end cash and cash equivalents were $39.2 million; an additional $11.0 million was restricted. Working capital was $40.4 million, down from $57.2 million.
- Debt principal outstanding was approximately $23.5 million: $15.4 million on a 7% senior convertible note and $8.1 million on a secured term loan. The term loan bears interest at 11% plus any prime-rate amount above 3.75%.
- Backlog was $84.7 million at March 31, 2013, versus $98.6 million a year earlier. Orders may be delayed, reduced or cancelled and are not assured revenue.
Material changes and unusual items
- Loss narrowed substantially year over year, while revenue recovered from FY2012’s depressed level; however, revenue remained far below FY2011’s $286.6 million, following the loss of Sinovel.
- Operating cash outflow fell to $45.3 million from $141.0 million. FY2013 included $14.3 million of cash payments to settle adverse purchase commitments, which management did not expect to recur.
- FY2013 included $7.9 million of restructuring and impairment charges, including a $5.0 million impairment; $8.1 million of stock-based compensation; a $1.8 million shareholder-litigation contingency; $12.4 million of non-cash interest expense; a $7.6 million non-cash gain from changes in fair value of derivatives and warrants; and $7.8 million of adverse-purchase-commitment recoveries.
- Cash and cash equivalents declined from $46.3 million to $39.2 million. The company obtained approximately $35 million of financing in the quarter ended June 30, 2012 and reported no further financing since then.
- Shares outstanding rose from 52.0 million to 60.3 million during FY2013. The company made convertible-note payments in shares and also issued shares to settle liabilities, creating dilution risk.
Outlook, risks and contingencies
- Going concern: Recurring operating losses, negative operating cash flow and an accumulated deficit of $800.1 million led management and the auditor to state that substantial doubt exists about the company’s ability to continue as a going concern. The auditor’s report includes a going-concern explanatory paragraph; the financial statements remain prepared on a going-concern basis.
- Management said available cash could fund operations, capital expenditures and scheduled debt payments for the next 12 months if it executes its plans, including revenue growth, expense and capital-spending controls, and continued ability to make convertible-note payments in shares. This is conditional, not a guarantee; no specific revenue or earnings guidance is provided.
- Stock repayment of the convertible note depends on share-price and trading-volume tests or lender waivers. If these conditions are not met, cash repayment may be required. Debt covenants and cross-default provisions could also trigger accelerated repayment. The term-loan lender provided a one-time waiver on June 11, 2013 concerning the going-concern opinion.
- AMSC is pursuing sales of its minority investments in Tres Amigas and Blade Dynamics to support liquidity; there is no assurance of a sale or proceeds. Workforce reductions totaled approximately 57% from April 2011 through March 2013, and further cost reductions or facility consolidation were planned.
- Sinovel has not been a customer since FY2010. AMSC seeks approximately $76 million for past shipments and retention, while Sinovel has asserted substantial counterclaims, including approximately $190 million in the principal arbitration. AMSC also alleges intellectual-property theft and seeks damages in separate proceedings. Outcomes and collection are uncertain; the claimed amounts are not equivalent to recognized assets or revenue.
- A securities class action settlement was reported in principle in May 2013; the company had recorded a $1.8 million contingency at year-end. Shareholder derivative suits and other disputes remained unresolved. A separate Ghodawat arbitration involved a claim of approximately $24 million and a company counterclaim of approximately $9 million; the recorded contingency was described as immaterial.
- Other key risks include customer and supplier concentration, dependence on China and overseas markets, government incentives and funding, competitive pressure, unproven commercial-scale production and market adoption of superconductor wire, product performance, foreign exchange, and potential dilution.
Most important facts for investors to verify
- Current cash burn, unrestricted cash availability, and whether operating-cost reductions and revenue growth are meeting management’s liquidity assumptions.
- Convertible-note payment terms, stock-price and trading-volume conditions, lender waivers, remaining debt maturities, and dilution from future share settlements or warrants.
- Revenue quality and collection, especially customer concentration and receivables: Inox, CG Power Solutions and Hyundai Heavy Industries represented 41%, 17% and 11% of receivables, respectively, at year-end.
- Progress and financial exposure in the Sinovel, shareholder and Ghodawat proceedings; distinguish asserted claims from amounts accrued, recognized or ultimately collectible.
- Conversion of backlog into profitable deliveries, and commercialization, production cost and quality of Amperium superconductor products.