Business Context and Reporting Period
Company: American Superconductor Corporation (AMSC)
Filing Type: Form 10-Q
Reporting Period: Quarter and six months ended September 30, 2002
Business Overview: AMSC develops and manufactures products using high-temperature superconductor (HTS) wire and power electronic converters. Operations are divided into three segments: HTS Wire, Electric Motors and Generators, and Power Electronic Systems. The company relies heavily on government and commercial research and development contracts.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2002 |
Six Months Ended Sep 30, 2002 |
Six Months Ended Sep 30, 2001 |
|---|---|---|---|
| Total Revenues | $4,479,555 | $7,339,528 | $4,915,508 |
| Net Loss | $(10,222,427) | $(21,051,666) | $(18,160,532) |
| Net Loss Per Share (Basic/Diluted) | $(0.50) | $(1.02) | $(0.89) |
| Operating Loss | $(10,501,691) | $(21,681,916) | $(21,545,534) |
| Cash and Cash Equivalents (End of Period) |
$10,877,070 | $10,877,070 | $61,697,409 |
| Total Cash, Equivalents & Long-term Marketable Securities |
$35,031,260 | $35,031,260 | $92,726,092 |
| Net Cash Used in Operating Activities | N/A | $(27,168,648) | $(15,555,498) |
| Accumulated Deficit | $(206,528,447) | $(206,528,447) | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 38% for the quarter and 49% for the six-month period compared to the prior year. This was driven by higher prototype development contract revenues (primarily U.S. Navy contracts) and increased system shipments in the Power Electronic Systems segment.
- Segment Performance:
- Power Electronic Systems: Revenues surged to $2.5 million (quarter) and $3.6 million (six months) due to two system shipments and Navy contracts.
- Electric Motors and Generators: Revenues rose to $1.6 million (quarter) and $3.1 million (six months) due to Navy propulsion motor development work.
- HTS Wire: Revenues declined significantly to $374,000 (quarter) and $592,000 (six months) due to the discontinuance of funding from Pirelli Energy Cables and Systems.
- Costs and Expenses: Total costs increased to $14.98 million (quarter) and $29.02 million (six months). Increases were attributed to higher prototype development costs and occupancy costs for the new Devens, Massachusetts manufacturing plant.
- Liquidity: Cash and cash equivalents dropped from $37.2 million at March 31, 2002, to $10.9 million at September 30, 2002. Total liquid assets (including long-term securities) decreased by approximately $33.2 million over the six-month period, primarily due to operating losses and capital expenditures.
Guidance, Outlook, and Risks
- Profitability Outlook: Management expects to continue incurring operating losses until the end of fiscal year 2005. The company anticipates reaching corporate-wide profitability by that time.
- Liquidity Sufficiency: Management believes existing capital resources are sufficient to fund operations through fiscal 2005, though additional funding may be required sooner if performance deviates from the business plan.
- Deferred Revenue: $3.787 million in revenue related to SMES units sold to Wisconsin Public Service Corporation (WPS) is deferred due to buyback provisions. The company expects to recognize $537,000 of this revenue in the quarter ending December 31, 2002, as buyback provisions lapse.
- Restructuring: Following a March 2002 restructuring plan (eliminating 99 jobs), the company anticipates cost savings of approximately $9.0 million in fiscal 2003. Remaining restructuring liabilities of approximately $2.7 million are expected to be paid out, with $1.1 million in cash.
- Risks:
- Technological challenges in commercializing HTS wire and motors.
- Limited commercial market for superconductor products.
- Dependence on government contracts which are subject to cancellation.
- Intense competition from traditional technologies and other superconductor developers.
- Patent infringement risks and the need to license third-party patents.
- Subsequent Event: On October 31, 2002, the company acquired assets of Nordic Superconductor Technologies A/S (NST) for approximately $2.1 million in stock, expanding its HTS wire capabilities in Europe and Asia.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of the $27.2 million cash burn over six months against the $35 million liquid asset base.
- Revenue Quality: Assess the proportion of revenue derived from government contracts (U.S. Navy) versus commercial product sales, noting the risk of contract cancellations.
- Deferred Revenue Recognition: Monitor the December 31, 2002, recognition of the $537,000 deferred revenue from the WPS SMES transaction.
- HTS Wire Commercialization: Evaluate progress on the Devens manufacturing facility and the ability to generate commercial revenue from HTS wire without Pirelli funding.
- Restructuring Completion: Confirm the realization of the projected $9.0 million in cost savings from the March 2002 restructuring.