American Superconductor Corporation — Form 10-K
Reporting period: Fiscal year ended March 31, 2016. This is an annual report, not a standalone Q4 filing. Unless stated otherwise, amounts are in U.S. dollars.
Business context
AMSC supplies wind-turbine electrical control systems, turbine designs and support services, and power-grid equipment and services, including D-VAR systems and high-temperature superconductor products. It reports Wind and Grid segments. Inox Wind in India was its largest customer; sales outside the United States represented 85% of revenue.
Financial performance and liquidity
| Metric | FY ended March 31, 2016 | Prior year |
|---|---|---|
| Revenue | $96.0 million | $70.5 million |
| Gross profit / margin | $22.0 million / 22.9% | $3.1 million / 4.4% |
| Operating loss | $20.1 million | $52.5 million |
| Net loss | $23.1 million; $1.76 per share | $48.7 million; $5.74 per share |
| Cash used in operating activities | $4.6 million | $32.7 million |
| Cash, cash equivalents and restricted cash | $40.7 million | $24.5 million |
| Working capital | $42.3 million | $17.3 million |
| Debt, net of discount | $4.0 million | $7.6 million |
Wind revenue rose 34% to $68.9 million, primarily on higher Inox sales. Grid revenue rose 41% to $27.1 million, driven by D-VAR sales and BASF license revenue. Improved gross margin reflected higher revenue, including license and royalty revenue. The company remained loss-making, with an accumulated deficit of $928.2 million. Cash flow from financing was $18.2 million, including $22.3 million net proceeds from an April 2015 stock offering; the company also repaid $4.0 million of debt.
Material changes and significant agreements
- Revenue increased 36% year over year, while net loss narrowed by $25.5 million and operating cash use declined by $28.1 million.
- Backlog increased to $88.9 million from $40.7 million. However, $58.0 million related to Inox was contingent on its required $2.0 million supply-contract advance payment, which had not been made by the filing date.
- December 2015 agreements with Inox were valued at approximately $210 million, covering multi-year supply and licensing arrangements. A $6.0 million license payment was received; supply-contract shipments depended on the outstanding advance payment.
- AMSC recognized $3.0 million of BASF license revenue. Its joint development agreement combines AMSC manufacturing know-how with BASF technology; newly developed intellectual property will belong to BASF, while AMSC may incorporate it royalty-free if successful.
- AMSC sold its Blade Dynamics and Tres Amigas minority investments, recording a combined $3.1 million gain. Additional milestone- or financing-dependent proceeds may be payable.
Outlook, risks and contingencies
- Management stated it believed available liquidity would fund operations, capital expenditures and scheduled debt payments for the next 12 months. It also cited continued dependence on revenue growth, expense control, debt-covenant compliance and potential access to additional capital; no specific revenue or earnings guidance was provided.
- AMSC reported losses in each of the last three fiscal years and recurring negative operating cash flows. Its secured Hercules term loans bore interest at 11% plus any applicable prime-rate spread, were secured by substantially all assets, and included covenants and acceleration provisions. The company said it was in compliance at March 31, 2016.
- Customer and receivables concentration is material: Inox generated 62% of revenue and represented approximately 84% of receivables at year-end. The company also faces foreign-exchange exposure; reported foreign-currency losses were $2.3 million for the year.
- Project REG’s construction and deployment phase depended on DHS and ComEd agreeing to proceed. Government contracts may be modified, terminated or affected by appropriations.
- Sinovel proceedings in China remain unresolved. AMSC seeks approximately RMB 485 million (about $76 million) in contract-related compensation and pursues separate intellectual-property claims; Sinovel asserted counterclaims of approximately $190 million and $17 million. AMSC said it could not reasonably estimate potential losses or their range.
- Chinese tax authorities notified the company in April 2016 that they would examine its 2013 and 2014 tax filings. AMSC believes its positions are appropriate but warned an adverse ruling could disrupt operations and affect results.
- Other key risks include uncertain commercial adoption of HTS products, wind-market dependence on policy incentives, international-market and supply-chain risks, competition, product warranty exposure and the need to preserve intellectual property.
Most important facts for investors to verify
- Whether Inox made the $2.0 million advance and whether the $58.0 million backlog component shipped and converted to revenue and cash.
- Inox’s ongoing purchasing commitments, revenue share and receivable collection; assess the effect of customer concentration on liquidity.
- Cash burn, working-capital movements, debt amortization and compliance with Hercules covenants.
- Progress, funding and approvals for Project REG and other government-supported projects.
- Developments in Sinovel litigation and the China tax examination, including any changes in estimated exposure.
- Whether gross-margin improvement and reduced operating cash use are sustainable without financing or one-time license, investment-sale or previously reserved inventory benefits.