American Superconductor Corporation — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2015 (April 1, 2014–March 31, 2015), including fourth quarter. The filing was signed May 28, 2015. Unless noted, amounts are in U.S. dollars.
Business context
AMSC supplies wind-turbine electrical control systems, turbine designs and related services, and grid solutions including power electronics, transmission planning and high-temperature superconductor products. It reports Wind and Grid segments. Fiscal 2015 revenue was highly concentrated: Inox Wind accounted for 56% of total revenue, and 86% of revenue came from outside the United States.
Key financial metrics
| Metric | FY ended Mar. 31, 2015 | Prior year |
|---|---|---|
| Revenue | $70.5 million | $84.1 million |
| Gross profit and margin | $3.1 million; 4.4% | $11.3 million; 13.4% |
| Operating loss | $52.5 million | $41.4 million |
| Net loss | $48.7 million; $5.74 per share | $56.3 million; $8.98 per share |
| Cash used in operations | $32.7 million | $13.3 million |
| Cash and cash equivalents at year-end | $20.5 million | $43.1 million |
| Restricted cash at year-end | $4.1 million | $6.3 million |
| Working capital | $17.3 million | $35.5 million |
| Term-loan principal outstanding | Approximately $8.2 million | Not stated on a comparable principal basis |
Year-end total assets were $133.8 million and stockholders’ equity was $79.9 million. The balance sheet reported $7.6 million of term debt net of discounts ($3.8 million current and $3.9 million long-term). Contractual obligations totaled $24.1 million, including $12.4 million of purchase commitments and $8.7 million of scheduled term-loan payments. Backlog was $40.7 million, up from $34.7 million.
- Wind: Revenue of $51.3 million, down 8%; operating loss of $14.3 million, versus $5.2 million.
- Grid: Revenue of $19.2 million, down 33%; operating loss of $26.9 million, versus $22.5 million.
Material changes and unusual items
- Total revenue declined 16%. Wind sales fell mainly on lower China revenue, partly offset by higher Inox sales in India; Grid sales fell primarily because of lower D-VAR revenue.
- Gross margin contracted to 4.4%, reflecting fewer high-margin revenues than in the prior year. Use of previously written-off inventory provided an $8.0 million gross-margin benefit.
- Net loss narrowed, but operating loss worsened. The year included approximately $9.0 million of Ghodawat arbitration expense, $5.4 million of restructuring and impairment charges, and a $4.0 million gain from changes in fair value of warrants and derivatives. Lower interest expense helped reduce net loss.
- AMSC paid Ghodawat €7.45 million (approximately $8.4 million) to settle the arbitration award. It also settled with insurer Catlin regarding related litigation expenses.
- Blade Dynamics was fully impaired, with a $3.5 million charge. AMSC said it was seeking to sell its Tres Amigas investment; no sale was assured.
- A 1-for-10 reverse stock split took effect March 24, 2015. Subsequent to year-end, AMSC raised approximately $22.3 million net through an equity offering on April 29, 2015.
Outlook, risks and contingencies
Management stated that, including the April 2015 equity proceeds, it believed available liquidity would fund operations, capital expenditures and scheduled debt payments for the next twelve months. This depends on revenue growth, cost control, compliance with loan covenants and access to capital; the company has a history of operating losses and negative operating cash flows. Management said it would continue monitoring costs and could reduce operating costs and capital spending.
Management identified prospective orders for wind electrical systems and D-VAR, further REG deployment studies, a decision on advancing the ComEd Project REG to construction, and additional U.S. Navy business as important business drivers. No quantified revenue or earnings guidance is provided. Project REG’s construction phase depends on DHS and ComEd agreeing to proceed; government funding is subject to appropriations and contracts may be terminated.
- Inox concentration is material: it represented 56% of revenue and 56% of receivables at year-end. A loss or payment delay from this customer could materially affect results and liquidity.
- Term loans are secured by substantially all company assets and include financial and other covenants; a default could accelerate repayment. The reported minimum U.S. cash threshold was $5.0 million at year-end and was reduced after the April financing.
- Sinovel litigation remains unresolved. AMSC seeks payment for past shipments and alleges contract and intellectual-property breaches; Sinovel asserts counterclaims, including claims reported at approximately $190 million and $17 million. A Chinese court dismissed AMSC’s software copyright case on April 24, 2015; AMSC appealed on May 6. A separate trade-secret case had a substantive hearing in May 2015. Outcomes and collectability are uncertain.
- Other risks include emerging-market and foreign-exchange exposure, dependence on government incentives for wind, supplier and manufacturing risks at the Romania facility, product commercialization challenges, and competition. The company reported effective disclosure controls and effective internal control over financial reporting; the auditor gave an unqualified opinion on the financial statements and controls.
Investor verification priorities
- Track cash burn, post-offering liquidity, debt payments and covenant compliance against management’s twelve-month liquidity assessment.
- Monitor Inox orders, receivable collection and customer concentration, as well as the trend in backlog conversion and margins.
- Verify whether Project REG receives approval and funding to proceed, and whether expected D-VAR, wind and Navy opportunities convert into revenue.
- Follow the Sinovel cases, including the copyright appeal, trade-secret litigation, arbitration claims and any potential financial recovery or liability.
- Assess whether operating losses and cash use improve without relying on one-time items such as arbitration charges, warrant remeasurement gains or previously reserved inventory.