American Superconductor Corporation — Form 10-Q
Reporting period: Quarter and nine months ended December 31, 2013. The company supplies wind-turbine engineering, power electronics and related products, and power-grid solutions through its Wind and Grid segments. Unless otherwise stated, amounts are U.S. dollars.
Financial performance
| Metric | Three months ended Dec. 31, 2013 | Three months ended Dec. 31, 2012 | Nine months ended Dec. 31, 2013 | Nine months ended Dec. 31, 2012 |
|---|---|---|---|---|
| Revenue | $20.6 million | $17.4 million | $67.8 million | $67.0 million |
| Gross margin | 22.9% | 5.1% | 16.8% | 19.6% |
| Operating loss | $6.7 million | $20.6 million | $26.6 million | $41.7 million |
| Net loss | $8.4 million | $20.1 million | $33.6 million | $46.4 million |
| Net loss per diluted share | $0.14 | $0.38 | $0.55 | $0.89 |
- Quarterly revenue increased 18%; nine-month revenue increased 1%. Wind revenue rose to $13.5 million for the quarter and $42.9 million for the nine months, while Grid revenue fell to $7.0 million and $24.9 million, respectively.
- Quarterly gross margin improved mainly because certain Chinese customer revenue was recognized at payment after related costs had been recorded in an earlier period, and because previously written-off inventory was used. The nine-month margin declined partly because the prior-year period included an $8.4 million benefit from settlements of adverse purchase commitments.
- Operating expenses declined year over year, including lower R&D and selling, general and administrative costs. Prior-year restructuring and impairment charges were also substantially higher.
- Operating cash flow was negative $18.4 million for the nine months, compared with negative $40.7 million a year earlier. Investing activities provided $4.4 million; financing activities provided $9.8 million. Cash and cash equivalents decreased to $35.4 million from $39.2 million at March 31, 2013.
Financial position and liquidity
- At December 31, 2013, total assets were $178.4 million, total liabilities $67.2 million, and stockholders’ equity $111.2 million. Current assets were $90.0 million and current liabilities $57.4 million.
- Cash, cash equivalents and restricted cash totaled $41.7 million, including $6.3 million of restricted cash, primarily collateral for letters of credit.
- Recorded debt, net of discounts, included $13.6 million of term-loan obligations and $9.1 million of current convertible-note obligations. Management reported convertible-note principal of $10.4 million at December 31, after reducing it by $14.6 million through stock payments. The term loans are secured by substantially all company assets and carry an interest rate of 11% plus any amount by which prime exceeds 3.75%.
- The company raised $9.8 million net from a new $10 million term loan and $3.3 million net from its at-the-market (ATM) equity program during the period. The ATM permits up to $30 million of stock sales; approximately 2.4 million shares were sold at an average price of about $1.51.
Changes, outlook and risks
- Management reported recurring operating losses, negative operating cash flow and an accumulated deficit of $833.7 million, which raise substantial doubt about the company’s ability to continue as a going concern. The filing states that the financial statements do not include adjustments that might result from this uncertainty.
- Management expects cost reductions to lower operating cash use in fiscal 2014 and may make further expense or capital-spending cuts. It says liquidity through December 31, 2014 depends on improved performance, potential sales of minority investments in Tres Amigas and Blade Dynamics, ATM proceeds, and continued ability to pay convertible-note installments in stock. These outcomes are uncertain.
- Stock payments on the convertible note depend on stock-price and trading-volume conditions outside the company’s control; if conditions are not met and no lender waiver is obtained, cash payments may be required. Debt covenant breaches or defaults could also trigger accelerated repayment and threaten liquidity.
- Revenue concentration is notable: INOX Wind represented 35% of quarterly revenue and 25% of nine-month revenue. The company also identified customer and market adoption, wind-sector conditions, foreign exchange, suppliers, and commercialization of superconductor products as risks.
- A securities class-action settlement agreed in November 2013 provides for a $10 million payment, mostly insurer-funded, with an expected $1.8 million settled in shares; court approval remained pending. The filing also describes substantial ongoing Sinovel disputes, including the company’s claims and Sinovel counterclaims, whose possible losses the company could not reasonably estimate. A separate derivative-action settlement announced after quarter-end was subject to court approval and is expected to be insurer-funded.
- The company recorded a $0.9 million restructuring charge for the nine months, following a July 2013 workforce reduction of approximately 7%. Management stated disclosure controls were effective as of December 31, 2013.
Important facts for investors to verify
- Whether operating cash use declines as management expects, and whether available liquidity supports operations and debt payments through the stated horizon.
- Whether the company can meet the convertible note’s stock-payment conditions or obtain further waivers, and the resulting cash burden and dilution.
- Progress and realizable proceeds from proposed sales of Tres Amigas and Blade Dynamics, and remaining ATM capacity and share issuance.
- Developments in major customer concentration, Wind and Grid demand, gross margins, and the Sinovel and Ghodawat proceedings.
- Final court approval and payment mechanics for the securities and derivative settlements.