American Superconductor Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2010, the three months ended June 30, 2010. Comparisons are with the three months ended June 30, 2009 unless stated otherwise. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted.
Business context
AMSC develops products and technologies for renewable energy and the electric power grid. Its two segments are AMSC Power Systems, which includes wind turbine electrical systems and grid products, and AMSC Superconductors, which develops HTS wire and superconducting systems. Power Systems generated 98% of quarterly revenue.
Financial performance
| Metric | Q1 FY2010 | Q1 FY2009 | Change / context |
|---|---|---|---|
| Revenue | $97.2 | $73.0 | Up 33%; Power Systems revenue rose to $94.9, while Superconductors revenue was essentially flat at $2.3. |
| Gross profit / margin | $39.0 / 40.1% | $22.6 / 30.9% | Margin improved 9.2 percentage points. |
| Operating income / margin | $16.1 / 16.5% | $6.4 / 8.8% | Higher revenue and gross margin drove the increase. |
| Net income / diluted EPS | $9.2 / $0.20 | $1.8 / $0.04 | Income increased substantially; effective tax expense remained significant. |
| Operating cash flow | $(18.5) | $(14.1) | Cash use increased, primarily from working capital. |
| Cash, cash equivalents, marketable securities and restricted cash | $120.7 | $155.1 at March 31, 2010 | Down $34.4 during the quarter. |
At June 30, 2010, current assets were $264.3 and current liabilities were $107.7, for a current ratio of approximately 2.5. Total liabilities were $124.1; the filing reports no conventional interest-bearing debt on the balance sheet. Cash and cash equivalents were $64.8, marketable securities $50.6, and restricted cash $5.3. Net cash used in investing activities was $0.04; capital expenditures were $8.2. Stockholders’ equity was $286.0.
Material changes and segment results
- Power Systems revenue increased 34% to $94.9, largely on higher wind electrical system and core component sales, especially in China. Segment operating income rose to $25.5 from $15.4.
- Superconductors revenue was $2.3, approximately unchanged. Its operating loss widened to $5.9 from $5.5 as the company funded planned expansion.
- Gross margin improved with a shift toward higher-margin wind turbine components, lower material costs from localized Chinese manufacturing, and favorable foreign exchange effects.
- Research and development expense rose 62% to $7.3; selling, general and administrative expense rose 39% to $15.2. Higher headcount, development investment, stock compensation and bad-debt provisioning contributed.
- Other income was $0.2 versus other expense of $2.0 in the prior-year quarter. However, realized and unrealized losses on currency forwards and options were $4.0, excluding the underlying exposures being hedged.
- Foreign currency translation and investment changes resulted in other comprehensive loss of $12.5, primarily from a $12.3 currency translation loss. Comprehensive loss was $3.3 despite net income of $9.2.
Outlook, risks and unusual items
- Management reported backlog of approximately $952 at June 30, up from $588 at March 31, mainly due to a new Sinovel order. A May 2010 contract extension for Sinovel core components was valued at approximately $445 and runs through late 2013.
- Management said backlog and its business pipeline supported continued fiscal 2010 revenue growth, and believed available cash would fund working capital, capital expenditures and other needs for at least the next 12 months. It expected R&D and SG&A spending to rise in absolute terms but decline as a percentage of revenue versus fiscal 2009.
- Customer concentration is high: Sinovel accounted for 72% of quarterly revenue, compared with 53% in the prior-year quarter. Dependence on this customer and the Chinese wind market is a significant exposure.
- Operating cash flow was pressured by a $35.8 increase in accounts receivable and higher inventory. Management attributed the decline in liquid resources partly to customer payments shifting from June to July, higher capital spending, and lower translated value of foreign-currency cash.
- The company recorded $7.3 of income tax expense, primarily on foreign earnings, while incurring U.S. losses; it maintained a valuation allowance against U.S. deferred tax assets.
- AMSC had six performance bonds totaling $2.3 and $5.3 of restricted cash. It also reported $3.5 of bank guarantees and letters of credit supported by unsecured credit lines. No performance-bond liabilities were recorded.
- The company recognized $4.0 of contingent acquisition consideration for 150,000 Windtec earn-out shares, expected to be issued in fiscal 2012. Adoption of new multiple-deliverable revenue guidance had no material impact. Management reported no material changes to the risk factors in its latest annual report.
Important facts for investors to verify
- Whether Sinovel orders, collections and customer acceptance continue as expected, given the 72% revenue concentration and payment timing shift.
- How the $952 backlog converts into recognized revenue and cash, including contract milestones, deferred revenue and acceptance conditions.
- Whether gross-margin gains persist as product mix, China localization benefits and foreign exchange rates change.
- Working-capital trends, especially receivables, inventory, bad-debt allowance and operating cash flow; confirm liquidity against planned capital spending and growth.
- Currency exposure and hedge results, including the $4.0 quarterly derivative losses and the large translation loss recorded in other comprehensive income.
- Funding and commercialization progress for Superconductors projects, government-supported work, and products that management said had not yet been commercialized.