American Superconductor Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2016, the three months ended June 30, 2016. Comparisons are with the three months ended June 30, 2015, unless noted. AMSC supplies products and services for wind power and electric-grid markets.
Financial performance and liquidity
| Metric | Q1 FY2016 | Prior-year quarter |
|---|---|---|
| Revenue | $13.3 million | $23.7 million |
| Gross profit / margin | $0.9 million / 6.5% | $3.2 million / 13.6% |
| Operating loss | $9.3 million | $8.3 million |
| Net loss | $10.4 million; $0.76 per share | $9.1 million; $0.75 per share |
| Non-GAAP net loss | $8.7 million; $0.64 per share | $8.7 million; $0.72 per share |
| Cash used in operations | $2.1 million | $3.0 million |
| Cash, cash equivalents and restricted cash | $36.6 million at June 30, 2016 | $40.7 million at March 31, 2016 |
Revenue fell 44%. Wind revenue declined 69% to $5.7 million, mainly on lower shipments to Inox; Grid revenue rose 38% to $7.7 million. Lower wind sales and the prior-year contribution from high-margin royalty revenue drove the gross-margin decline. The operating loss widened despite lower operating expenses, while a $0.7 million warrant fair-value loss, versus a $0.8 million gain a year earlier, also weighed on net results.
Operating cash use was lower year over year, partly reflecting a large reduction in receivables, but inventory increased by $10.8 million during the quarter. Cash and cash equivalents were $35.2 million; total current assets were $75.7 million and current liabilities $44.4 million. Total assets were $126.1 million and stockholders’ equity $73.2 million at quarter-end. The company reported an accumulated deficit of $938.5 million and recurring operating losses and negative operating cash flows.
Debt consisted principally of Hercules term loans secured by substantially all company assets. The balance sheet reported $3.0 million of current note payable, net of discount, and no long-term note payable at June 30, 2016. Term Loan B was scheduled to mature in November 2016 and Term Loan C in June 2017; the loans carry interest at 11% plus any prime-rate spread above 3.75%. A $2.0 million minimum U.S. unrestricted-cash covenant applied. Management stated it believed the company was in compliance.
Changes, outlook and risks
- Wind segment revenue was $5.7 million versus $18.2 million; segment operating results shifted to a $3.0 million loss from $0.1 million profit. Grid revenue rose to $7.7 million from $5.6 million, and its operating loss narrowed to $5.3 million from $6.5 million.
- Four customers each contributed at least 10% of quarterly revenue: Inox (27%), Reed & Reed (17%), Essential Energy (13%) and XJ Group (12%). Customer concentration and shipment timing remain important risks.
- Inox strategic agreements, valued by the company at approximately $210 million, include a multiyear supply arrangement and a limited manufacturing license. Inox had made the prepayments required to begin shipments. This stated agreement value is not reported quarterly revenue or guaranteed future revenue.
- Management said available liquidity should fund operations, capital expenditures and scheduled debt payments for the next 12 months, but emphasized dependence on revenue growth, cost control, debt-covenant compliance and potential access to additional capital. The company may reduce operating costs and capital spending if needed. No specific revenue or earnings guidance was provided.
- Grid revenue benefited from D-VAR systems, BASF work and a U.S. Navy project. DHS funding for Project REG was not final for system deployment; AMSC said the parties had not yet agreed to proceed with that phase. The filing also describes a BASF joint-development and technology-licensing arrangement for superconducting wire.
- AMSC seeks approximately $76 million from Sinovel in contract-related arbitration and alleges additional copyright and trade-secret infringement. Sinovel asserts counterclaims; AMSC said it could not reasonably estimate potential losses. Separate Chinese intellectual-property appeals and proceedings remained pending. The filing reports no new risk factors in Part II, but identifies material business, financing, customer, contract and litigation risks elsewhere.
Important facts for investors to verify
- Whether Inox shipments ramp as planned, and how the supply and license agreements translate into revenue, margins and cash collection.
- Cash burn, inventory conversion, receivables collection and the company’s liquidity against debt maturities and covenant requirements.
- Customer concentration and the timing and funding of Project REG, Project HYDRA and U.S. government-related work.
- Developments in Sinovel arbitration and intellectual-property cases, including any change in estimated exposure or recoveries.
- The filing’s warrant liabilities were Level 3 fair-value estimates; changes in assumptions and share price can affect reported earnings.