Business context and reporting period
American Superconductor Corporation (AMSC) filed this Form 10-K for the fiscal year ended March 31, 2017. This is an annual filing, not a filing for fiscal 2016 Q4 as specified in the request metadata. AMSC provides wind-turbine power electronics, designs and services, and grid solutions including power-quality systems, superconducting products and U.S. Navy ship-protection systems.
AMSC reports Wind and Grid segments. Revenue is heavily concentrated in wind products and a single customer, Inox of India.
Financial performance and liquidity
| Metric | Year ended Mar. 31, 2017 | Year ended Mar. 31, 2016 |
|---|---|---|
| Revenue | $75.2 million | $96.0 million |
| Gross profit / margin | $10.8 million / 14.4% | $22.0 million / 22.9% |
| Operating loss | $27.5 million | $20.1 million |
| Net loss | $27.4 million | $23.1 million |
| Net loss per share, diluted | $1.98 | $1.76 |
| Cash used in operating activities | $11.2 million | $4.6 million |
| Cash and cash equivalents | $26.8 million | $39.3 million |
| Cash, cash equivalents and restricted cash | $27.7 million | $40.7 million |
| Working capital | $23.5 million | $42.3 million |
| Current / long-term debt, net | $1.5 million / none | $2.6 million / $1.4 million |
| Backlog | $65.6 million | $88.9 million |
Fourth-quarter revenue was $16.2 million, versus $27.5 million in the quarter ended March 31, 2016. Fourth-quarter operating loss was $7.0 million (prior-year quarter: $1.7 million); net loss was $6.9 million (prior-year quarter: $3.4 million); diluted loss per share was $0.50 (prior-year quarter: $0.25).
The remaining $1.5 million term loan was due June 1, 2017, with an interest rate of 11.25%; it was secured by substantially all company assets, including the Devens property. The filing says management believed available liquidity was sufficient for the next twelve months, while emphasizing dependence on revenue growth, expense control and potential additional financing.
Material changes versus the prior comparable period
- Annual revenue declined 22%. Wind revenue fell 31% to $47.3 million, primarily reflecting fewer-than-expected Inox shipments; Grid revenue rose 3% to $27.9 million.
- Gross margin contracted to 14.4% from 22.9%, while operating loss widened by $7.4 million and net loss widened by $4.2 million.
- Operating cash use increased to $11.2 million from $4.6 million, and cash and cash equivalents fell by $12.5 million. Working capital declined by $18.9 million.
- Backlog fell by $23.3 million. Inox generated 59% of annual revenue, compared with 62% in the preceding year.
Outlook, risks and unusual items
Management’s stated fiscal 2018 objectives included obtaining commercial orders for REG and VVO grid products, additional U.S. Navy ship-protection orders and an order from a foreign navy. These are business goals, not quantified revenue or earnings guidance. AMSC was also pursuing completion of the REG deployment plan; construction and deployment depended on DHS and ComEd agreeing to proceed, with no assurance they would do so.
- After year-end, AMSC announced an approximately 8% workforce reduction, effective April 4, 2017, and planned a move from its 355,000-square-foot Devens facility to a smaller site. Expected cash severance costs were $1.5–$2.0 million; savings were expected to begin emerging in the quarter ending March 31, 2018.
- On May 10, 2017, AMSC completed a 4.0 million-share offering at $4.00 per share, producing approximately $14.7 million in net proceeds. The company terminated its ATM program in connection with the offering.
- Inox-related demand disruption in India, customer concentration, foreign-exchange exposure, government funding and contract termination risk, and the commercialization and adoption of HTS products are important operating risks.
- AMSC’s long-running disputes with Sinovel in China remain unresolved. AMSC seeks approximately $70 million in contract-related amounts and pursues intellectual-property claims; Sinovel has asserted claims of approximately $174 million and $15 million. AMSC said it could not reasonably estimate potential losses or a range of losses.
- AMSC reported recurring operating losses and negative operating cash flows, and an accumulated deficit of $955.6 million. It recorded a $1.3 million gain from changes in fair value of warrants and derivatives and a $0.3 million gain on sale of a minority investment in fiscal 2017. The auditor gave an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether Inox shipments and collections recover, given its 59% revenue concentration and its share of receivables (52% at year-end).
- Whether the May 2017 equity proceeds and planned cost reductions are sufficient to support liquidity after the fiscal 2017 cash burn and scheduled term-loan repayment.
- Whether DHS and ComEd proceed with REG construction, and whether AMSC converts its stated REG, VVO and Navy objectives into funded orders.
- The status and potential financial exposure of Sinovel litigation and counterclaims, which the filing says cannot be reasonably estimated.
- Whether lower backlog, reduced Wind sales and weaker gross margin persist, and whether Grid growth can offset them.