American Superconductor Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter ended December 31, 2011; fiscal year-to-date covers the nine months ended December 31, 2011. Unless otherwise noted, figures below are in millions of dollars. The company supplies wind-turbine engineering, power electronics and control systems, and power-grid solutions through its Wind and Grid segments.
Financial performance
| Metric | Three months ended Dec. 31, 2011 | Three months ended Dec. 31, 2010 | Nine months ended Dec. 31, 2011 | Nine months ended Dec. 31, 2010 |
|---|---|---|---|---|
| Revenue | $18.1 | $31.6 | $47.9 | $226.9 |
| Gross margin | (5%) | 0% | (21%) | 34% |
| Operating loss/income | $(26.6) | $(23.0) | $(116.0) | $6.2 |
| Net loss | $(26.3) | $(18.2) | $(115.7) | $(1.2) |
| Net loss per share | $(0.52) | $(0.38) | $(2.28) | $(0.02) |
- Wind revenue was $10.1 million for the quarter and $27.8 million year to date, down 7% and 85%, respectively. Grid revenue was $7.9 million and $20.1 million, down 62% and 54%.
- Management attributed the steep year-to-date decline principally to losing Sinovel, previously a major customer. Lower sales also left fixed manufacturing costs under-absorbed. The prior-year Grid comparison included a large D-VAR sale.
- Quarterly and year-to-date R&D expense as reported was $5.9 million and $21.3 million; SG&A was $15.4 million and $55.0 million. SG&A rose year to date, primarily due to litigation costs.
- Year-to-date GAAP results included a $20.6 million write-off of the advance payment to The Switch and $8.4 million in restructuring and impairment charges. The Switch acquisition agreement was terminated in October 2011 after financing became unavailable on acceptable terms; The Switch retained the advance as a break-up fee.
Cash, liquidity and obligations
- At December 31, 2011, cash and cash equivalents were $58.6 million, marketable securities $5.3 million, and restricted cash $11.6 million: $75.5 million combined, compared with $245.5 million at March 31, 2011. Cash plus marketable securities, excluding restricted cash, was approximately $63.9 million.
- Operating cash use was $133.3 million for the nine months, versus $16.0 million in the prior-year period. Investing activities provided $68.3 million, substantially reflecting sales and maturities of securities; financing activities used $0.1 million. Cash and cash equivalents fell by $65.2 million.
- Total assets were $275.4 million and stockholders’ equity was $183.1 million at quarter-end. The filing reports no borrowings outstanding; a Chinese credit line expired, and $4.6 million of line-of-credit borrowings was repaid during the nine months.
- Current liabilities included $28.8 million of accrued adverse purchase commitments, relating to supplier commitments exceeding estimated customer demand, particularly in China. Restricted cash secures letters of credit for supply contracts.
- Backlog was $299.6 million at December 31, 2011, excluding Sinovel, versus $228.4 million at March 31, 2011. Backlog does not guarantee future revenue.
Outlook, risks and unusual items
- Management expected substantial operating cash use in fiscal 2012, citing China’s difficult and uncertain economic environment, the slowdown in the Chinese wind market, and restructuring. It said cost reductions and anticipated revenue growth were expected to substantially reduce operating cash use in fiscal 2013.
- The company had reduced its global workforce by approximately 50% from April 1, 2011 through the filing date, expecting annualized savings of about $50 million. It reported a workforce of more than 400 at December 31, 2011.
- Management believed available cash, together with further cost and capital-spending reductions if needed, would fund operations and other requirements for the next 12 months. It also intended to seek additional financing, with no assurance that financing would be available on acceptable terms or at all. Liquidity depends on revenue growth, managing supplier commitments and obtaining capital as needed.
- Sinovel had stopped accepting scheduled deliveries and had not paid amounts the company said were due. AMSC pursued contract and intellectual-property claims in China; Sinovel asserted a counterclaim increased to approximately RMB 1.2 billion ($190 million). AMSC said it could not estimate possible losses and intended to defend against the counterclaim. A separate Chinese copyright case was dismissed in February 2012, and AMSC planned to appeal.
- Other disclosed legal matters included securities class actions and shareholder derivative suits, for which the company could not estimate possible losses, and an ongoing arbitration with Ghodawat Energy. The company stated that it believed the securities litigation was without merit.
- Disclosure controls and procedures were determined to be ineffective at December 31, 2011 because previously identified material weaknesses in revenue recognition and related controls remained unremediated. Remediation efforts were ongoing.
Important facts for investors to verify
- Whether revenue stabilizes and customer demand diversifies sufficiently to reduce dependence on China and the former Sinovel business.
- Cash burn, unrestricted liquidity, access to new financing, and progress in reducing operating costs and capital spending.
- Resolution or renegotiation of the $28.8 million adverse purchase commitments and the cash impact of supplier settlements.
- Collection of disputed Sinovel receivables and outcomes of the contract, intellectual-property and other litigation; claimed damages are not equivalent to recoverable amounts.
- Whether management completes remediation and testing of the material weaknesses in financial reporting controls.
- Execution of the reported backlog into revenue, including customer concentration and potential cancellations or delays.