AMERICAN SUPERCONDUCTOR CORP annual report, FY2021

American Superconductor Corporation (AMSC) — Form 10-K Summary

Reporting period: Fiscal year ended March 31, 2021 (the company’s fiscal 2020), compared with the year ended March 31, 2020. The filing was signed June 2, 2021. AMSC supplies power-grid, Navy ship-protection and wind-power systems through its Grid and Wind businesses.

Financial performance

Metric	FY ended Mar. 31, 2021	FY ended Mar. 31, 2020
Revenue	$87.1 million	$63.8 million
Gross profit / margin	$17.5 million / 20%	$9.4 million / 15%
Operating loss	$23.2 million	$23.1 million
Net loss	$22.7 million; $0.95 per share basic and diluted	$17.1 million; $0.81 basic and $1.03 diluted per share
Operating cash flow	$(8.7) million	$(16.5) million

• Revenue increased 36%, with Grid up 42% to $70.5 million and Wind up 16% to $16.6 million. Grid growth included NEPSI, acquired October 1, 2020, and higher D-VAR, VVO and ship-protection sales. Wind growth reflected higher electrical-control-system shipments to Inox and spares revenue.
• Gross margin improved on higher volume and a more favorable product mix. Cost of revenue included approximately $1.0 million of acquired-inventory step-up expense and $0.5 million of backlog-intangible amortization.
• The operating loss was broadly unchanged: improved Wind performance was offset by acquisition-related costs, higher spending and a $3.0 million loss from revaluing NEPSI contingent consideration. Net loss widened, also reflecting higher acquisition-related amortization and lower interest income. FY2020’s prior-period results included a $4.6 million warrant fair-value gain.
• Non-GAAP net loss was $14.1 million, or $0.59 per share, versus $19.5 million, or $0.93 per share. This company-defined non-GAAP measure excludes specified items and should be considered alongside GAAP results.

Liquidity, cash flow and capital

• At March 31, 2021, cash, cash equivalents, marketable securities and restricted cash totaled $80.7 million, versus $66.1 million a year earlier. Of this, $7.7 million was restricted; cash, cash equivalents and marketable securities excluding restricted cash totaled approximately $73.0 million.
• Operating activities used $8.7 million. Investing activities provided $2.5 million, including proceeds from maturing/sold certificates of deposit, partly offset by the $26.0 million cash paid for NEPSI. Financing activities provided $50.8 million, principally from a public stock offering that generated $51.5 million net proceeds.
• No conventional borrowings are shown on the March 31, 2021 balance sheet. Reported lease liabilities were $3.9 million, and the NEPSI contingent-consideration liability was $7.1 million. The company reported $116.6 million of stockholders’ equity and an accumulated deficit of $1.0 billion.
• Management said available liquidity was sufficient for operations and capital expenditures for the next 12 months, while noting that liquidity depends on revenue growth, cost control, customer collections and access to financing. A shelf registration allows up to $250 million of securities to be offered; future issuance could dilute shareholders.

Material developments and outlook

• NEPSI was acquired for $26.0 million cash, 873,657 restricted shares and potential additional shares tied to revenue objectives. It contributed $13.2 million of revenue and $0.3 million of net income from acquisition through year-end. Purchase-price allocation was preliminary; recorded goodwill was $32.9 million and acquired intangible assets were $7.3 million.
• After year-end, on May 6, 2021, AMSC acquired Neeltran and Neeltran International, plus Neeltran’s headquarters property. The filing reports cash, share and debt-payoff payments; the transactions were funded with cash on hand.
• The $5.0 million letter of credit supporting the ComEd REG project is collateralized by $5.0 million in escrow. Hardware had been delivered; the system was expected to become operational in 2021. AMSC reported approximately $54.9 million of remaining performance obligations expected to be recognized within 12 months and $16.9 million over 13–60 months, subject to customer actions and timing uncertainty.
• There is no specific company revenue or earnings guidance in the provided filing text. Management describes potential demand from grid modernization, renewable generation and Navy electrification, but emphasizes that market adoption, government spending and customer execution remain uncertain.
• COVID-19 had not materially disrupted operations to date, according to management, but could affect suppliers, customers, Inox shipments, project schedules and financing access. Inox cured a 2020 letter-of-credit default, but future purchases depend on its ability to execute orders and provide required security.

Risks, controls and unusual items

• AMSC has recurring operating losses and negative operating cash flow, and says it may need additional capital. It cautions that financing may not be available on acceptable terms.
• In the quarter ended December 31, 2020, the company identified a material weakness in controls over NEPSI purchase accounting and contingent-consideration fair value; a $1.3 million overstatement had been identified in preliminary acquisition information. Management stated it remediated the weakness by March 31, 2021 and concluded internal controls were effective. The auditor did not attest to internal-control effectiveness.
• Other key exposures include reliance on a limited number of customers and suppliers, Inox and international-market concentration, foreign-exchange movements, government contract funding or termination, performance-bond collateral, and the uncertain commercialization of REG and other superconductor solutions. The filing reports no material legal proceedings.
• The financial statements received an unqualified audit opinion. Critical audit matters included revenue recognition and valuation of NEPSI’s customer-relationship intangible asset and contingent consideration.

Important facts for investors to verify

• Whether AMSC converts revenue growth and its reported performance obligations into profitable sales and positive operating cash flow.
• NEPSI integration and final purchase-price allocation, including earnout assumptions and the risk of further fair-value charges.
• REG project commissioning, customer acceptance and any remaining funding, bonding or warranty obligations.
• Inox’s ongoing compliance with letter-of-credit requirements and its ability to execute wind-turbine orders amid COVID-related and market risks.
• Liquidity after the May 2021 Neeltran transactions, including restricted cash, acquisition-related obligations and any subsequent capital raising or dilution.
• Evidence that the remediated acquisition-accounting controls remain effective as NEPSI is integrated.