American Superconductor Corporation — Q3 FY2016 Form 10-Q
Reporting period: Three and nine months ended December 31, 2016; fiscal year ends March 31. Amounts below are in U.S. dollars. The company provides wind-turbine power electronics, engineering and related services, and power-grid products and services through its Wind and Grid segments.
Financial performance and position
| Metric | Three months ended Dec. 31, 2016 | Nine months ended Dec. 31, 2016 |
|---|---|---|
| Revenue | $27.1 million, up 5% year over year | $59.0 million, down 14% |
| Gross profit / margin | $5.0 million / 18.6%, versus 25.3% | $8.0 million / 13.6%, versus 18.6% |
| Operating loss | $4.1 million, versus $3.3 million | $20.6 million, versus $18.4 million |
| Net loss | $2.8 million, or $0.20 per share, versus $3.0 million, or $0.22 | $20.4 million, or $1.49 per share, versus $19.8 million, or $1.52 |
| Operating cash flow | $10.5 million used in the nine-month period, versus $7.8 million used |
- Quarterly revenue grew modestly, but the nine-month decline reflected lower Wind sales to Inox, royalties and spare parts. Grid revenue rose 14% for the nine months, supported by BASF development work and a U.S. Navy project.
- Nine-month gross margin fell partly because the prior-year period benefited more from zero-cost-basis inventory and royalty revenue, which carries 100% gross margin. Inventory write-downs were $1.1 million for the nine months, compared with $1.8 million.
- Quarterly Wind segment operating profit was $1.0 million; Grid posted a $4.5 million operating loss. For the nine months, Wind and Grid operating losses were $3.2 million and $15.1 million, respectively.
- At December 31, cash and cash equivalents were $25.1 million; including restricted cash, total cash was $26.0 million, down from $40.7 million at March 31. Current assets were $64.3 million and current liabilities $38.4 million. Total assets were $110.2 million and stockholders’ equity $63.8 million.
- Debt payable was $1.5 million, all current. Term Loan B was repaid at maturity in November 2016; the remaining Term Loan C is due June 1, 2017. It bears interest at 11% plus any prime-rate excess over 3.75%, is secured by substantially all company assets, and includes covenants.
Changes, outlook and material matters
- Quarterly net loss improved year over year, while the nine-month net loss increased. The nine-month operating loss widened and operating cash use increased.
- Management said it expects lower operating cash use in the second half of the fiscal year ending March 31, 2017, and believes available liquidity is sufficient for operations, capital expenditures and scheduled debt payments for the next 12 months. It also noted recurring losses and negative operating cash flows, and that liquidity depends on revenue growth, cost control, covenant compliance and potential access to capital.
- On January 27, 2017, the company entered into an at-the-market sales agreement permitting discretionary sales of up to $10 million of common stock. The filing does not report sales under the agreement.
- Inox accounted for 66% of quarterly and 58% of nine-month revenue. A previously announced set of Inox agreements was valued at approximately $210 million and includes a multi-year supply contract and licensing arrangement; actual sales depend on performance and customer demand.
- The proposed final deployment phase of the ComEd Resilient Electric Grid project is conditional on all parties agreeing to proceed. DHS funding of up to $60 million is expected for the project; the filing does not establish that the final phase will occur.
- AMSC is pursuing claims against Sinovel in China for unpaid shipments and alleged contract and intellectual-property violations. Sinovel has asserted counterclaims. The company says it cannot reasonably estimate possible losses or a loss range. A separate Hainan copyright case was dismissed on appeal; AMSC intended to seek further review.
- Other income included foreign-currency gains in the quarter. Warrant remeasurement and minority-investment sale gains also affected reported results. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the company reduces cash burn as forecast and how long liquidity lasts, including any ATM share sales and resulting dilution.
- Repayment of the remaining Term Loan C by June 1, 2017, covenant compliance and any refinancing or waiver needs.
- Inox orders, collections and ongoing customer concentration, as well as whether the announced strategic agreements translate into recognized revenue and cash.
- Progress and funding decisions for the ComEd project and other Grid opportunities, and the profitability of Grid operations.
- Developments in Sinovel litigation and any change in the company’s ability to estimate potential financial exposure.