American Superconductor Corporation — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2018. The filing was signed June 6, 2018. AMSC supplies wind-turbine electrical systems, designs and services, and grid and superconductor-based products, including U.S. Navy ship-protection systems. Its reportable segments are Wind and Grid.
Financial performance and liquidity
| Metric | FY ended March 31, 2018 | Prior year |
|---|---|---|
| Revenue | $48.4 million | $75.2 million |
| Gross profit / margin | $3.8 million / 7.8% | $10.8 million / 14.4% |
| Operating loss | $32.2 million | $27.5 million |
| Net loss | $32.8 million; $1.73 per diluted share | $27.4 million; $1.98 per diluted share |
| Cash used in operations | $24.8 million | $11.2 million |
| Cash, cash equivalents and restricted cash | $34.2 million | $27.7 million |
| Working capital | $39.9 million | $23.5 million |
| Long-term debt | None | None |
| Total assets / stockholders’ equity | $88.2 million / $52.2 million | $100.2 million / $60.2 million |
AMSC reported an accumulated deficit of $988.3 million. Management said available liquidity was sufficient for operations and capital expenditures for the next 12 months, while noting liquidity depends on revenue growth, cost control and, if needed, additional financing. The company had no outstanding term debt at year-end; its Hercules loans had been repaid.
Changes and notable items
- Revenue fell 36%. Wind revenue declined 70% to $14.3 million, principally because of fewer electrical-control-system shipments to Inox in India. Grid revenue rose 22% to $34.1 million, driven by D-VAR systems and U.S. Navy sales.
- Gross margin contracted to 7.8%, reflecting lower Wind volume and $4.9 million of accelerated depreciation on manufacturing equipment.
- Net operating cash use more than doubled. Cash at year-end was supported in part by $17.0 million of net equity-offering proceeds and the Devens property sale.
- Backlog decreased to approximately $43.6 million from $65.6 million, mainly due to lower Wind backlog. Backlog reflects expected deliveries over the following 12 months and may be delayed, reduced or canceled.
- In March 2018, AMSC sold its Devens property for $23.0 million of stated consideration: about $16.9 million net cash at closing and a $6.0 million subordinated note receivable, payable in two installments in 2019 and 2020 at 1.96% interest. The note is subordinate to the property’s first mortgage.
- AMSC acquired Infinia Technology Corporation for approximately $4.3 million of accounting consideration, including stock and contingent consideration. The acquisition added cryo-cooler technology to Grid/ship-protection activities.
Outlook, risks and contingencies
- Management’s stated objectives for the coming fiscal year included commercial VVO revenue, progress toward the ComEd REG system production phase, a U.S. Navy LPD 28 order, initial 5.5 MW electrical-control-system deliveries to Doosan, and further Wind and Grid sales growth. These were objectives, not assured guidance.
- Inox represented 27% of annual revenue and 32% of year-end receivables. India’s shift from fixed tariffs to auctions had disrupted wind-project demand; AMSC said timing of recovery and Inox’s success under the new regime were uncertain.
- AMSC cautioned that the ComEd REG deployment depends on DHS and ComEd agreeing to proceed after planning work. U.S. government contracts may be incrementally funded, audited, modified or terminated.
- The company has recurring losses and negative operating cash flows and may need more capital. Additional equity financing could dilute shareholders; financing may not be available on acceptable terms. Performance bonds and letters of credit can also restrict cash.
- AMSC’s China litigation with former customer Sinovel remains unresolved. AMSC seeks contract-related compensation and alleges intellectual-property misuse; Sinovel has asserted counterclaims, including claims of approximately RMB 1.2 billion and RMB 105 million. AMSC said it could not reasonably estimate potential losses.
- The Tax Cuts and Jobs Act prompted a provisional remeasurement of deferred taxes; a $116.3 million reduction in deferred tax attributes was offset by a valuation-allowance reduction and did not affect the tax provision. AMSC said its accounting was not yet complete at year-end.
- Revenue standard Topic 606 was adopted April 1, 2018. AMSC expected timing changes for some Grid contracts but no material consolidated impact; its largest revenue stream, including Inox, was not expected to change.
The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of March 31, 2018.
Most important facts for investors to verify
- Whether operating cash burn declines and the stated 12-month liquidity outlook remains supportable.
- Inox shipment recovery, customer collections, and the consequences of continued disruption in India’s auction-based wind market.
- Conversion, timing and profitability of the $43.6 million backlog, including the status and funding of REG and Navy programs.
- Repayment of the subordinated Devens seller note and the associated concentration and credit risk.
- Developments in the Sinovel proceedings, potential exposure and legal costs.
- Whether the company’s planned product launches and Grid growth translate into improved margins and operating results.