American Superconductor (AMSC) - 2022 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and related notes for the reporting period Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, operations, and cash flows, with detailed notes on business and policies Unaudited Condensed Consolidated Balance Sheets The balance sheet shows increased total assets, driven by accounts receivable, inventory, and property, plant and equipment, largely due to the Neeltran acquisition | ASSETS (in thousands) | June 30, 2021 | March 31, 2021 | Change | % Change | | :-------------------- | :------------ | :------------- | :----- | :------- | | Cash and cash equivalents | $50,070 | $67,814 | $(17,744) | -26.16% | | Accounts receivable, net | $23,908 | $13,267 | $10,641 | 80.21% | | Inventory, net | $22,155 | $13,306 | $8,849 | 66.50% | | Total current assets | $109,516 | $105,230 | $4,286 | 4.07% | | Property, plant and equipment, net | $15,067 | $8,997 | $6,070 | 67.47% | | Goodwill | $43,471 | $34,634 | $8,837 | 25.52% | | Total assets | $192,167 | $168,866 | $23,301 | 13.80% | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | Accounts payable and accrued expenses | $33,439 | $19,810 | $13,629 | 68.80% | | Deferred revenue, current portion | $20,550 | $13,266 | $7,284 | 54.91% | | Total current liabilities | $61,907 | $40,738 | $21,169 | 51.96% | | Total liabilities | $73,614 | $52,274 | $21,340 | 40.82% | | Total stockholders' equity | $118,553 | $116,592 | $1,961 | 1.68% | | Total liabilities and stockholders' equity | $192,167 | $168,866 | $23,301 | 13.80% | Unaudited Condensed Consolidated Statements of Operations The company reported increased revenues but a significant decrease in gross margin, leading to a higher operating loss and net loss for the quarter | (In thousands, except per share data) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change | % Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :----- | :------- | | Revenues | $25,420 | $21,213 | $4,207 | 19.83% | | Cost of revenues | $22,051 | $16,173 | $5,878 | 36.34% | | Gross margin | $3,369 | $5,040 | $(1,671) | -33.15% | | Research and development | $3,041 | $2,499 | $542 | 21.69% | | Selling, general and administrative | $7,142 | $5,637 | $1,505 | 26.70% | | Amortization of acquisition-related intangibles | $585 | $121 | $464 | 383.47% | | Total operating expenses | $10,868 | $8,257 | $2,611 | 31.62% | | Operating loss | $(7,499) | $(3,217) | $(4,282) | 133.09% | | Net loss | $(5,403) | $(3,417) | $(1,986) | 58.12% | | Net loss per common share - Basic | $(0.20) | $(0.16) | $(0.04) | 25.00% | | Net loss per common share - Diluted | $(0.20) | $(0.16) | $(0.04) | 25.00% | | Weighted average number of common shares outstanding - Basic | 26,826 | 21,689 | 5,137 | 23.69% | | Weighted average number of common shares outstanding - Diluted | 26,826 | 21,689 | 5,137 | 23.69% | Unaudited Condensed Consolidated Statements of Comprehensive Loss The comprehensive loss for the three months ended June 30, 2021, increased significantly, primarily driven by a higher net loss and a larger foreign currency translation loss | (In thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change | % Change | | :------------- | :------------------------------- | :------------------------------- | :----- | :------- | | Net loss | $(5,403) | $(3,417) | $(1,986) | 58.12% | | Foreign currency translation (loss) | $(63) | $(3) | $(60) | 2000.00% | | Total other comprehensive (loss), net of tax | $(63) | $(3) | $(60) | 2000.00% | | Comprehensive loss | $(5,466) | $(3,420) | $(2,046) | 59.82% | Unaudited Consolidated Statements of Stockholders' Equity Stockholders' equity increased slightly due to additional paid-in capital from common stock issuances and stock-based compensation, partially offset by the net loss | (In thousands) | March 31, 2021 | June 30, 2021 | Change | | :------------- | :------------- | :------------ | :----- | | Common Stock | $280 | $287 | $7 | | Additional Paid-in Capital | $1,121,495 | $1,128,961 | $7,466 | | Treasury Stock | $(3,593) | $(3,639) | $(46) | | Accumulated Other Comprehensive Loss | $(277) | $(340) | $(63) | | Accumulated Deficit | $(1,001,313) | $(1,006,716) | $(5,403) | | Total Stockholders' Equity | $116,592 | $118,553 | $1,961 | - Issuance of common stock for bonus payout, restricted shares, 401(k) match, and Neeltran acquisition contributed to the increase in additional paid-in capital[22] - Stock-based compensation expense also added $1,292 thousand[22] Unaudited Condensed Consolidated Statements of Cash Flows The company experienced a significant net decrease in cash, cash equivalents, and restricted cash, primarily driven by increased cash used in operating and investing activities | (In thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----- | | Net cash used in operating activities | $(5,829) | $(3,115) | $(2,714) | | Net cash used in investing activities | $(11,708) | $(509) | $(11,199) | | Net cash used in financing activities | $(46) | $(376) | $330 | | Net decrease in cash, cash equivalents and restricted cash | $(17,588) | $(3,988) | $(13,600) | | Cash, cash equivalents and restricted cash at end of period | $57,951 | $26,876 | $31,075 | - Cash paid for the Neeltran acquisition, net of cash acquired, was $11,479 thousand, significantly impacting investing activities[25] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering business operations, accounting policies, and recent acquisitions Note 1. Nature of the Business and Operations and Liquidity AMSC provides megawatt-scale power resiliency solutions for the grid and U.S. Navy, maintaining liquidity despite historical operating losses and negative cash flows - AMSC is a leading system provider of megawatt-scale power resiliency solutions for the grid and U.S. Navy, leveraging proprietary 'smart materials' and 'smart software and controls'[28] Metric as of June 30, 2021 | Metric | Value (as of June 30, 2021) | | :-------------------- | :-------------------------- | | Accumulated Deficit | $1,006.7 million | | Cash, cash equivalents, and marketable securities | $55.2 million | | Cash used in operations (3 months ended June 30, 2021) | $5.8 million | - The company filed a shelf registration statement on Form S-3 in February 2021, allowing it to offer and sell up to $250 million of securities to fund future capital needs[31] - The COVID-19 pandemic has not materially disrupted the company's business to date, but future developments could adversely affect business, liquidity, results of operations, and financial condition[34][35] Note 2. Acquisitions This note details the acquisitions of Neeltran in May 2021 for $16.4 million and NEPSI in October 2020 for $42.4 million, including their financial contributions - On May 6, 2021, AMSC acquired Neeltran, Inc. and Neeltran International, Inc., suppliers of rectifiers and transformers, for a total consideration of $16.4 million[32][39][40] Neeltran Acquisition Consideration (in millions) | Component | Amount | | :----------------------------------------- | :----- | | Cash payment | $4.4 | | Issuance of 301,556 shares of Company's common stock | $4.4 | | Debt payment to third party lenders on behalf of sellers | $7.6 | | Total consideration | $16.4 | - Neeltran contributed $5.5 million of revenue and $0.2 million in net loss to AMSC's consolidated results for the three months ended June 30, 2021[46] - On October 1, 2020, AMSC acquired Northeast Power Systems, Inc. (NEPSI), a provider of medium-voltage power capacitor banks, for a total consideration of $42.4 million[47][49] NEPSI Acquisition Consideration (in millions) | Component | Amount | | :----------------------------------------- | :----- | | Cash payment | $26.0 | | Issuance of 873,657 shares of Company's common stock | $12.4 | | Contingent consideration | $4.0 | | Total consideration | $42.4 | Unaudited Pro Forma Operating Results (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :------------------------ | :------------------------------- | :------------------------------- | | Revenues | $28,250 | $32,627 | | Operating loss | $(6,786) | $(3,343) | | Net loss | $(7,261) | $395 | | Net loss per common share - Basic | $(0.27) | $0.02 | Note 3. Revenue Recognition The company recognizes revenue based on a five-step model, with most revenue recognized at a point in time, disaggregated by product line and region - The company records revenue based on a five-step model in accordance with ASC 606, with 78% of revenue recognized at the point in time when control transferred to the customer for the three months ended June 30, 2021[60] Revenue Disaggregation (in thousands) | Product Line / Region | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | | Product Line: | | | | Equipment and systems | $22,192 | $19,155 | | Services and technology development | $3,228 | $2,058 | | Total | $25,420 | $21,213 | | Region: | | | | Americas | $22,664 | $10,566 | | Asia Pacific | $2,468 | $9,284 | | EMEA | $288 | $1,363 | | Total | $25,420 | $21,213 | - As of June 30, 2021, outstanding performance obligations to be recognized in the next twelve months were approximately $86.9 million, with an additional $15.9 million over thirteen to sixty months[72] Customers Representing 10% or More of Total Revenues | Customer | Reportable Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :---------------------------------- | :----------------- | :------------------------------- | :------------------------------- | | Micron Technology | Grid | 21% | <10% | | Nextera Energy Resources | Grid | 12% | <10% | | Ascend Performance Materials Ops LLC | Grid | 10% | 0% | | EPC Services | Grid | <10% | 24% | | Siemens Gamesa Renewable Energy Pty. Ltd. | Grid | <10% | 25% | Note 4. Stock-Based Compensation Stock-based compensation expense increased to $1.3 million for the quarter, with $7.7 million in unrecognized compensation cost for unvested restricted stock Stock-Based Compensation Expense (in thousands) | Financial Statement Line Item | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :------------------------------- | | Cost of revenues | $91 | $28 | | Research and development | $247 | $130 | | Selling, general and administrative | $954 | $751 | | Total | $1,292 | $909 | - Total unrecognized compensation cost for unvested outstanding restricted stock was $7.7 million at June 30, 2021, to be recognized over a weighted-average period of approximately 1.9 years[77] Note 5. Computation of Net Loss per Common Share Basic and diluted net loss per common share increased to $(0.20) due to a higher net loss and increased weighted-average shares outstanding, with 1.1 million shares excluded as anti-dilutive Net Loss Per Common Share Calculation (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net loss | $(5,403) | $(3,417) | | Weighted-average shares of common stock outstanding | 27,919 | 22,827 | | Shares used in per-share calculation — basic | 26,826 | 21,689 | | Shares used in per-share calculation — diluted | 26,826 | 21,689 | | Net loss per share — basic | $(0.20) | $(0.16) | | Net loss per share — diluted | $(0.20) | $(0.16) | - For the three months ended June 30, 2021, 1.1 million shares (1.0 million related to derivative liability and 0.1 million stock options) were excluded from diluted EPS calculation as anti-dilutive[78] Note 6. Goodwill and Other Intangibles Goodwill increased to $43.5 million due to the Neeltran acquisition, while other intangible assets totaled $13.3 million net, with $0.6 million in amortization expense for the quarter Goodwill Roll Forward (in thousands) | Date | Goodwill | | :----------------- | :------- | | March 31, 2021 | $34,634 | | Neeltran Acquisition | $8,837 | | June 30, 2021 | $43,471 | Intangible Assets (in thousands) | Asset Category | Gross Amount (June 30, 2021) | Accumulated Amortization (June 30, 2021) | Net Book Value (June 30, 2021) | Estimated Useful Life (Years) | | :------------------------- | :--------------------------- | :--------------------------------------- | :----------------------------- | :---------------------------- | | Backlog | $681 | $(512) | $169 | 2 | | Trade name | $1,800 | — | $1,800 | Indefinite | | Customer relationships | $9,600 | $(1,203) | $8,397 | 7 | | Core technology and know-how | $5,970 | $(3,024) | $2,946 | 5-10 | | Total Intangible assets | $18,051 | $(4,739) | $13,312 | | - Intangible amortization expense was $0.6 million for the three months ended June 30, 2021, primarily related to customer relationships and core technology[83] Note 7. Fair Value Measurements The company classifies financial assets and liabilities into a three-level fair value hierarchy, with contingent consideration as a Level 3 derivative liability valued using a Monte Carlo method - Fair value hierarchy prioritizes inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs reflecting company assumptions)[86][87] - Contingent consideration related to the NEPSI acquisition is classified as a Level 3 derivative liability and valued using a Monte Carlo method[93] Assets and Liabilities Carried at Fair Value (in thousands) | Category | Total Carrying Value (June 30, 2021) | Level 1 | Level 2 | Level 3 | | :------------------------- | :----------------------------------- | :------ | :------ | :------ | | Cash equivalents | $28,107 | $28,107 | $— | $— | | Marketable securities | $5,165 | $5,165 | $— | $— | | Contingent consideration | $7,150 | $— | $— | $7,150 | - The fair value of contingent consideration increased by $0.1 million due to a mark-to-market adjustment during the three months ended June 30, 2021[97] Note 8. Accounts Receivable Accounts receivable, net, significantly increased to $23.9 million as of June 30, 2021, with substantial growth in both billed and unbilled components Accounts Receivable (in thousands) | Category | June 30, 2021 | March 31, 2021 | Change | | :------------------------- | :------------ | :------------- | :----- | | Accounts receivable (billed) | $15,347 | $7,502 | $7,845 | | Accounts receivable (unbilled) | $8,561 | $5,765 | $2,796 | | Accounts receivable, net | $23,908 | $13,267 | $10,641 | Note 9. Inventory Net inventory increased to $22.2 million as of June 30, 2021, driven by increases in work-in-process and raw materials, with $0.6 million in write-downs for the quarter Inventory, net of reserves (in thousands) | Category | June 30, 2021 | March 31, 2021 | Change | | :----------------- | :------------ | :------------- | :----- | | Raw materials | $9,756 | $8,255 | $1,501 | | Work-in-process | $9,600 | $3,297 | $6,303 | | Finished goods | $1,791 | $777 | $1,014 | | Deferred program costs | $1,008 | $977 | $31 | | Net inventory | $22,155 | $13,306 | $8,849 | - Inventory write-downs of $0.6 million were recorded for the three months ended June 30, 2021, based on evaluation for excess quantities and obsolescence[100] Note 10. Property, Plant and Equipment Property, plant and equipment, net, increased to $15.1 million, primarily due to the Neeltran Acquisition, with depreciation expense of $0.6 million for the quarter Property, Plant and Equipment (in thousands) | Category | June 30, 2021 | March 31, 2021 | Change | | :--------------------------------- | :------------ | :------------- | :----- | | Land | $980 | $270 | $710 | | Building | $5,270 | $1,630 | $3,640 | | Equipment and software | $43,773 | $41,652 | $2,121 | | Property, plant and equipment, gross | $58,153 | $51,413 | $6,740 | | Less accumulated depreciation | $(43,086) | $(42,416) | $(670) | | Property, plant and equipment, net | $15,067 | $8,997 | $6,070 | - The increase in land and building is related to the property added as part of the Neeltran Acquisition[104] - Depreciation expense was $0.6 million for the three months ended June 30, 2021[104] Note 11. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses significantly increased to $33.4 million, primarily due to higher accounts payable and advanced deposits, including $0.2 million in acquired warranty obligations Accounts Payable and Accrued Expenses (in thousands) | Category | June 30, 2021 | March 31, 2021 | Change | | :--------------------------------- | :------------ | :------------- | :----- | | Accounts payable | $16,520 | $5,353 | $11,167 | | Accrued inventories in-transit | $1,927 | $1,460 | $467 | | Advanced deposits | $2,152 | $1,035 | $1,117 | | Accrued compensation | $7,291 | $7,018 | $273 | | Accrued product warranty | $2,186 | $2,053 | $133 | | Total | $33,439 | $19,810 | $13,629 | Product Warranty Activity (in thousands) | Activity | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :---------------------------------------- | :------------------------------- | :------------------------------- | | Balance at beginning of period | $2,053 | $2,015 | | Acquired warranty obligations | $248 | $— | | Change in accruals for warranties during the period | $107 | $236 | | Settlements during the period | $(222) | $(83) | | Balance at end of period | $2,186 | $2,168 | Note 12. Income Taxes The company recorded a $2.1 million income tax benefit for the quarter, resulting from the release of a valuation allowance due to a deferred tax liability from the Neeltran Acquisition - The company recorded an income tax benefit of $2.1 million for the three months ended June 30, 2021, compared to an income tax expense of $0.2 million in the prior year[108] - A deferred tax liability of $2.3 million was recorded due to intangible assets acquired in the Neeltran Acquisition, leading to the release of a corresponding $2.3 million valuation allowance[109] - The company did not identify any uncertain tax positions and had no gross unrecognized tax benefits as of June 30, 2021[111] Note 13. Contingent Consideration Contingent consideration from the NEPSI Acquisition is a derivative liability, revalued quarterly using a Monte Carlo simulation, resulting in a $0.1 million net loss due to increased likelihood of revenue targets - Contingent consideration from the NEPSI Acquisition is classified as a derivative liability and revalued quarterly using a Monte Carlo simulation[112][113] Key Assumptions for Monte Carlo Simulation | Assumption | June 30, 2021 | March 31, 2021 | | :----------------- | :------------ | :------------- | | Revenue risk premium | 6.60% | 6.70% | | Revenue volatility | 30% | 30% | | Stock Price | $17.39 | $18.96 | | Fair value (millions) | $7.2 | $7.1 | - A net loss of $0.1 million was recorded for the three months ended June 30, 2021, due to the increase in the fair value of contingent consideration, driven by an increased likelihood of achieving certain revenue targets[113] Note 14. Debt The company recorded current and long-term debt liabilities of $0.1 million each, stemming from equipment financing agreements acquired with Neeltran - The company recorded current and long-term debt liabilities of $0.1 million each during the three months ended June 30, 2021, related to equipment financing agreements acquired with Neeltran[114] Note 15. Leases The company adopted ASC 842 for Neeltran's contracts, recognizing operating lease right-of-use assets of $3.8 million and total lease liabilities of $3.9 million as of June 30, 2021 - Following the Neeltran Acquisition, the company adopted ASC 842 for Neeltran's open contracts, identifying nine lease contracts, including one finance lease[117] Supplemental Balance Sheet Information Related to Leases (in thousands) | Category | June 30, 2021 | March 31, 2021 | | :-------------------------- | :------------ | :------------- | | Right-of-use assets - Financing | $12 | $— | | Right-of-use assets - Operating | $3,764 | $3,747 | | Total right-of-use assets | $3,776 | $3,747 | | Lease liabilities - ST Financing | $6 | $— | | Lease liabilities - ST Operating | $690 | $612 | | Lease liabilities - LT Financing | $6 | $— | | Lease liabilities - LT Operating | $3,188 | $3,246 | | Total lease liabilities | $3,890 | $3,858 | | Weighted-average remaining lease term | 5.49 years | 5.82 years | | Weighted-average discount rate | 6.55% | 6.72% | Operating Lease Costs (in thousands) | Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :------------------------- | :------------------------------- | :------------------------------- | | Operating lease costs - fixed | $231 | $178 | | Operating lease costs - variable | $32 | $27 | | Short-term lease costs | $67 | $168 | | Total lease costs | $330 | $373 | Estimated Minimum Future Lease Obligations (in thousands) | Year ended March 31, | Leases | | :------------------- | :----- | | 2022 | $695 | | 2023 | $894 | | 2024 | $799 | | 2025 | $674 | | 2026 | $673 | | Thereafter | $934 | | Total minimum lease payments | $4,669 | | Less: interest | $779 | | Present value of lease liabilities | $3,890 | Note 16. Commitments and Contingencies The company is involved in legal proceedings and has commitments for performance bonds and minimum purchases, with restricted cash totaling $7.9 million as of June 30, 2021 - The company records a liability for legal matters when a loss is known or considered probable and the amount can be reasonably estimated[129] - The company obtains performance bonds for long-term construction contracts, requiring deposits into escrow accounts, and has various contractual arrangements for minimum quantity purchases[130] Restricted Cash (in thousands) | Category | June 30, 2021 | March 31, 2021 | | :------------------- | :------------ | :------------- | | Long-term assets | $5,568 | $5,568 | | Current assets | $2,313 | $2,157 | | Total Restricted Cash | $7,881 | $7,725 | - Restricted cash primarily secures letters of credit for supply contracts and long-term projects, including a $5.0 million irrevocable letter of credit for the ComEd subcontract agreement[131] Note 17. Business Segments The company operates in Grid and Wind segments; Grid revenues increased significantly while Wind revenues decreased, with both segments reporting operating losses - The company reports financial results in two segments: Grid (power resiliency solutions, transmission, distribution, ship protection) and Wind (advanced power electronics, control systems, and designs for wind turbines)[132][133] Segment Revenues (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change | % Change | | :------ | :------------------------------- | :------------------------------- | :----- | :------- | | Grid | $23,501 | $17,715 | $5,786 | 32.66% | | Wind | $1,919 | $3,498 | $(1,579) | -45.14% | | Total | $25,420 | $21,213 | $4,207 | 19.83% | Segment Operating Loss (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change | | :-------------------------- | :------------------------------- | :------------------------------- | :----- | | Grid | $(5,345) | $(1,188) | $(4,157) | | Wind | $(763) | $(1,120) | $357 | | Unallocated corporate expenses | $(1,391) | $(909) | $(482) | | Total | $(7,499) | $(3,217) | $(4,282) | Segment Assets (in thousands) | Segment | June 30, 2021 | March 31, 2021 | Change | | :---------- | :------------ | :------------- | :----- | | Grid | $121,355 | $81,253 | $40,102 | | Wind | $6,949 | $6,098 | $851 | | Corporate assets | $63,863 | $81,515 | $(17,652) | | Total | $192,167 | $168,866 | $23,301 | Note 18. Recent Accounting Pronouncements The company adopted ASU 2019-12 (Income Taxes) with no material impact and is evaluating ASU 2016-13 (Financial Instruments-Credit Losses) for future effectiveness - ASU 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,' was adopted as of April 1, 2021, with no material impact on consolidated financial statements[140] - The company is evaluating ASU 2016-13, 'Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,' which is effective for smaller reporting companies for annual periods beginning after December 15, 2022[139] Note 19. Subsequent Events The company has evaluated subsequent events through the filing date of this report and determined there are no such events to report - No subsequent events were identified to report through the time of filing this Quarterly Report on Form 10-Q[141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including business overview, acquisitions, performance, liquidity, and critical accounting policies Executive Overview AMSC is a leading provider of megawatt-scale power resiliency solutions for the grid and U.S. Navy, and wind power solutions, leveraging PowerModule™ and Amperium® HTS technologies - AMSC provides megawatt-scale power resiliency solutions for the grid and U.S. Navy, and wind power solutions, driven by needs for modernized smart grids, U.S. Navy fleet electrification, and increased renewable energy[148][149] - Core technologies include PowerModule™ programmable power electronic converters and Amperium® high temperature superconductor (HTS) wires, protected by a broad intellectual property portfolio[150] - The Grid business segment focuses on transmission planning, grid interconnection solutions, power quality systems, and ship protection products for the U.S. Navy[151] - The Wind business segment supplies advanced power electronics and control systems, licenses wind turbine designs (2 MW and higher), and provides support services to manufacturers[152] - The REG system project with Commonwealth Edison Company (ComEd) is expected to be operational in 2021, with DHS funding between $9.0 million to $11.0 million[153][154] - Acquired NEPSI on October 1, 2020, for $26.0 million cash and 873,657 restricted shares, with potential for additional shares based on revenue objectives[154][155] - Acquired Neeltran on May 6, 2021, for $1.0 million cash and 301,556 shares, plus real property and debt payoffs[155] COVID-19 Impact While the COVID-19 pandemic has not materially disrupted the company's business to date, its future impact remains highly uncertain and could adversely affect operations and liquidity - COVID-19 has not materially disrupted the company's business to date, but future actions or prolonged disruptions could adversely impact business, liquidity, results of operations, and financial condition[157][158] - The extent of future impact depends on factors like disease spread, duration, new variants, vaccine effectiveness, travel restrictions, and business closures[158] Critical Accounting Policies and Estimates The preparation of financial statements requires estimates and judgments, with no significant changes in critical accounting policies reported from the prior fiscal year - No significant changes in critical accounting policies were reported compared to the Form 10-K for the fiscal year ended March 31, 2021[159] Results of Operations Total revenues increased by 20% year-over-year, driven by Grid segment growth, but gross margin declined significantly, leading to a higher operating loss and net loss Revenues Total revenues increased 20% to $25.4 million, with Grid revenues up 33% due to acquisitions and SPS growth, while Wind revenues decreased 45% due to lack of ECS shipments and potential contract issues Revenues (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change | % Change | | :------ | :------------------------------- | :------------------------------- | :----- | :------- | | Grid | $23,501 | $17,715 | $5,786 | 32.66% | | Wind | $1,919 | $3,498 | $(1,579) | -45.14% | | Total | $25,420 | $21,213 | $4,207 | 19.83% | - Grid business unit revenue increase was driven by contributions from the acquisitions of NEPSI and Neeltran, as well as growth in the SPS product line[162] - Wind business unit revenue decrease was due to no similar shipments of electrical control systems (ECS) to Doosan in the current year period[163] - The company sent a default notice to Inox for failure to pay €0.7 million in royalties, which could lead to termination of the 2009 TTLA and further decrease Wind business revenues[163] Cost of Revenues and Gross Margin Cost of revenues increased by 36% to $22.1 million, causing gross margin to decline from 24% to 13%, primarily due to an unfavorable product mix and acquisition-related purchase accounting adjustments - Cost of revenues increased by 36% to $22.1 million for the three months ended June 30, 2021, compared to $16.2 million in the prior year[165] - Gross margin decreased from 24% to 13% for the three months ended June 30, 2021, due to an unfavorable product mix and additional costs from purchase accounting adjustments associated with the Neeltran Acquisition[165] - A fair value purchase adjustment of approximately $0.3 million for the step-up basis assigned to acquired inventory was charged to cost of revenues[165] Operating Expenses Operating expenses increased across all categories, with R&D up 22% to $3.0 million, SG&A up 27% to $7.1 million, and amortization of acquisition-related intangibles significantly higher - Research and development (R&D) expenses increased 22% to $3.0 million for the three months ended June 30, 2021, due to higher overall compensation expense[167] - Selling, general and administrative (SG&A) expenses increased 27% to $7.1 million, driven by higher overall compensation, including stock compensation, and acquisition-related costs from the Neeltran Acquisition[168] - Amortization of acquisition-related intangibles increased to $0.6 million, primarily due to the NEPSI and Neeltran acquisitions[169] - A loss of $0.1 million was recorded from the change in fair value of contingent consideration for the NEPSI Acquisition, driven by an increased likelihood of achieving revenue targets[169] Operating loss Total operating loss increased significantly to $7.5 million, with the Grid segment's loss rising due to unfavorable product mix and acquisition adjustments, while the Wind segment's loss decreased Operating Loss (in thousands) | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change | | :-------------------------- | :------------------------------- | :------------------------------- | :----- | | Grid | $(5,345) | $(1,188) | $(4,157) | | Wind | $(763) | $(1,120) | $357 | | Unallocated corporate expenses | $(1,391) | $(909) | $(482) | | Total | $(7,499) | $(3,217) | $(4,282) | - Grid business segment operating loss increased due to a less favorable product mix and purchase accounting adjustments from the Neeltran Acquisition, including an inventory step-up charge and a $0.4 million revenue reduction for acquired customer deposits[170] - Wind business segment operating loss decreased due to reduced manufacturing overhead from consolidating wind manufacturing[171] Interest income, net Net interest income decreased to less than $0.1 million, primarily due to a lower cash balance earning lower interest rates - Interest income, net, decreased to less than $0.1 million for the three months ended June 30, 2021, from $0.2 million in the prior year, due to a lower cash balance earning lower interest rates[172] Other (expense) income, net Other expense, net, remained less than $0.1 million, consistent with the prior year, primarily driven by fluctuations in foreign currencies - Other expense, net, was less than $0.1 million for the three months ended June 30, 2021, driven by impacts of foreign currency fluctuations[173] Income tax benefit (expense) The company recorded a $2.1 million income tax benefit, a significant change from an expense in the prior year, resulting from releasing a valuation allowance due to the Neeltran Acquisition - Income tax benefit was $2.1 million for the three months ended June 30, 2021, compared to an income tax expense of $0.2 million in the prior year[173] - The decrease in income tax expense (shift to benefit) resulted from the release of a valuation allowance due to the recording of a deferred tax liability from the Neeltran Acquisition[173] Net loss Net loss increased to $5.4 million, primarily due to lower gross margin and higher operating expenses, including acquisition and purchase accounting adjustments - Net loss increased to $5.4 million for the three months ended June 30, 2021, from $3.4 million in the prior year, driven by lower gross margin and higher operating expenses due to acquisition and purchase accounting adjustments[174] Non-GAAP Financial Measure - Non-GAAP Net Loss Non-GAAP net loss increased to $2.7 million ($0.10 per share) due to a higher operating loss, excluding stock-based compensation, acquisition-related amortization, acquisition costs, and contingent consideration fair value changes Non-GAAP Net Loss Reconciliation (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :------------------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(5,403) | $(3,417) | | Stock-based compensation | $1,292 | $909 | | Amortization of acquisition-related intangibles | $622 | $121 | | Acquisition costs | $688 | $— | | Change in fair value of contingent consideration | $100 | $— | | Non-GAAP net loss | $(2,701) | $(2,387) | | Non-GAAP net loss per share - basic | $(0.10) | $(0.11) | | Weighted average shares outstanding - basic | 26,826 | 21,689 | - The increase in non-GAAP net loss was due to a higher operating loss driven by lower gross margin and higher operating expenses[175] Liquidity and Capital Resources The company has an accumulated deficit of $1,006.7 million, with cash, cash equivalents, marketable securities, and restricted cash decreasing to $63.1 million, primarily due to increased cash used in operating and investing activities - As of June 30, 2021, the company had an accumulated deficit of $1,006.7 million[178] Cash, Cash Equivalents, Marketable Securities and Restricted Cash (in thousands) | Category | June 30, 2021 | March 31, 2021 | Change | | :------------------------------------------------------ | :------------ | :------------- | :----- | | Cash and cash equivalents | $50,070 | $67,814 | $(17,744) | | Marketable securities | $5,164 | $5,140 | $24 | | Restricted cash | $7,881 | $7,725 | $156 | | Total | $63,115 | $80,679 | $(17,564) | - Net cash used in operating activities was $5.8 million (vs $3.1 million prior year), and net cash used in investing activities was $11.7 million (vs $0.5 million prior year), primarily due to the Neeltran Acquisition[183][184] - The company believes it has sufficient liquidity for the next twelve months but may seek additional capital[186] - Liquidity is highly dependent on increasing revenues, collecting receivables (e.g., from Inox), controlling costs, and raising additional capital[186] Legal Proceedings The company is involved in various legal and administrative proceedings, recording a liability when a loss is probable and estimable, with estimates reviewed quarterly - The company records a liability for legal matters when a loss is known or considered probable and the amount can be reasonably estimated[188] Off-Balance Sheet Arrangements The company does not have any material off-balance sheet arrangements as defined by SEC rules, except for performance bonds and minimum purchase commitments - The company does not have any off-balance sheet arrangements, except for performance bonds for construction contracts and contractual arrangements for minimum goods or services purchases[189] Recent Accounting Pronouncements The company adopted ASU 2019-12 (Income Taxes) with no material impact and is evaluating ASU 2016-13 (Financial Instruments-Credit Losses) for future effectiveness - ASU 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,' was adopted as of April 1, 2021, with no material impact on consolidated financial statements[191] - The company is evaluating ASU 2016-13, 'Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,' which is effective for smaller reporting companies for annual periods beginning after December 15, 2022[190] PART II—OTHER INFORMATION This section covers other information, including market risk, controls, legal proceedings, and exhibits Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reporting period - Not Applicable[193] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective, with no material changes to internal control over financial reporting Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2021 - Disclosure controls and procedures were evaluated by management, CEO, and CFO as effective at the reasonable assurance level as of June 30, 2021[194] Changes in Internal Control over Financial Reporting There were no material changes to the company's internal control over financial reporting during the quarter ended June 30, 2021 - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2021[195] Item 1. Legal Proceedings This section states that there are no material legal proceedings to report for the period - None[197] Item 1A. Risk Factors There have been no material changes to the risk factors previously described in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021 - No material changes to the risk factors described in Part I, Item 1A of the Annual Report on Form 10-K for the fiscal year ended March 31, 2021[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended June 30, 2021, the company purchased 2,495 shares of common stock at an average price of $18.38 per share for employee tax withholdings related to stock-based compensation Stock Repurchase Activity (Three Months Ended June 30, 2021) | Month | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------------------- | :------------------------------- | :--------------------------- | | April 1, 2021 - April 30, 2021 | 0 | — | | May 1, 2021 - May 31, 2021 | 0 | — | | June 1, 2021 - June 30, 2021 | 2,495 | $18.38 | | Total | 2,495 | $18.38 | - Shares were purchased in connection with stock-based compensation plans, where employees tendered common stock for payment of applicable statutory tax withholdings[199] Item 3. Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the period - None[200] Item 4. Mine Safety Disclosure This section states that mine safety disclosures are not applicable to the company - Not Applicable[200] Item 5. Other Information This section indicates that there is no other information to report for the period - None[200] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including stock purchase agreements, certifications, and XBRL documents - Key exhibits include Stock Purchase Agreements for Neeltran (10.1, 10.2), Fiscal 2021 Executive Incentive Plan (10.3), CEO and CFO certifications (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[203][204][205][206][207][208][209][210][211][212] Signature The report is duly signed on behalf of American Superconductor Corporation by John W. Kosiba, Jr., Senior Vice President, Chief Financial Officer and Treasurer, dated August 4, 2021 - The report was signed by John W. Kosiba, Jr., Senior Vice President, Chief Financial Officer and Treasurer, on August 4, 2021[215]