American Superconductor (AMSC) - 2022 Q4 - Annual Report

PART I Item 1. Business Overview AMSC is a leading provider of megawatt-scale power resiliency solutions for the power grid and U.S. Navy, and offers wind power solutions, leveraging proprietary smart materials and software to modernize grids, electrify the Naval fleet, and expand renewable energy, with recent acquisitions expanding its Grid business segment - AMSC provides megawatt-scale power resiliency solutions for the power grid and U.S. Navy, and offers wind power solutions, leveraging proprietary smart materials and software[10][11] - Demand for AMSC's solutions is driven by the need for modernized grids, U.S. Navy fleet electrification, and increased renewable energy adoption[12] - Acquired Northeast Power Systems, Inc. (NEPSI) on October 1, 2020, a global provider of medium-voltage power capacitor and harmonic filter banks, integrated into the Grid segment[13] - Acquired Neeltran, Inc. on May 6, 2021, a supplier of rectifiers and transformers to industrial customers, also integrated into the Grid segment[14] Market Opportunities AMSC addresses five key market opportunities: Transmission grid, Distribution grid, Urban Grid Infrastructure, Marine protection systems, and Wind Power, benefiting from solutions that improve efficiency, reliability, security, and capacity - AMSC's power system products address five market opportunities: Transmission grid, Distribution grid, Urban Grid Infrastructure, Marine protection systems, and Wind Power[15][16][17][18][19] Competitive Strengths The company's competitive strengths include differentiated technologies like proprietary smart materials (Amperium® superconductor wire) and smart software (PowerModule™ power converters), turnkey system solutions, a scalable and low-cost manufacturing platform, a robust patent portfolio, and unique integrated solutions for its target markets - Differentiated technologies: Proprietary Amperium® superconductor wire (YBCO) for minimal power loss and PowerModule™ power converters based on proprietary software/hardware[22] - Turnkey systems: Developed full system solutions sold directly to customers, leveraging application expertise[23] - Scalable, low-cost manufacturing: Primarily assembly operations with minimal fixed costs for wind turbine electrical control systems and power electronics; modular HTS wire manufacturing[23] - Robust patent position: Extensive portfolio of awarded patents and applications worldwide, with rights through exclusive and non-exclusive licenses[24] - Unique solutions: Provides integrated wind turbine design/engineering, support, and power electronics; also offers transmission planning, grid interconnection, and superconductor-based distribution systems for power grid operators[25] Strategy AMSC's strategy focuses on driving revenue growth and enhancing operating results by providing solutions from power generation to delivery, concentrating on megawatt-scale power offerings, investing in product innovation (e.g., REG, SPS, D-VAR VVO), and expanding into emerging overseas markets while serving key markets locally - Focus on providing best-in-class engineering, support services, technologies, and solutions for smarter, cleaner, and more resilient power supplies[26] - Concentrate research, product development, and sales on megawatt-scale power offerings[26] - Continued investment in product innovation, including Resilient Electric Grid (REG) system, Ship Protection Systems (SPS) for the U.S. Navy, and D-VAR Volt Var Optimization (VVO)[27] - Pursue emerging overseas markets and serve key target markets locally with sales and field service personnel[28] Grid Market Overview The global electricity grid requires modernization due to challenges like severe weather, cyber-attacks, increased renewable generation (wind and solar), and new loads (electric vehicles), which AMSC's solutions address by enhancing resiliency, stability, reliability, capacity, efficiency, and security of power grids - Global electricity grids need modernization due to challenges such as severe weather, physical/cyber-attacks, expanded renewable generation (wind: 136 GW in 2021, PV: 120 GW in 2021), and new loads like electric vehicles (18.7 million projected by 2030)[29][30] - Biden Administration's energy plan, if enacted, could positively impact demand for new energy power systems solutions by reforming tax incentives and developing financing mechanisms for clean energy[31][32] - Power grid operators face challenges in resiliency, stability, reliability, capacity, efficiency, and security[34][35][36][37] - AMSC's solutions for the grid market include D-VAR® Systems, actiVAR® Systems, armorVAR™ Systems, Transformers and DC Rectifiers, D-VAR VVO®, and REG Systems, designed to increase capacity, resiliency, reliability, security, and efficiency[38][39][40][41][42][43] Marine Market Overview The U.S. Navy is modernizing its fleet, aiming for 355 battle force ships by 2052, and faces challenges in power capacity, space/weight limitations, and efficiency, which AMSC addresses with advanced HTS-based degaussing systems (SPS) and expanded HTS technology for fleet electrification - U.S. Navy's 2022 shipbuilding plan aims for a larger, modernized fleet of 355 battle force ships by 2052, up from 294 in September 2021[45] - Navy fleets face challenges in power capacity for advanced weapon systems, space/weight limitations for new power solutions, and efficiency of conventional copper-based power cable systems[46][47] - AMSC's HTS-based Ship Protection Systems (SPS) degaussing system reduces system weight by 50-80% and energy consumption compared to copper-based systems[45][48] - The first HTS-based SPS system was delivered in January 2022 for deployment on the USS Fort Lauderdale (San Antonio-class amphibious warfare ship)[46][48] - AMSC is expanding HTS technology for in-board power delivery systems and power generation/electric propulsion systems to support the Navy's 'electrify the fleet' mission[49][50][51][52] Wind Market Overview The global wind power market is growing, with 91 GW added in 2021 and an estimated 85 GW in 2022, driven by government incentives, technological improvements, and cost reductions, with AMSC providing electrical control systems (ECS), licensing wind turbine designs, and offering extensive customer support services - Global wind generation capacity increased by approximately 91 GW in 2021 (up from 84 GW in 2020), with an estimated 85 GW to be added in 2022[54] - Growth is driven by government incentives, technological improvements, turbine cost reductions, offshore wind development, and increasing cost competitiveness[55] - AMSC's solutions for the wind market include Electrical Control Systems (ECS), wind turbine designs (2 MW and higher), and extensive customer support services[56][57] - AMSC has shipped enough core electrical components and complete ECS to power over 16,000 MW of wind power[56] Customers AMSC serves over 100 global customers in the grid market, including utilities and the U.S. Navy, and licenses wind turbine designs to manufacturers like Inox Wind Limited and Doosan Heavy Industries, with Fuji Bridex Pte Ltd accounting for 14% of total revenues in fiscal 2021 - Served over 100 customers in the grid market, including Commonwealth Edison, YMC Incorporated, the U.S. Navy, SSE plc, Consolidated Power Projects (Pty) Ltd, Fuji Bridex, Vestas Wind Systems A/S, and Ergon Energy[59] - Licensed wind turbine designs to Inox Wind Limited (India) and Doosan Heavy Industries (Korea)[59] Major Customers by Revenue Contribution | Customer | Fiscal Year 2021 Revenue Contribution | | :---------------------- | :------------------------------------ | | Fuji Bridex Pte Ltd | 14% | | EPC Services Company | <10% (13% in FY2020) | | Department of Homeland Security | <10% (10% in FY2019) | Facilities and Manufacturing AMSC's primary facilities are in Massachusetts, New York, and Connecticut for corporate, Grid segment manufacturing, and R&D, with a global footprint including sales/field service offices, and key raw materials mostly available from multiple sources, though some components rely on limited suppliers Significant Properties (as of March 31, 2022) | Location | Supporting | Square footage | Owned/Leased | | :--------------------------- | :----------------------------- | :------------- | :----------- | | Ayer, Massachusetts | Corporate & Grid Segment | 88,000 | Leased | | Westminster, Massachusetts | Grid Segment | 77,500 | Leased | | Queensbury, New York | Grid Segment | 35,000 | Owned | | New Milford, Connecticut | Grid Segment | 85,000 | Owned | - Global footprint includes sales and/or field service offices in Australia, India, South Korea, the United Kingdom, and McLean, VA[62] - Principal raw materials: nickel, silver, yttrium, copper, brass, stainless steel. Major components: insulated gate bi-polar transistors, heatsinks, inductors, enclosures, transformers, printed circuit boards. Most are available from multiple sources, but some materials/components depend on single or limited suppliers[63] Sales and Marketing AMSC employs a direct sales force in core target markets globally, supplemented by manufacturers' sales representatives in North America, with the sales team collaborating with business development staff, wind turbine engineers, and power grid transmission planners to understand customer needs and provide cost-effective solutions - Strategy: Serve customers locally through a direct sales force in core target markets worldwide[65] - Utilizes manufacturers' sales representatives in the United States and Canada[65] - Sales force leverages business development staff, wind turbine engineers, and power grid transmission planners to understand customer needs and provide solutions[65] Segments AMSC operates under two market-facing business units: Grid and Wind, a structure designed to effectively anticipate and meet the needs of power generation project developers, the Navy's ship protection systems, electric utilities, and wind turbine manufacturers - Operations are segmented into two market-facing business units: Grid and Wind[66] - This market-centric structure helps anticipate and meet the needs of power generation project developers, Navy's ship protection systems, electric utilities, and wind turbine manufacturers[66] Competition AMSC faces competition across its technology and product development, with competitive performance relying on innovation, product range, quality, reliability, and customer support, from major industrial companies in FACTS systems, power capacitor banks, DC power supply systems, and traditional infrastructure providers, as well as defense contractors and global turbine manufacturers - Competition in FACTS systems (D-VAR products) from ABB, Siemens, Mitsubishi, RXHK, NR Electric Co., Ingeteam, and battery-based UPS systems[67][148] - Competition in medium-voltage metal-enclosed power capacitor banks and harmonic filter banks (NEPSI products) from Controllix PowerSide, Elgin Power Solutions, Scott Engineering, and QVARx[67][149] - Competition in DC power supply systems (Neeltran products) from Scr Controlled Rectifiers, IGBT controlled choppers produced by ABB, Siemens, Friem Dynapower, and Nidec[68][149] - For HTS-based REG, competition comes from traditional approaches like new full-sized substations, overhead/underground transmission, and urban power transformers[68][149] - For HTS-based SPS, primary competition is from defense contractors providing copper-based systems (e.g., Ultra EMS, L3 Harris, Raytheon)[69][150] - In wind, competitors include ABB, Hopewind, Semikron for components, and global turbine manufacturers like Siemens Gamesa, General Electric, Vestas, Suzlon. Design engineering firms like Aerodyn and W2E also compete for design services[70][151] Patents, Licenses and Trade Secrets AMSC maintains a strong worldwide patent position and licenses for its technologies, including power quality and reliability systems (Grid), HTS wire (Amperium®), and wind turbine designs (Windtec™ Solutions), also protecting key technology through trade secrets with confidentiality agreements - AMSC has an extensive portfolio of awarded patents and patent applications worldwide, along with rights through exclusive and non-exclusive licenses[71] - Grid products (e.g., D-VAR) are covered by patents and pending applications focusing on performance improvement and cost reduction[75] - HTS patents cover Amperium® wire production (using MIT's MOD process and Alcatel-Lucent's YBCO material licenses) and applications like fault current limiting technology, rotating machines, and ship protection systems[77][78][79] - Windtec™ Solutions' wind turbine designs are patented, including unique blade pitch control systems with a patented SafetyLOCK™ feature[80] - Trade secrets are protected through confidentiality agreements with employees and consultants, and by limiting access to confidential information[81] Human Capital As of March 31, 2022, AMSC employed 326 people, none represented by a labor union, prioritizing a safe, positive, diverse, and inclusive work environment, offering competitive compensation, benefits, and growth opportunities to attract and retain talent - As of March 31, 2022, AMSC employed 326 persons; none are represented by a labor union[82] - Focuses on providing a safe, positive, diverse, and inclusive work environment, competitive compensation (fixed and variable, including stock-based), and opportunities for growth to attract and retain talent[83][84] Available Information AMSC makes its annual, quarterly, and current reports available free of charge on its website (www.amsc.com) as soon as practicable after filing with the SEC, with the website also disclosing amendments or waivers to its Code of Business Conduct and Ethics[85] Information about Executive Officers Key executive officers include Daniel P. McGahn (President, CEO, and Chairman) and John W. Kosiba, Jr. (Senior Vice President, CFO, and Treasurer) Executive Officers (as of filing date) | Name | Age | Position | | :------------------ | :-- | :------------------------------------------- | | Daniel P. McGahn | 50 | President, Chief Executive Officer and Chairman | | John W. Kosiba, Jr. | 49 | Senior Vice President, Chief Financial Officer and Treasurer | Item 1A. Risk Factors AMSC faces various risks, including a history of operating losses and negative cash flows, dependence on additional financing, and potential impacts from performance bonds, alongside operational, market, technological, and stock-related risks - The company has a history of operating losses and negative operating cash flows, requiring potential future financing[90][92] - Significant contracts require performance bonds or letters of credit, restricting access to collateralized cash[94][95] - U.S. government contracts are subject to audit, modification, or termination, and continued funding depends on annual congressional appropriation[103][104][105] - The COVID-19 pandemic has caused inflationary pressure in the supply chain, material sourcing delays, and production disruptions, impacting profitability and financial condition[109][111] - Success depends on the commercial adoption of the REG system, which currently has limited widespread use, and a robust commercial market may not develop[141][142] - International operations (38% of FY2021 revenues) are subject to risks like longer payment cycles, collection difficulties, foreign laws, currency fluctuations, and geopolitical events (e.g., Russia-Ukraine war impact on raw materials)[152][153][154] - Technological challenges must be addressed for widespread commercial acceptance of superconductor products, including improving performance and reducing costs of Amperium wire[165][166] Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments applicable to the registrant[175] Item 2. Properties AMSC's primary facilities for corporate, Grid manufacturing, and R&D are located in Ayer and Westminster, Massachusetts, and Queensbury, New York, and New Milford, Connecticut, with the company also maintaining leased sales and/or field service offices globally Significant Properties (as of March 31, 2022) | Location | Supporting | Square footage | Owned/Leased | | :--------------------------- | :----------------------------- | :------------- | :----------- | | Ayer, Massachusetts | Corporate & Grid Segment | 88,000 | Leased | | Westminster, Massachusetts | Grid Segment | 77,500 | Leased | | Queensbury, New York | Grid Segment | 35,000 | Owned | | New Milford, Connecticut | Grid Segment | 85,000 | Owned | - Global footprint includes leased facilities in Australia, Austria, India, Wisconsin, Washington, and the United Kingdom, totaling approximately 72,000 square feet, primarily for R&D, sales, and field service[176] Item 3. Legal Proceedings AMSC is not currently a party to any material legal proceedings[179] Item 4. Mine Safety Disclosures This item is not applicable to AMSC[179] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AMSC's common stock is listed on the Nasdaq Global Select Market under 'AMSC', with 182 holders of record as of May 27, 2022, and the company has never paid cash dividends, intending to retain earnings for business development - Common stock listed on Nasdaq Global Select Market under symbol 'AMSC' since 1991[181] - As of May 27, 2022, there were 182 holders of record for common stock[181] - No cash dividends have been paid; earnings will be retained for business development[182] 5-Year Cumulative Total Return (March 31, 2017 = $100.00) | Company/Index | 2017 | 2018 | Fiscal year ended 2019 | March 31, 2020 | 2021 | 2022 | | :------------------------------------------- | :----- | :---- | :--------------------- | :------------- | :----- | :----- | | American Superconductor Corporation | 100.00 | 84.84 | 187.46 | 79.88 | 276.38 | 110.93 | | Nasdaq Composite Index | 100.00 | 120.76| 133.60 | 134.52 | 233.26 | 252.05 | | Nasdaq Electrical Components & Equipment Index | 100.00 | 111.71| 110.99 | 92.04 | 171.00 | 170.22 | Item 6. [Reserved] This item is reserved and contains no information[186] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an executive overview of AMSC's business, a detailed analysis of its financial performance for fiscal years 2021 and 2020, including revenues, costs, operating expenses, and net loss, also discussing non-GAAP measures, liquidity, capital resources, legal proceedings, recent accounting pronouncements, and critical accounting policies and estimates Executive Overview AMSC is a leading provider of megawatt-scale power resiliency solutions for the power grid and Navy, and wind power, leveraging PowerModule™ converters and Amperium® HTS wires, protected by extensive IP, with operations divided into Grid and Wind segments, and recent acquisitions (NEPSI in 2020, Neeltran in 2021) expanding the Grid segment, while the COVID-19 pandemic and the Russia-Ukraine war have led to supply chain inflation and disruptions - AMSC provides megawatt-scale power resiliency solutions for the power grid and Navy, and wind power, utilizing PowerModule™ programmable power electronic converters and Amperium® high temperature superconductor (HTS) wires[188][190] - Business operates under two market-facing units: Grid (Gridtec™ Solutions) and Wind (Windtec™ Solutions)[190][191][192] - Successfully integrated the Resilient Electric Grid (REG) system on ComEd's electric power grid, becoming fully operational in August 2021[194] - Acquired NEPSI on October 1, 2020, and Neeltran on May 6, 2021, expanding the Grid business segment[195][196] - Experiencing substantial inflationary pressure in the supply chain, material sourcing delays, and production disruptions due to COVID-19 and the Russia-Ukraine war, increasing cost of revenues and decreasing gross margin[197] Results of Operations (Fiscal Years Ended March 31, 2022 and 2021) Total revenues increased by 24% in fiscal 2021 to $108.4 million, driven by a 40% increase in Grid revenues due to acquisitions and product line growth, while Wind revenues decreased by 42%, with gross margin declining to 12% due to unfavorable product mix, inflation, and acquisition-related adjustments, and a net loss of $19.2 million in fiscal 2021 Total Revenues (in thousands) | Revenues | 2022 | 2021 | | :--------- | :---------- | :--------- | | Grid | $98,876 | $70,528 | | Wind | $9,559 | $16,597 | | Total | $108,435 | $87,125 | - Total revenues increased by 24% to $108.4 million in fiscal 2021 from $87.1 million in fiscal 2020[200] - Grid revenues increased 40% to $98.9 million in fiscal 2021, driven by NEPSI and Neeltran acquisitions, and growth in D-VAR, VVO, and SPS product lines[201] - Wind revenues decreased 42% to $9.6 million in fiscal 2021, primarily due to no similar ECS shipments to Doosan as in fiscal 2020[202] - Gross margin decreased to 12% in fiscal 2021 from 20% in fiscal 2020, due to unfavorable product mix, inflation, material sourcing delays, and purchase accounting adjustments from the Neeltran Acquisition[203] Operating Loss by Segment (in thousands) | Operating income (loss) | 2022 | 2021 | | :---------------------- | :---------- | :---------- | | Grid | $(20,725) | $(13,318) | | Wind | $(1,554) | $(3,302) | | Unallocated corporate expenses | $1,190 | $(6,545) | | Total | $(21,089) | $(23,165) | - Net loss was $19.2 million in fiscal 2021, compared to $22.7 million in fiscal 2020, primarily due to a $5.9 million gain on contingent consideration in fiscal 2021 (vs. $3.0 million loss in fiscal 2020)[206][209][214] Non-GAAP Measures AMSC uses non-GAAP net loss to evaluate performance by excluding stock-based compensation, amortization of acquisition-related intangibles, acquisition costs, changes in fair value of contingent consideration, and other non-cash or unusual charges, with non-GAAP net loss increasing to $17.1 million ($0.63 per share) in fiscal 2021 from $14.1 million ($0.59 per share) in fiscal 2020 - Non-GAAP net loss is defined as net loss before stock-based compensation, amortization of acquisition-related intangibles, acquisition costs, changes in fair value of contingent consideration, and other non-cash or unusual charges[216] Non-GAAP Net Loss (in thousands, except per share data) | Metric | 2022 | 2021 | | :------------------------------------ | :---------- | :---------- | | Net loss | $(19,193) | $(22,678) | | Stock-based compensation | $4,661 | $3,485 | | Amortization of acquisition-related intangibles | $2,623 | $1,697 | | Acquisition costs | $681 | $313 | | Change in fair value of contingent consideration | $(5,850) | $3,060 | | Non-GAAP net loss | $(17,078) | $(14,123) | | Non-GAAP net loss per share | $(0.63) | $(0.59) | | Weighted average shares outstanding | 27,203 | 23,879 | - The increase in non-GAAP net loss in fiscal 2021 compared to fiscal 2020 was due to a higher operating loss driven by lower gross margin and higher operating expenses[217] Liquidity and Capital Resources AMSC has an accumulated deficit of $1,020.5 million and recurring operating losses, with cash, cash equivalents, marketable securities, and restricted cash totaling $49.5 million as of March 31, 2022, a decrease of $31.2 million from 2021, and while the company believes it has sufficient liquidity for the next twelve months, global market instability could impact fundraising - Accumulated deficit of $1,020.5 million as of March 31, 2022, with recurring operating losses and negative operating cash flows[219][282] Cash, Cash Equivalents, Marketable Securities and Restricted Cash (in thousands) | Metric | March 31, 2022 | March 31, 2021 | | :---------------------------------------------------------------------- | :------------- | :------------- | | Cash and cash equivalents | $40,584 | $67,814 | | Marketable securities | — | $5,140 | | Restricted cash | $8,902 | $7,725 | | Total cash, cash equivalents, marketable securities and restricted cash | $49,486 | $80,679 | - Net cash used in operating activities increased to $19.0 million in fiscal 2021 from $8.7 million in fiscal 2020, due to decreased collections and higher inventory balances[221] - Filed a shelf registration statement (Form S-3) in February 2021 to offer and sell up to $250 million of securities to fund future capital needs[219][283] - Believes it has sufficient liquidity for the next twelve months but may seek additional capital; global market instability (COVID-19, Russia-Ukraine war) could impact ability to raise capital[225][226][288] Legal Proceedings AMSC records liabilities for legal matters when a loss is probable and estimable, reviewing estimates periodically, and if a loss is not probable or estimable, no liability is recorded, but disclosure is made if necessary, with legal costs expensed as incurred[227] Recent Accounting Pronouncements AMSC adopted ASU 2019-12 (Income Taxes) on April 1, 2021, with no material impact, and is evaluating the impact of ASU 2016-13 (Credit Losses) and ASU 2021-08 (Business Combinations) for effective dates after December 15, 2022, while ASU 2021-10 (Government Assistance) is not expected to have a material impact - Adopted ASU 2019-12 (Income Taxes) on April 1, 2021, with no material impact[231][468] - Evaluating ASU 2016-13 (Credit Losses) and ASU 2021-08 (Business Combinations) for effective dates after December 15, 2022[230][231][467][468] - ASU 2021-10 (Government Assistance) is not expected to have a material impact[232][469] Critical Accounting Policies and Estimates The preparation of financial statements involves significant estimates and judgments, particularly in revenue recognition (over-time method for R&D and customized products), business acquisitions (fair value allocation, contingent consideration), valuation of long-lived assets (impairment indicators), goodwill impairment testing (annual assessment, discounted cash flow), and income taxes (deferred tax assets, valuation allowances, uncertain tax positions) - Revenue recognition for certain arrangements (R&D, prototype development, customized products) uses the over-time method, measured by costs incurred relative to total estimated contract costs, requiring significant judgment for total expected costs and variable consideration[235][236][237] - Business acquisitions are accounted for using the purchase method, allocating purchase price to acquired assets and liabilities at fair value, with significant judgment in determining fair value of intangibles and contingent consideration[238][239][240][241] - Long-lived assets are periodically evaluated for impairment based on events or circumstances suggesting carrying amount may not be recoverable from undiscounted future cash flows[243][244] - Goodwill is assessed annually for impairment (February 28th) using a qualitative assessment first, followed by a quantitative test (discounted cash flow and market approach) if impairment is more likely than not[246][247] - Income tax provision includes current and deferred portions; deferred tax assets are assessed for realizability, with valuation allowances recorded based on future taxable income uncertainty. Uncertain tax positions are evaluated using a two-step approach[248][249][250] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not required for smaller reporting companies, and therefore no disclosures are provided[251] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements of American Superconductor Corporation for the fiscal years ended March 31, 2022, and 2021, including the balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes to the financial statements Report of Independent Registered Public Accounting Firm RSM US LLP audited AMSC's consolidated financial statements for fiscal years ended March 31, 2022 and 2021, providing an unqualified opinion, with critical audit matters including revenue recognition due to significant management judgments in contract analysis and estimates, and goodwill impairment assessment due to significant estimates in fair value determination - RSM US LLP issued an unqualified opinion on the consolidated financial statements for fiscal years ended March 31, 2022 and 2021[253] - Critical audit matters identified: Revenue Recognition (due to significant management judgment in contract terms, estimates of total costs, and gross margin) and Goodwill Impairment (due to significant estimates in fair value of reporting units, including revenue/expense growth rates and discount rates)[257][258][259][261][262] Consolidated Balance Sheets The consolidated balance sheets show total assets increased to $173.9 million in fiscal 2022 from $168.9 million in fiscal 2021, with current assets decreasing primarily due to a reduction in cash and marketable securities, while inventory and accounts receivable increased, and total liabilities increased to $64.5 million from $52.3 million, mainly driven by accounts payable and deferred revenue, and stockholders' equity decreased to $109.4 million from $116.6 million Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2022 | March 31, 2021 | | :------------------------------------ | :------------- | :------------- | | ASSETS | | | | Cash and cash equivalents | $40,584 | $67,814 | | Marketable securities | — | $5,140 | | Accounts receivable | $20,280 | $13,267 | | Inventory | $23,666 | $13,306 | | Total current assets | $94,336 | $105,230 | | Property, plant and equipment, net | $13,656 | $8,997 | | Intangibles, net | $11,311 | $9,153 | | Goodwill | $43,471 | $34,634 | | Total assets | $173,887 | $168,866 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable and accrued expenses | $29,140 | $19,810 | | Contingent consideration | $1,200 | $7,050 | | Deferred revenue, current portion | $22,812 | $13,266 | | Total current liabilities | $53,964 | $40,738 | | Total liabilities | $64,498 | $52,274 | | Total stockholders' equity | $109,389 | $116,592 | Consolidated Statements of Operations For fiscal year 2022, total revenues were $108.4 million, up from $87.1 million in 2021, with gross profit decreasing to $13.5 million (12% margin) from $17.5 million (20% margin), operating expenses decreasing due to a gain on contingent consideration, and a net loss of $19.2 million compared to $22.7 million in 2021 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 2022 | 2021 | | :------------------------------------ | :---------- | :---------- | | Revenues | $108,435 | $87,125 | | Cost of revenues | $94,943 | $69,671 | | Gross profit | $13,492 | $17,454 | | Operating expenses | $34,581 | $40,619 | | Operating loss | $(21,089) | $(23,165) | | Loss before income tax expense | $(21,042) | $(23,510) | | Income tax benefit | $(1,849) | $(832) | | Net loss | $(19,193) | $(22,678) | | Net loss per common share - Basic | $(0.71) | $(0.95) | | Weighted average common shares outstanding - Basic | 27,203 | 23,879 | Consolidated Statements of Comprehensive Income (Loss) The consolidated statements of comprehensive income (loss) show a net loss of $19.2 million for fiscal year 2022 and $22.7 million for fiscal year 2021, with other comprehensive loss, net of tax, primarily from foreign currency translation losses, being minimal, resulting in a total comprehensive loss of $19.2 million in 2022 and $22.7 million in 2021 Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Fiscal Year 2022 | Fiscal Year 2021 | | :------------------------------------ | :--------------- | :--------------- | | Net loss | $(19,193) | $(22,678) | | Other comprehensive loss, net of tax: | | | | Foreign currency translation losses | $(14) | $(61) | | Total other comprehensive loss, net of tax | $(14) | $(61) | | Comprehensive loss | $(19,207) | $(22,739) | Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $116.6 million at March 31, 2021, to $109.4 million at March 31, 2022, primarily due to the net loss of $19.2 million, partially offset by increases in additional paid-in capital from stock-based compensation and stock issuances related to bonus payments and the Neeltran acquisition Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | March 31, 2022 | March 31, 2021 | | :------------------------------------ | :------------- | :------------- | | Common Stock, Par Value | $289 | $280 | | Additional Paid-in Capital | $1,133,536 | $1,121,495 | | Treasury Stock | $(3,639) | $(3,593) | | Accumulated Other Comprehensive Loss | $(291) | $(277) | | Accumulated Deficit | $(1,020,506) | $(1,001,313) | | Total Stockholders' Equity | $109,389 | $116,592 | - Key changes in fiscal 2022 include a net loss of $19.2 million, stock-based compensation expense of $4.7 million, and issuance of common stock for bonus payments ($2.3 million) and the Neeltran acquisition ($4.4 million)[276] Consolidated Statements of Cash Flows Net cash used in operating activities increased to $19.0 million in fiscal 2022 from $8.7 million in fiscal 2021, primarily due to decreased collections and higher inventory, while net cash used in investing activities was $7.2 million in 2022, mainly due to cash paid for acquisitions, and net cash provided by financing activities significantly decreased to $0.1 million in 2022 from $50.8 million in 2021 due to the absence of a public equity offering Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 2022 | 2021 | | :------------------------------------------------------------------ | :---------- | :---------- | | Net cash used in operating activities | $(18,977) | $(8,681) | | Net cash provided by (used in) investing activities | $(7,163) | $2,469 | | Net cash provided by financing activities | $142 | $50,828 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(26,053) | $44,675 | | Cash, cash equivalents and restricted cash at end of year | $49,486 | $75,539 | - Net cash used in operating activities increased in fiscal 2022 primarily due to decreased collections and higher inventory balances[221][279] - Net cash used in investing activities in fiscal 2022 was primarily due to cash paid for the Neeltran acquisition ($11.5 million), partially offset by proceeds from marketable securities maturities[279] - Net cash provided by financing activities decreased significantly in fiscal 2022 due to the absence of a public equity offering, which provided $51.5 million in fiscal 2021[222][279] Notes to the Consolidated Financial Statements These notes provide detailed information supporting the consolidated financial statements, covering the nature of business, significant accounting policies, acquisitions (Neeltran and NEPSI), revenue recognition, goodwill, fair value measurements, accounts receivable, inventory, property/plant/equipment, intangible assets, accounts payable/accrued expenses, contingent consideration, income taxes, debt, leases, stockholders' equity, commitments/contingencies, employee benefit plans, business segments, and recent accounting pronouncements 1. Nature of the Business and Operations and Liquidity AMSC, founded in 1987, provides megawatt-scale power resiliency solutions for the grid and Navy, leveraging smart materials and software, with financial statements prepared on a going concern basis despite recurring operating losses and an accumulated deficit of $1,020.5 million as of March 31, 2022, and recent acquisitions and global events impacting liquidity - AMSC was founded on April 9, 1987, providing megawatt-scale power resiliency solutions for the grid and Navy[280] - As of March 31, 2022, the company had an accumulated deficit of $1,020.5 million and recurring negative operating cash flows ($19.0 million used in operations for FY2022)[282] - A shelf registration statement (Form S-3) filed in February 2021 allows for offering up to $250 million in securities to fund future capital needs[283] - The Neeltran acquisition on May 6, 2021, involved $1.0 million cash, 301,556 shares of common stock, and $7.6 million debt payoff, totaling $16.4 million[284] - COVID-19 and the Russia-Ukraine war have caused inflationary pressure, material sourcing delays, and production disruptions, impacting cost of revenues and gross margin[286] - Management believes it has sufficient liquidity for the next twelve months, but this is highly dependent on increasing revenues, controlling costs, and potentially raising additional capital[288] 2. Summary of Significant Accounting Policies This note details AMSC's accounting policies, including consolidation, use of estimates, classification and valuation of cash equivalents and marketable securities, accounts receivable allowances, inventory valuation, lease accounting (ASC 842), property/plant/equipment depreciation, long-lived asset impairment, goodwill impairment testing, revenue recognition (ASC 606), business acquisitions, product warranty accruals, R&D expensing, income tax provisions, stock-based compensation, EPS computation, foreign currency translation, and risk disclosures - Consolidated financial statements include wholly-owned subsidiaries, eliminating intercompany balances and transactions[289] - Key estimates include revenue recognition, collectability of receivables, inventory realizability, goodwill and intangible assets, contingent consideration, warranty provisions, stock-based compensation, and tax reserves[290] - Inventory is stated at the lower of cost (FIFO) or net realizable value; reserves are recorded for excess or obsolete quantities[295][297] - Leases are recognized on the balance sheet as right-of-use assets and lease liabilities, discounted by the incremental borrowing rate, with most classified as operating leases[298][299] - Goodwill is reviewed annually on February 28th for impairment, using a qualitative assessment first, then a quantitative test (discounted cash flow) if necessary[304][305][306] - Revenue recognition follows a five-step model (ASC 606), with 76% of revenue recognized at a point in time in fiscal 2022 and the remainder over time[308][310][360] - Stock-based compensation is expensed based on fair value at grant date over the service period, using Black-Scholes for options and fair market value for restricted stock[327][328][329] 3. Acquisitions This note details the acquisitions of Neeltran in May 2021 and NEPSI in October 2020, with the Neeltran acquisition involving $16.4 million in total consideration and $8.8 million in goodwill, and the NEPSI acquisition totaling $42.4 million and $32.9 million in goodwill, both accounted for using the purchase method, with unaudited pro forma operating results provided - Neeltran Acquisition (May 6, 2021): Total consideration of $16.4 million, including $4.4 million cash, 301,556 shares of common stock ($4.4 million fair value), and $7.6 million in debt payments on behalf of sellers[341][342][343] Neeltran Acquisition Purchase Price Allocation (in millions) | Asset/Liability | Amount | | :--------------------------------------------- | :----- | | Cash and short-term investments | $0.5 | | Net working capital (excluding inventory and deferred revenue) | $(0.9) | | Inventory | $9.0 | | Property, plant and equipment | $6.5 | | Deferred revenue | $(10.0)| | Deferred tax liability | $(2.3) | | Net tangible assets/(liabilities) | $2.8 | | Backlog | $0.1 | | Trade names and trademarks | $1.2 | | Customer relationships | $3.5 | | Net identifiable intangible assets/(liabilities) | $4.8 | | Goodwill | $8.8 | | Total purchase consideration | $16.4| - Neeltran contributed $21.4 million in revenue and $3.4 million in net loss to consolidated results for the twelve months ended March 31, 2022[348] - NEPSI Acquisition (October 1, 2020): Total consideration of $42.4 million, including $26.0 million cash, 873,657 shares of common stock ($12.4 million fair value), and $4.0 million contingent consideration[349][351][353] NEPSI Acquisition Purchase Price Allocation (in millions) | Asset/Liability | Amount | | :--------------------------------------------- | :----- | | Net working capital (excluding inventory and deferred revenue) | $0.1 | | Inventory | $4.2 | | Property, plant and equipment | $2.3 | | Deferred revenue | $(2.7) | | Deferred tax liability | $(1.7) | | Net tangible assets/(liabilities) | $2.2 | | Backlog | $0.6 | | Trade names and trademarks | $0.6 | | Customer relationships | $6.1 | | Net identifiable intangible assets/(liabilities) | $7.3 | | Goodwill | $32.9 | | Total purchase consideration | $42.4| Unaudited Pro Forma Operating Results (in thousands, except per share data) | Metric | Twelve Months 2022 | March 31, 2021 | | :------------------------------------ | :----------------- | :------------- | | Revenues | $111,265 | $113,778 | | Operating loss | $(20,475) | $(31,115) | | Net loss | $(21,218) | $(27,118) | | Net loss per common share - Basic | $(0.78) | $(1.10) | | Shares - basic | 27,234 | 24,621 | 4. Revenue Recognition AMSC recognizes revenue using a five-step model (ASC 606), with 76% of fiscal 2022 revenue recognized at a point in time and the remainder over time, disaggregated by product line and region, and grant revenue recognized over time by analogy to ASC 606, with contract assets and liabilities primarily relating to timing differences between invoicing and revenue recognition - Revenue recognition follows a five-step model (ASC 606); 76% of fiscal 2022 revenue recognized at a point in time, 24% over time (vs. 78% point-in-time in fiscal 2021)[360] - Grant revenue (non-exchange transactions) is recognized over time by analogy to ASC 606; $1.1 million in fiscal 2022 (vs. $3.9 million in fiscal 2021)[362] Revenue by Product Line (in thousands) | Product Line | Year Ended March 31, 2022 (Grid) | Year Ended March 31, 2022 (Wind) | | :---------------------------- | :------------------------------- | :------------------------------- | | Equipment and systems | $91,704 | $6,169 | | Services and technology development | $7,172 | $3,390 | | Total | $98,876 | $9,559 | | Product Line | Year Ended March 31, 2021 (Grid) | Year Ended March 31, 2021 (Wind) | | :---------------------------- | :------------------------------- | :------------------------------- | | Equipment and systems | $65,930 | $14,362 | | Services and technology development | $4,598 | $2,235 | | Total | $70,528 | $16,597 | Revenue by Region (in thousands) | Region | Year Ended March 31, 2022 (Grid) | Year Ended March 31, 2022 (Wind) | | :----------- | :------------------------------- | :------------------------------- | | Americas | $73,955 | $145 | | Asia Pacific | $19,397 | $9,346 | | EMEA | $5,524 | $68 | | Total | $98,876 | $9,559 | | Region | Year Ended March 31, 2021 (Grid) | Year Ended March 31, 2021 (Wind) | | :----------- | :------------------------------- | :------------------------------- | | Americas | $54,168 | $87 | | Asia Pacific | $11,326 | $16,207 | | EMEA | $5,034 | $303 | | Total | $70,528 | $16,597 | - 38% of fiscal 2022 revenues (41% in fiscal 2021) were from sales outside the United States[369] - Remaining performance obligations as of March 31, 2022: approximately $78.4 million to be recognized in the next twelve months, and $6.6 million over thirteen to sixty months[371] 5. Goodwill Goodwill represents the excess of cost over net assets of acquired businesses and is not amortized but reviewed annually for impairment, with the balance at $43.5 million as of March 31, 2022, primarily from the Neeltran and NEPSI acquisitions, reported in the Grid business segment, and no impairment identified in the annual assessment - Goodwill relates to the Neeltran Acquisition (fiscal 2021), NEPSI Acquisition (fiscal 2020), and Infinia Technology Corporation (fiscal 2017), all reported in the Grid business segment[375] Goodwill Balance Roll Forward (in thousands) | Date | Goodwill | | :----------------- | :----------- | | March 31, 2020 | $1,719 | | NEPSI Acquisition | $32,915 | | March 31, 2021 | $34,634 | | Neeltran Acquisition | $8,837 | | March 31, 2022 | $43,471 | - Annual assessment performed on February 28, 2022, found no triggering events or impairment to goodwill[376] 6. Fair Value Measurements AMSC uses a three-level valuation hierarchy for fair value measurements: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs), with cash equivalents and marketable securities classified as Level 1, and contingent consideration related to the NEPSI acquisition earnout classified as a Level 3 derivative liability and revalued using a Monte Carlo simulation - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs)[378][379] - Cash equivalents and marketable securities are classified as Level 1[381][382] - Contingent consideration for the NEPSI Acquisition earnout is classified as a Level 3 derivative liability, revalued using a Monte Carlo simulation[384] Assets and Liabilities Carried at Fair Value (in thousands) | Metric | Total Carrying Value (2022) | Level 1 (2022) | Level 3 (2022) | | :------------------------- | :-------------------------- | :------------- | :------------- | | Cash equivalents | $17,641 | $17,641 | — | | Marketable securities | — | — | — | | Contingent Consideration | $1,200 | — | $1,200 | | Metric | Total Carrying Value (2021) | Level 1 (2021) | Level 3 (2021) | | :------------------------- | :-------------------------- | :------------- | :------------- | | Cash equivalents | $54,104 | $54,104 | — | | Marketable securities | $5,140 | $5,140 | — | | Contingent Consideration | $7,050 | — | $7,050 | - A net gain of $5.9 million was recorded in fiscal 2022 from the decrease in fair value of contingent consideration (vs. $3.1 million loss in fiscal 2021)[388][407] 7. Accounts Receivable Accounts receivable increased to $20.3 million at March 31, 2022, from $13.3 million at March 31, 2021, including both billed and unbilled amounts, with Fuji Bridex PTE Ltd accounting for approximately 31% of the accounts receivable balance as of March 31, 2022 Accounts Receivable (in thousands) | Type | March 31, 2022 | March 31, 2021 | | :------------------------- | :------------- | :------------- | | Accounts receivable (billed) | $13,788 | $7,502 | | Accounts receivable (unbilled) | $6,492 | $5,765 | | Accounts receivable | $20,280 | $13,267 | - Fuji Bridex PTE Ltd accounted for approximately 31% of the accounts receivable balance as of March 31, 2022[293] 8. Inventory Inventory, net of reserves, increased to $23.7 million at March 31, 2022, from $13.3 million at March 31, 2021, primarily in raw materials and work-in-process, with the company recording inventory reserves of $1.9 million in fiscal 2022 and $1.8 million in fiscal 2021 for excess and obsolescence Inventory, Net of Reserves (in thousands) | Category | March 31, 2022 | March 31, 2021 | | :----------------------- | :------------- | :------------- | | Raw materials | $11,020 | $8,255 | | Work-in-process | $10,462 | $3,297 | | Finished goods | $1,326 | $777 | | Deferred program costs | $858 | $977 | | Inventory | $23,666 | $13,306 | - Inventory reserves of $1.9 million were recorded in fiscal 2022 (vs. $1.8 million in fiscal 2021) for excess and obsolescence[392] 9. Property, Plant and Equipment Net property, plant and equipment increased to $13.7 million at March 31, 2022, from $9.0 million at March 31, 2021, mainly due to land and buildings added as part of the Neeltran Acquisition, while depreciation expense decreased to $2.7 million in fiscal 2022 from $3.7 million in fiscal 2021 Property, Plant and Equipment, Net (in thousands) | Category | March 31, 2022 | March 31, 2021 | | :------------------------------------- | :------------- | :------------- | | Land | $980 | $270 | | Construction in progress - equipment | $573 | $220 | | Buildings | $5,270 | $1,630 | | Equipment and software | $43,668 | $41,652 | | Finance lease - right of use asset | $8 | — | | Furniture and fixtures | $1,379 | $1,333 | | Leasehold improvements | $6,634 | $6,308 | | Property, plant and equipment, gross | $58,512 | $51,413 | | Less accumulated depreciation | $(44,856) | $(42,416) | | Property, plant and equipment, net | $13,656 | $8,997 | - The increase in land and buildings relates to property added as part of the Neeltran Acquisition[396] - Depreciation expense was $2.7 million in fiscal 2022, down from $3.7 million in fiscal 2021[396] [10. Intangible Assets](index=84&type=section&id=10.%20Intan