American Superconductor Management Discusses F1Q 2013 Results - Earnings Call Transcript

| About: American Superconductor (AMSC)

American Superconductor (NASDAQ:AMSC)

Q1 2014 Earnings Call

August 07, 2013 10:00 am ET


Kerry Farrell

Daniel Patrick McGahn - Chief Executive Officer, President and Director

David A. Henry - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer


Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

JinMing Liu - Ardour Capital Investments, LLC, Research Division


Good day, everyone, and welcome to the AMSC Conference Call. This call is being recorded. [Operator Instructions] With us on the call this morning are AMSC President and CEO, Daniel McGahn; Senior Vice President and CFO, David Henry; Senior Manager of Corporate Communications, Kerry Farrell. For opening remarks, I would like to turn the call over to Kerry Farrell. Please go ahead.

Kerry Farrell

Thank you, Tasha, and welcome to our call to discuss our first quarter fiscal 2013 results.

Before we begin, I'd like to note that various remarks management may make on this conference call about AMSC's future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in the Risks section of our annual report on Form 10-K for the year ended March 31, 2013, which was filed with the SEC on June 14 and subsequent reports that we have filed with the SEC.

These forward-looking statements represent our expectations only as of today and should not be relied upon as representing our views as of any date subsequent to today. While AMSC anticipates that subsequent events and developments may cause the company's views to change, we specifically disclaim any obligation to update these forward-looking statements.

I also would like to note that we will be referring on today's call to non-GAAP net loss or net loss before adverse purchase commitments, recoveries, losses, net stock-based compensation, amortization of acquisition-related intangibles, restructuring and impairment charges, Sinovel litigation costs, consumption on zero cost-basis inventory, noncash interest expense, change in fair value of derivatives and warrants and other unusual charges, net of any tax effects related to these items.

Non-GAAP net loss is a non-GAAP financial metric. A reconciliation of our non-GAAP to GAAP net loss can be found in the press release we issued and filed with the SEC this morning on Form 8-K. All of our press releases and SEC filings can be accessed from the Investors page of our website at

And now, I will turn the call over to CEO, Dan McGahn. Dan?

Daniel Patrick McGahn

Thanks, Kerry. I'll begin today by providing an overview of our financial results for the first quarter of fiscal 2013. Dave will then review our financial results in detail and provide guidance for our second fiscal quarter. Since we had an extensive call in June, during which we told you about the milestones that we need to reach to get to cash flow breakeven, after Dave's comments, I'll focus on how we expect to reach our objective of 25% annual revenue growth this year in year 2013. After that, we'll open up the line to your questions.

We grew revenues by 13% sequentially in the first quarter of fiscal 2013, driven by higher revenue in our Wind segment, going from $8.9 million to $14.7 million. This came on the heels of 35% growth in our Grid segment during fiscal 2012.

We reduced our non-GAAP net loss by 31% from the fourth quarter of 2012 and nearly doubled our gross margin quarter-over-quarter. In July, we undertook additional cost-cutting measures, including a workforce reduction that we expect will further reduce our annualized operating expenses by approximately $3 million.

Dave will give you details on that later. Let me update you on our ongoing litigation with Sinovel. In June, Sinovel, 2 of its employees and a former AMSC employee were indicted by the Department of Justice in the United States for stealing AMSC's trade secrets. Following an investigation, the FBI discovered the unauthorized use of our intellectual property in Sinovel wind turbines that have been installed in Massachusetts.

The Department of Justice believes that the damages to AMSC are more than $800 million. This is, we believe, in addition to the $1.2 billion that AMSC is seeking in the Chinese court system. If convicted of the trade secret charges in the United States and if damages are proven, Sinovel faces a maximum penalty of 5 years of probation and a fine of up to $1.6 billion for each of the 3 counts charged.

Our case has received attention at the highest levels of the American, European and Chinese governments. In fact, it was on the agenda at the U.S. Strategic and Economic Dialogue, during which the State Department and Department of Treasury met with their Chinese counterparts. As for our cases in China, we continue to await what we hope will be a final hearing on our commercial arbitration claim. We are also awaiting our first substantive hearing in our trade secrets case. For both of our software copyright infringement cases, China Supreme People's Court heard arguments from both sides in May, and we continue to wait for the court to determine the appropriate jurisdiction. We continue to be hopeful that a decision on the jurisdictional issues will be rendered in the coming months.

As we said before, we believe that our case against Sinovel is clear-cut. In the meantime, we're moving forward with our strategy focused on driving top line growth and conserving cash.

I will discuss the details of our strategy and outlook for the next quarter and the full year following Dave's review of our financial results. Dave?

David A. Henry

Thanks, Dan, and good morning, everyone. AMSC generated $23.1 million in revenues for the first quarter of fiscal 2013. While this is down from $28.7 million in the year ago quarter, it is up from $20.4 million in the fourth quarter of fiscal 2012.

The quarter-over-quarter growth was driven primarily by strength in our Wind business. Wind revenue of $14.7 million in the first quarter increased by $5.8 million sequentially, due primarily to resumed volume shipments to JCNE.

Our growth was offset by our Grid business; our revenues of $8.4 million in the first quarter declined by $3.1 million sequentially, due primarily to lower D-VAR revenue from the U.K.

12-month backlog as of June 30, 2013, was $75.4 million compared to $84.7 million as of March 31, 2013. Gross margin in the first quarter was 22.1% compared with 11.4% in the prior quarter. Gross margin in the first quarter of fiscal 2012 was 41.1%. However, in that quarter, gross margin was positively impacted by adverse purchase commitment recoveries.

Normalized gross margin for the year ago quarter was 15.6%. In both fiscal years, first quarter gross margin was positively impacted by approximately $3 million in revenue at 100% margin, due in part to collections on past due receivables from certain customers in China. Revenue is recognized from those customers upon cash collection.

Additionally, in the first quarter of fiscal 2013, previously deferred revenue was recognized from the completion of the ACCIONA project. R&D and SG&A expenses for the first quarter were $13.9 million. This is down from $17.7 million in the year ago quarter.

The decrease in the first quarter compared to the year ago quarter was due primarily to effective cost controls and the benefit of the restructuring actions taken in the third quarter of fiscal 2012.

A few weeks ago, we implemented a cost-cutting action, which resulted in the reduction of headcount in certain engineering, selling and general and administrative functions in order to reduce operating expenses and further slow the cash burn. We've reduced our overall headcount and as a result, we expect to record a restructuring charge for severance and other costs of approximately $1 million in the second quarter of fiscal 2013.

As a result of this action, we now expect R&D and SG&A expenses to be reduced by $3 million to less than $55 million on an annualized basis, starting in the third quarter of fiscal 2013 when the benefits of this action are expected to be fully realized, with more than 20% of the spending being noncash.

And interest expense was $2.1 million in the first fiscal quarter, of which $1.7 million was noncash interest expense. This compares with $4.8 million of interest expense in the prior quarter, of which $4 million was noncash, and $2.7 million in the year ago quarter, of which $2.3 million was noncash.

The decrease in interest expense compared with the prior quarter was due primarily to the acceleration of principal paid to the holder of the convertible note in shares of stock in the prior quarter at a 15% discount to market. This discount is recorded as noncash interest expense.

We also recorded a noncash benefit of approximately $470,000 in the first fiscal quarter for a change in the fair value of our derivative liability and warrants, which we are required to mark to market each quarter.

Our net loss in the first quarter of fiscal 2013 was $10.5 million or $0.18 per share, roughly on par with the net loss of $10.3 million or $0.20 per share in the same quarter of fiscal 2012, and an improvement from $19.8 million or $0.35 per share in the prior quarter.

The sequential decrease was driven primarily by lower operating expenses, which includes the impact of a loss contingency for the shareholder lawsuit recorded within the prior quarter and higher revenues, particularly the 100% -- the revenues discussed earlier at 100% margin.

On a non-GAAP basis, our net loss was $8.1 million or $0.14 per share for the first quarter of fiscal 2013. This is an improvement from a non-GAAP net loss of $11.8 million or $0.21 per share for the prior quarter, and $11 million or $0.21 per share in the year ago quarter.

Please see our press release issued this morning for a reconciliation of GAAP to non-GAAP results.

We ended the first quarter with $39.5 million in cash, cash equivalents and restricted cash. This compares with $50.2 million as of March 31, 2013.

As expected, cash burn was higher in the first quarter due in part to employee incentive payments, which are typically paid in the first quarter of each year. Also, some collections that were anticipated in the first quarter were not received, which caused our cash balance to come in below our guidance for the first quarter of at least $42 million.

If we successfully execute to our forecast, which I will discuss momentarily, then we believe there is sufficient liquidity to fund our operations, as well as our financing and investing requirements, through June 30, 2014. As of June 30, 2013, the principal balance of our debt arrangements, excluding the debt discount, was $21.3 million compared with $23.5 million as of March 31, 2013.

Of the $2.2 million reduction in our debt during the quarter, approximately $1 million was paid in stock. In July, the holder of our convertible note accelerated approximately $4 million in principal and accrued interest and converted it into shares of common stock in accordance with the term of the note agreement, further reducing our outstanding principal balance.

Turning to our financial guidance. For the second fiscal quarter of 2013, we expect that our revenues will be greater than $23 million. We expect that net loss for the second fiscal quarter will be less than $17 million or $0.28 per share. This does not factor in any mark-to-market adjustments associated with our convertible note and warrants.

Our non-GAAP net loss for the second fiscal quarter, which excludes mark-to-market adjustments, noncash interest associated with our debt arrangements and other noncash items, is expected to be less than $12 million or $0.20 per share.

Both the forecasted net loss and non-GAAP net loss in the second quarter are being impacted by a lower-than-expected gross margin in the second quarter as the 100% margin revenue we benefited from in the first quarter is not expected to recur.

Our net loss forecast for the second quarter also includes the restructuring charge I mentioned earlier, as well as higher expected noncash interest expense as a result of the accelerated principal payment on the convertible note. The all-stock payment was made in July at a discount to the market price, as called for under the terms of the note.

In terms of the balance sheet, we expect to end the September quarter with more than $30 million in cash, cash equivalents and restricted cash. In the second quarter, part of the cash burn will be to purchase inventory in anticipation of stronger second half revenues.

We are reiterating our guidance that we expect 25% annual revenue growth in fiscal 2013, as we expect higher revenues in the second half of the year in both business units. We continue to expect our cash burn will be reduced in fiscal 2013 compared with fiscal 2012, with a slower cash burn in the second half of the year compared with the first half.

We continue to be focused on positive net cash flow on a quarterly basis by the end of fiscal 2014. With that, I'll turn the call back over to Dan.

Daniel Patrick McGahn

Thanks, Dave. To achieve our objective of growing revenues by 25% in fiscal 2013, we will need strong contributions from both our Wind and Grid businesses.

Let me focus first on how we believe we will reach that objective in our Wind business. For those new to AMSC, we provide a unique set of solutions for wind turbine manufacturers, including both products and services. The products are a set of power electronics and controls called electrical control systems, or ECS, that work cohesively and serve as the brain of the wind turbine.

Our services include proprietary wind turbine designs and various offerings aimed at enabling wind turbine manufacturers to quickly increase their production and market share, while driving down the cost of wind energy. It is primarily through the sales of the electrical control systems to our partners in India and China that will enable us to reach our 25% annual revenue growth objective.

Let's start with India. The country's Wind business is expected to continue to grow steadily. The Government of India has set a target of producing an additional 15 gigawatts of wind energy between 2012 and 2017. To put this into perspective, the country's cumulative installed base at the end of 2011 was 16 gigawatts, so this target will nearly double India's installed base.

Similar to the Indian wind market, our partner, Inox Wind, is on an upward trajectory. Inox experienced a five-fold increase by installing over 250 megawatts in 2012, up from over 50 megawatts in 2011. As a result, Inox is ranked among the top 5 in installations in India.

In July, Inox Wind announced that they will pursue an initial public offering. It expects to raise over $100 million. Inox plans to use the capital to expand and upgrade its operations to help meet its stated objective of being among the leading renewable energy companies globally.

Inox positions itself as a turnkey supplier, starting with the concept in commissioning to the supply of wind turbines through comprehensive operation and maintenance for the life of the wind farm. This business strategy has created a healthy pipeline to sell its 2-megawatt wind turbines, and we believe the company is well positioned to gain market share.

To reach our 25% annual revenue growth objective, the revenue from India needs to be augmented by ECS revenue from China. In the near term, our success in China depends on JCNE. Similar to Inox, JCNE takes a vertical approach to the market by manufacturing wind turbines and developing wind farms.

The Chinese wind power market is shifting from fierce price competition to quality turbine supply. Wind farm developers are now focused more on up-time and profitability. AMSC's licensees, such as JCNE, are fielding some of the most advanced technology in the market, which results in highly competitive turbines. We continue to work with JCNE to help ensure their success in the Chinese wind market.

Moving on to Korea. The Korean wind market is expected to pick up in 2014, driven by the commencement of 2 gigawatt-scale offshore projects. We believe that our partners, Hyundai Heavy Industries and Doosan Heavy Industries, with their larger turbines designed for the offshore market, are well positioned for these projects.

So while we believe that Korea will be an important market for our medium-term growth, in the short term, we expect revenue from Korea to supplement our wind revenues in India and China.

And finally, potential additional growth and upside could come from new licensees in emerging markets. In Brazil, the government heavily supports the development of the wind power sector through local funding and high local content requirements.

In Turkey, the market continues to show strong growth projections and solid incentives, including local content requirements. And other countries, like Chile, Russia and South Africa, are showing wind growth projections or have recently announced local content requirements. But as I said before, we believe that our near- and medium-term growth will be driven by component sales to existing licensees.

Now moving on to the Grid business. We expect to be slower in the first half, with an acceleration in the second half of our fiscal year. Achieving our 25% revenue growth target is dependent on growing D-VAR sales in existing markets and further penetrating emerging markets.

We define our existing market as North America, the United Kingdom and Australia. In North America, D-VAR is most often used by renewable project developers to connect their power to the grid in a highly reliable fashion. As a result of the delay in renewing the Production Tax Credit in the United States, the wind market has been sluggish in the first half of the calendar year.

In fact, it was widely reported that only one wind turbine was installed in the first half of the calendar year. As a result, D-VAR sales in the U.S. have been slow. However, despite the slow start, industry experts believe that the future is brighter for the U.S. wind market, with nearly 1-gigawatt under construction in the second quarter of this calendar year.

In addition, we also see potential in Canada with larger projects emerging. In Australia, we continue to see a favorable market for D-VAR in renewable applications as well. In addition, we've also been successful with utilities and large industrial consumers of electricity in this region.

For utilities, D-VAR systems control voltage levels and maintain grid stability. And large industrial consumers of electricity get a dual advantage of improving their up time and also protecting the grid from their operations. We believe that our revenue growth target in Australia is predicated on the ability of our customers in Australia to finance their projects.

Turning to Europe, we are seeing opportunities in several markets. In the United Kingdom, the market is shifting to larger projects, particularly offshore. But onshore projects continue to provide opportunities.

Our revenue for Europe is fully booked for FY '13, but we see positive signs for additional upside. For example, in the Republic of Ireland, clarity was given regarding the feed-in tariff incentives through 2017, making for a stable and predictable market.

And in Spain, new grid codes have been proposed, which may lead to an opportunity to retrofit existing wind farms when these grid codes begin to be imposed.

We seek to expand the markets we serve to include several emerging markets. We define these markets as Eastern Europe, Africa, the Middle East and South America. We've already installed Romania's first STATCOM. We believe this first installation gives us a competitive edge in this market.

Additionally, we are seeing traction in Africa earlier than anticipated.

Finally, turning to our superconductor products, which we talked extensively about on our last call. We have contracts for cable and marine systems in hand for nearly all the revenue required for fiscal 2013. Our focus is securing a large cable project and a U.S. Navy order, which are key drivers towards achieving our fiscal year 2014 cash flow breakeven target.

With that, Tasha, please open the line for questions.

Question-and-Answer Session


[Operator Instructions] We'll take our first question from Carter Driscoll with Ascendiant Capital.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

First question, just a couple of comments, Dan, if I may, about talking about -- relative to your fiscal '13 revenue guidance, talk about both the semiconductor contracts that you have in hand, and the revenues you said that you have fully booked in Europe. Could you elaborate a little bit? I mean, obviously, you have a target in mind and when you say it's fully booked, can you elaborate? I mean, is that relative to where you expected it was at the beginning of the fiscal year? Has that shifted at all geographically by country-by-country? Obviously, it sounds like D-VAR was a little bit down in the U.K., so maybe we could box Europe separately from the comments you made about the superconductor side. And then I have a couple of follow-ups, if I may.

Daniel Patrick McGahn

Okay. Let me try to expand on that a little bit. So we are where we thought we'd be in Europe. I think that the message today from a risk standpoint, we feel comfortable about the revenues in Europe to help us get to the 25% stated objective for revenue growth for the year. I think what's emerged are a series of additional opportunities in Europe. We mentioned in the Republic of Ireland, we mentioned in Spain, talked a little bit about Romania, that there are other markets that we believe are opening up in the near term for the D-VAR product. And our team is focused very much on working with developers, governments, utilities in these different countries to ensure that not only do we get next orders, but that we're able to open up, on a longer-term basis, a bigger market for D-VAR. So I think if you look at Europe, we're comfortable. We talked about the U.K. specifically, that larger projects are emerging, particularly for offshore. But onshore projects remain opportunities for us. So we have to continue to do the things that we've been successful in our past, specifically in the United Kingdom. So I think that gets at your questions around the D-VAR.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

Right. So that was specifically for D-VAR, not so much for wind. But it was for D-VAR for onshore and offshore. Correct?

Daniel Patrick McGahn

If you think about wind, I mean, our play really is -- as we went through, it's really India, China and Korea. And in the case of all those partners, in the near term, we only expect them to stay in their home market. We don't look for, we don't plan, we don't forecast for export of products out of India and China and Korea here in 2013. So they're not part of the arithmetic that we're trying to get to the stated objective of the 25% growth year-to-year. If we were to see penetration in Europe on the wind side through those partners, we believe it would be upside to our current plans.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

Got it, got it. That's helpful. And then on the superconductors side, it's the same type of comment then, it's your -- it's a contribution to that 25% growth that you have?

Daniel Patrick McGahn

Yes, I mean, the focus of the call, we spent a lot of time last call really talking in great detail about how we turn the company from where we've been to cash flow positive on a quarterly basis by the end of 2014. What we wanted to do today is to shed more detailed color on the year that will be 2013. How do we get to this midpoint objective of growing the top line by 25% year-to-year? And you hit on the other part of when we think about risk is that on the superconductor product side, we have in hand already the contracts for utility projects and for Navy projects. I don't want to say, we have 100% of what we planned. But incrementally, I'll say, it's not material to the overall number. If we were to bring in an order on the superconductor side in 2013, and it was able to generate revenue in 2013, we would consider that as well as upside.

David A. Henry

So to boil it down, I think what you need to get to the 25%, when you -- again, thinking about risk, is China and India wind and then D-VAR revenues from primarily existing markets such as Australia, North America, U.K., things like that.

Daniel Patrick McGahn

And we talked about the risks, in Australia, it's about our customers getting financing on time and at the appropriate levels they need to go forward with those projects. Those are always challenges that are dealt with, but we see a big pipeline in Australia. And then in North America, we talked a little bit about Canada for there are some larger projects emerging there, but focus principally on the U.S., and it's about the PTC. So what we think the PTC is going to do in the U.S. market for renewables, is back-end installations. And if that happens, I think we're in a good position to convert what we see in pipeline actually into backlog and orders.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

So let me just follow up on the PTC a little bit. Obviously, it was reinstated early in the year, but that caused a disruption, temporary disruption. You're seeing that flow through initially in the first half of your fiscal year, but you hope that picks up. Can you see that type of disruption if we go on this ongoing 1-year renewal basis? Or how do you see the grid market playing? I mean, does it still continue to be really lumpy and as you said, tied to the PTC? Can you see that being the main driver, again, next fiscal year if we go through the same type of renewal process?

Daniel Patrick McGahn

Yes. I think if we focus specifically on the United States market, we do have applicability for the D-VAR product for utilities, and we've done installations there. We've demonstrated applicability for industrial consumers of electricity that it provides power protection and grid stability for there. But really, the main application that drives us in the United States is grid interconnection of renewable power generation.

David A. Henry

When we look specifically at the PTC, we think it affects, at least it's written, 2013 and potentially 2014 as well. So there's some rules about the end of the year on how far projects need to be matured in order to continue to qualify for the PTC in 2014. It's a fundamental challenge to the Wind business in America, is that the policy that the government has put in place is not a long-term policy. We benefit from the PTC in that it gives clarity on what the market is going to look like. If there's a market without the PTC, it doesn't mean that our solution is no longer applicable, it still will be. The question will be, when you finance a project, what's the return and what's the likelihood that certain projects go forward, and at the end of the day, how big the market could be? What you see is the beginning of the realization of our diversification strategy. We're talking about progress being made in Africa. We're talking about progress that has been made in prior quarters in Eastern Europe. We're looking to open up additional markets for D-VAR to allow for a different risk profile for the business, and ultimately, we hope and we believe a larger total available market. So that's why we're out pushing the product, the technology, the grid codes that have been adopted in some of these other geographies we do well in, we're out promoting them in some of these emerging markets for renewable energy because we believe that our solution can fit and help solve problems in those markets.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

Two more questions, if I may, before I get back in the queue. It sounds like there's a bit of a shift more geographically driven right now that you're moving back to more core component sales from ECS. Can you talk about how that plays out? What's this blanketed around India versus China right now? And how do you see them evolve in, potentially, India into ECS, over what period of time? And then as you said, the shift in China, more from the severe price competition we've seen over the last couple of years to a focus on quality and how that plays into your strategy for developing and selling ECS?

Daniel Patrick McGahn

Okay. So let me clarify. So from everything we talked about in India is ECS, not core components. The content is larger than it had been traditionally. It means that we're providing, we think, better value for the customer. In the case of Inox, they're positioned and talking about great growth here over the next 2 to 3 years. They're looking to more than double what they've delivered. They've delivered a factor of 5 growth. And this has really been the -- when we thought about the business model, that is our Windtec Solutions brand, it's getting these exponential growth of new entrants or new products being entered into the market by existing players that allow for our company to be able to grow. We're seeing that right now in India. What we're attempting to indicate on the call is that the conditions in India for wind will remain quite good for the next 4 or 5 years. The government is firmly behind wind. It's a necessary component for their own diversification strategy for how they're going to produce power. And we believe that Inox, if they do well in the market, we're going to do well as well on our Wind business. We are making a distinction when we talk about Inox and our Chinese customer, JCNE, because their business models are a little bit different than a number of our other licensees. They each have a business that makes wind turbines that runs alongside a business that develops power plant projects. So at the end of the day, what they're focused on, really, is performance and cost of electricity. And this is where our technology fits very nicely in their strategy, because it enables them to differentiate in a way that gives a reliable source of power at lower cost in the market. It's very different than, say, the model was even 3 or 4 years ago. We're focused on advanced technology to lower the cost of electricity. And again, for JCNE, the product that we're selling them is ECS. So the content, again, is higher, and in the case of JCNE, they're doing a full conversion drivetrain, which also has a multiple occasion [ph] factor on the level of content that we're providing and the value to the customer. I think the good news, as we go through the remarks today, we see revenue in this quarter coming from JCNE. It's a good level of revenue. And as long as our customers in wind, and we're focusing on this call talking in detail about Inox and JCNE, if these guys are able to move forward with their plans, we're going to get to our 25% growth target, at least the contribution from the Wind business, as well as get to our stated objective for cash flow breakeven by the end of 2014 on a quarterly basis. I hope that clarifies it.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

That's very helpful. That definitely helps to clarify. The last question is just -- and I realize this is a bit of a speculative opinion. But what do you think the practical effects of the DOJ case against Sinovel are in terms of maybe forcing or accelerating the timeline of your current litigation going on in China, if at all, have an impact?

Daniel Patrick McGahn

Well, I think the impact that can be felt on that is now it's definitely a government-to-government discussion, having a criminal indictment, having a clear-cut equation for damages and also substantial fines. The order of magnitude of the amount of money that the U.S. government is now seeking on our behalf, it's staggering. It has to be taken seriously by the Chinese government when they look at this as an issue. There's a lot of issues between the countries, and I don't know want to say this is the only issue, by any means. But it's an important issue. It's an issue that's been brought up by this administration. It is solely now being discussed by this Congress, and the Congress is discussing what other consequences could be contemplated for China. So the criminal indictment kind of ups the ante, if you want to think of it that way, not only monetarily, but also when we think about the stakes that are to be had here, are no longer just about American Superconductor. It's really about how American companies go forward in China, how will intellectual property be protected, and if there are problems, how will they be compensated for. At the end of the day, we want to measure success for this case in compensation, but we believe that this is going to pave a way for a more robust dialogue between America, China and Europe on intellectual property issues. And we've already seen that happen since the announcement of the indictment at the end of June.


[Operator Instructions] And now we'll move to our next question from JinMing Liu with Ardour Capital.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Just a follow-up on the last question. What is the chance for you to recover some money from Sinovel, if any, given Sinovel's current -- it's own financial situation and the fact they are closing, I believe, 8 -- their overseas subsidiaries?

Daniel Patrick McGahn

Yes, I think the way to think about the strategy on this, JinMing, is that we've upped this ante between the nation states. And it really comes down to the government-to-government discussions. And if and when a decision is made that this needs to be resolved, that the order of magnitude of the damages in the litigation are so significant, the evidence is so overwhelming, that we believe it's in China's best interest as a nation to make this problem go away in as positive a way that China can deal with. So I don't look at the fact that the numbers get bigger, that somehow looking at a computation of Sinovel's capability to pay or be able to have the financial resources to do it. It really comes down to a decision between America, China and also Europe to resolve this issue, because it creates what we think will be the beginning of, we'll say, additional constraints on trade between the 3 different regions. It's no longer just about Sinovel. It really now is a question for China, and they have an opportunity, we believe, to make a very positive statement to the West on the value of intellectual property. And that, if it's a positive statement, should help facilitate additional investment in China, should help facilitate additional technology transfer to China. But if intellectual property is not protected, I think it changes the landscape greatly between how American companies, European companies look at, respect and want to participate in the Chinese market. So it's a much -- it's now, at this point, a much bigger issue than just AMSC.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Okay. Speak to your other emerging markets, could you disclose the names of new licensees in those emerging markets, or you are still working on that?

Daniel Patrick McGahn

Those are in development, and we're only going to site new licensees if we think it's really advantageous to the company when we think about the sale of the products. It's nice to have the licensees. It's nice to develop the designs, but we don't really make money until we start to sell the components. We're focused on a series of markets that we went through in the call that all have -- revolve around local content requirements. Local content enables our partners to be successful in those markets because we can help bring a vast majority of the supply chain to be produced in-nation for these local markets. We've not announced, and we're not announcing today, any additional partners in some of these markets, but we're trying to also indicate not just our 25% year-to-year revenue growth. But when we think about the longer-term value of the company and potential for growth, we think that these opportunities are on the table, and our team is focused on turning those opportunities into realities.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Okay. Regarding your 25% revenue growth this year, once you solve the puzzle is the PTC in the U.S -- I remember the language of PTC for this year changed, basically as far as the wind project is in some state of construction instead of fully connected to power grid, that project will be eligible for the PTC. Will that push some of the D-VAR sales in the U.S. into 2014, instead of back-end loaded in 2013?

Daniel Patrick McGahn

I think the way to think about it is, one, when we look at the first quarter installations, we're basically 0 in the U.S. That was due to not having the PTC, but really, if you want to think about it specifically, it's about not having a policy. If I'm going to go finance a project, if I don't know what the rules are, it's very hard to move forward with it. So you see a pause in the U.S. market for the first quarter. We talked about for the second quarter, that there's nearly 1 gigawatt that's planned to be constructed, so we see the U.S. market kind of bouncing back a bit. The way that we look at the year isn't things being pushed from '13 to '14. There are requirements when you think about the financing for return, and we always see good business in the December quarter. We see good business, usually, in our second quarter as well, because so much of wind in the U.S. is in the second half of the year. The pipeline that we see in the U.S. is very healthy. But again, what we're trying to say explicitly to get to the 25% goal, we have to convert that pipeline into orders and into backlog. So I would say, think about this as the PTC allows for '13 to get to where we want to be. It opens up the door for the continuation of the market in America for '14. But it also means that there has to be a policy decision here, probably in '13, what is going to be the fate of wind in America. The amount of jobs that are tied to wind, the reason why the PTC was extended, those reasons continue to persist. So we'll look to Washington to see what decision gets made. If it doesn't get renewed or there's instability in the policy, again, you'll see a pause in the American market. And what we're trying to do is to diversify the revenues on the grid side to many of these other emerging markets that are going to not only require the technology we hope, but requirement for -- require it for a long period of time.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Okay. Lastly, is there any update on the orders from the Navy and the potential divestiture of the 2 subsidiaries?

Daniel Patrick McGahn

For the Navy orders, there's no update there. We talked about, basically, on the superconductors side having those orders in hand to get through 2013. If we get an order for a full system deployment for the future, obviously, that's something that we would look forward to be able to announce. And I'll turn it over to Dave, so he can talk a bit here about the noncore assets.

David A. Henry

Yes, I mean, we've -- JinMing, we have hired an advisor to assist us in the process. Work is underway on that. I think, though, we're going to be respecting the process. We're not going to give a play-by-play each quarter on how we're doing. But suffice to say, we will -- we are continuing to work on it, and it's a key part of our strategy to enhance our liquidity. And so it's our first priority to enhance liquidity here in the near term as opposed to doing anything else from a straight financing standpoint.


And now I'd like to turn the call back over to management for closing remarks.

Daniel Patrick McGahn

Great. Thanks, Tasha. We really do appreciate it, and to Carter and JinMing, for the questions that they provide. The focus of the call today is really about growing revenues in fiscal 2013 by 25%.

Achieving this target really comes down to 3 things: the first one is supporting our partner in India to reach their growth objectives and then looking to augment sales in India with the demand from our licensees in China, and we talked a lot today about JCNE. Any revenue beyond India and China, we would consider upside for the Wind business. So that's the first thing.

The second thing is we want to grow our D-VAR sales in the existing markets, which we define as North America, United Kingdom and Australia. We're also further penetrating into emerging markets, again, furthering our diversification strategy and making sure that not only we can deliver a good revenue growth, but sustainable revenue growth as well. So that's the second one.

And then the third one, to get through 2013 and deliver on the growth that we anticipate, is really to make sure that we deliver on our superconductor contracts that are already in place. It's not going to be simple and I'm not trying to trivialize it, but it comes down to our ability to continue to generate orders, particularly on the D-VAR side, and the execution in our business on the wind side and on the superconductor side as well.

Thank you for joining, and we look forward to speaking with you again following our second quarter. Thank you, everyone.


This concludes today's conference. You may now disconnect your lines, and have a wonderful day.

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