American Superconductor Corp (AMSC) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the AMSC's conference call. This call is being recorded. All participants will be in a listen-only mode until we reach the question-and-answer session. With us on the call this morning are AMSC's President and CEO, Daniel McGann; Senior Vice President and CFO, David Henry; and Vice President of Communications and Marketing, Jason Fredette.

For opening remarks, I would like to turn the call over to Mr. Jason Fredette. Please go ahead.

Thanks, Jennifer, and welcome to our third-quarter call, everyone. 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 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 risk factors section of our annual report on Form 10-K for the fiscal year ended March 31, 2011, which we filed with the SEC on September 23, 2011, and subsequent reports we have filed with the SEC.

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

I'd also like to note that we'll be referring on today's call to non-GAAP net income, or net income before amortization of acquisition-related intangibles, restructuring and impairments, stock-based compensation, Sinovel litigation fees, and other unusual charges and tax effects related to those items. Non-GAAP net income is a non-GAAP financial metric, a reconciliation of non-GAAP to GAAP net income, 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 amsc.com. I'd also like to note that we'll be taking part in the Jefferies Clean Technology Conference on February 22, and the Raymond James Institutional Investors Conference on March 7. Our presentations from the Jefferies conference will be webcast. More details on this will be issued soon.

And now CEO Dan McGahn will begin our quarterly review. Dan?

Thank you, Jason, and welcome to the call, everyone. I'm very happy to be reporting back to you on a successful quarter at AMSC. We exceeded each of our financial targets in the third quarter, which ended on December 31. We said we would generate more than $15 million in revenue, and we generated about $18 million. We said that we expected our GAAP net loss to be less than $30 million, and we met this target, despite the fact that our guidance did not account for more than $4 million in restructuring and impairment charges for the quarter.

We said we expected our non-GAAP net loss to be less than $24 million, and we came in with less than $18 million. And finally, we exited the quarter with more than $75 million in cash, cash equivalents, marketable securities, and restricted cash -- exactly as we anticipated. In addition to these results, we also grew our backlog quarter over quarter, as we continued building our book of business for fiscal 2012, which begins on April 1.

Dave will walk you through each of these numbers in more detail, but I think they demonstrate the substantial progress we've made to create a stronger, more diversified, and more resilient AMSC. We believe that our best days lie ahead; we have a strong, market-focused strategy, a great team, and we're working together globally as one AMSC to ensure the success of our wind and grid customers.

Before getting into the financial details and our outlook, let me first bring you up to speed on the state of our litigation in China. As many, if not all of you know, Sinovel abruptly stopped accepting contracted shipments of wind turbine electrical systems and controls from AMSC last March. This was followed by our discovery last summer that valuable AMSC intellectual property was stolen by several Sinovel employees, and a former -- and now incarcerated -- AMSC employee.

Since that time, we've taken action on a number of fronts. We have filed three civil cases against Sinovel. The two largest are in process in Beijing. The smallest of the civil cases, representing a fraction of a percent of our overall claim, is a copyright infringement complaint that we filed with the Hainan Province Number 1 Intermediate People's Court.

This case is against Sinovel and Dalian Guotong Electric, a company related to Sinovel that is manufacturing power converters eerily similar to our first-generation PowerModule converters. In the Hainan suit, we are seeking a cease-and-desist order and about $200,000 in damages. In December 2011, Sinovel filed a jurisdiction opposition motion, requesting that Hainan court dismiss the case, saying it should instead be governed by the Beijing Arbitration Commission. As we announced earlier this week, the Hainan court granted Sinovel's motion.

This was not altogether unexpected, but we are appealing the decision. And I would like to reiterate that the $200,000 in damages that we are seeking in this case represent a very small fraction of our total claim. I think that it's less than 1%, even.

In addition to the civil cases that are in motion, we've also filed for arbitration with the Beijing Arbitration Commission. The Beijing Arbitration Commission recently set our first hearing date for February 24. We continue to expect that the actions we are taking will lead to a favorable outcome for our Company and for our shareholders, and we'll continue to provide you all with further updates as the cases develop.

But what I really look forward to talking to you about is our business, which continues to get stronger -- and our future, which continues to get brighter. I'll do that in just a few minutes.

But first, Dave, will you walk through our results for the third fiscal quarter?

Thanks, Dan, and good morning, everyone. We continue to be encouraged with the financial progress we are making here at AMSC. We are meeting, and, in many cases, exceeding the objectives we have set for the business. We delivered positive top- and bottom-line results relative to our guidance. We continue to reduce our expenses and manage our cash, in line with our plan. And we have built our backlog to a level that provides us with confidence, as we will close fiscal 2011 in strong fashion and will be able to grow our revenues year over year in fiscal year 2012.

Now let's talk through the numbers for the third fiscal quarter. AMSC generated $18.1 million in revenue for the third quarter of fiscal year 2011. This was higher than our forecast, thanks to our ability to complete a couple of shipments earlier than we had expected, and secured cash payments from a Chinese customer for past shipments, which we recognized as revenue.

In the third quarter of fiscal 2010, our revenues were $31.6 million. The year-over-year decline was due to lower contribution from our grid business. In fact, AMSC generated record D-VAR revenues in the third quarter of fiscal 2010, thanks to a particularly large shipment to an Australian windfarm. Revenues totaled $20.8 million in the second fiscal quarter of 2011. The quarter-over-quarter decline was due to slightly lower shipments of wind turbine power electronics and controls. We increased our backlog a bit, quarter over quarter, to approximately $300 million as of December 31.

Our operating expenses were again down in the third quarter. R&D and SG&A expenses for the third fiscal quarter were $21.3 million. Excluding over $2 million in Sinovel litigation costs, R&D and SG&A expenses were just under $19 million. This compares with R&D and SG&A expenses of $22.6 million for the third quarter of fiscal 2010, and $24.8 million for the second quarter of fiscal 2011.

Going forward, as the benefits of our November cost reduction efforts are fully realized, and Sinovel litigation costs wind down, we expect normalized R&D and SG&A expenses to be around $70 million on an annual basis. For the third quarter of 2011, we incurred approximately $4.1 million in restructuring and impairment charges related to our cost reduction efforts. Approximately $2.2 million of this total was for severance, while the remainder relates primarily to an impairment charge on certain of our grid assets that was triggered by our cost reduction actions.

Thanks to higher revenues and lower spending, as well as a slight foreign exchange benefit, AMSC was able to achieve its net loss forecast, despite the severance and impairment charges I mentioned a moment ago, which weren't factored into our forecast.

Our net loss for the third fiscal quarter 2011 was $26.3 million, or $0.52 per share. This compares with a net loss of $18.2 million or $0.38 per share for the third quarter of fiscal 2010, and $51.7 million or $1.02 per share for the second quarter of fiscal 2011. Our non-GAAP net loss for the third fiscal quarter 2011 was $17.5 million or $0.34 per share. This was better than our forecast, and compares with a non-GAAP net loss of $13.4 million or $0.28 per share for the third quarter of fiscal 2010, and a non-GAAP net loss of $22.1 million or $0.44 per share for the second fiscal quarter of 2011.

As of the end of the third quarter, we had $75.5 million in cash, cash equivalents, marketable securities, and restricted cash. This compares with $108 million at the end of the second fiscal quarter. Apart from our non-GAAP net loss, our cash usage for the quarter was primarily driven by cash used for working capital, including approximately $4.5 million to reduce adverse purchase commitments. We also utilized cash for capital expenditures and Sinovel litigation expenses.

Now I'd like to turn to our financial guidance. For the fourth fiscal quarter 2011, we expect that our revenues will be greater than $27 million. All of this revenue is currently in backlog. Due to our anticipated revenue mix, we expect that we will still have a slightly negative gross margin for the fourth fiscal quarter. We expect that our net loss for the fourth fiscal quarter will be less than $24 million or $0.47 per share. This figure includes approximately $1 million in forecasted litigation expense related to our cases against Sinovel.

On a non-GAAP basis, we expect that our net loss for the fourth fiscal quarter will be less than $20 million, or $0.39 per share. The increase in non-GAAP net loss compared to the third quarter is driven by the product mix I referred to earlier, and lower other nonoperating income. We expect to reduce our cash usage further in the quarters ahead, due in part to anticipated year-over-year revenue growth in fiscal 2012, based on our current backlog. At the end of the fourth quarter, we expect to have approximately $50 million in cash, cash equivalents, marketable securities, and restricted cash.

We are exploring financing options aimed at bolstering our long-term liquidity and providing the flexibility to make additional investments, to accelerate both our growth and the timing of our return to profitability. As I said on our call last quarter, any financing we may undertake will be aimed at bolstering our long-term liquidity. Based on the cost reduction actions we have already taken, and our revenue growth assumptions supported by our backlog, we believe we have sufficient cash today to fund our operations and capital expenditures requirements for at least the next 12 months.

Now I'll turn the call back over to Dan. Dan?

Thanks, Dave. AMSC took another step forward in the third quarter, as we met our expectations for both our wind and grid businesses. Our wind business continues to fare well relative to the industry, for two primary reasons -- our unique business model and our strong presence in Asia. AMSC's business model -- we define the companies we work with not simply as customers, but as partners. Partners, because we are building relationships, not just executing transactions. We design wind turbines from the ground up for wind turbine manufacturers. This includes both onshore and offshore platforms, ranging from 2 megawatts to 10 megawatts, employing various types of drivetrains.

We also provide value-added services to our partners, aimed at ensuring a rapid yet smooth manufacturing startup and commercial scale-up process. Once our partners begin manufacturing its wind turbines, AMSC offers them a highly integrated set of electronics and controls for the wind turbines. These systems are, in essence, the brain of the wind turbine. They perform various functions, including controlling the pitch of the blades and the rotation of the nacelle.

Our systems also condition the power flow and connect the turbine to the power grid with low voltage ride-through, or LVRT, functionality. Everything we do, from design, to service, to component supply, is aimed at ensuring that our partners go to market with wind turbines that have compelling cost and performance advantages. And for each wind turbine our partner cells, AMSC benefits. This alignment of interest deepens our relationship and drives our growth.

While our business model is one of the ways we are creating a sustainable, profitable business, the other is our foundation in Asia. Today we are serving many customers in mainland China, Taiwan, Korea, and India, and we serve these customers locally. The wind power market in these countries remains vibrant, especially when compared with Europe and North America.

Our Korean partner, Doosan Heavy Industries, as well as Hyundai Heavy Industries, continue to expand their wind businesses. These multibillion dollar companies are targeting both onshore and offshore opportunities within Korea, and internationally. In fact, activity within Korea's offshore wind power market continues to heat up. The country has two separate offshore projects in the works -- one targeting 2500 megawatts of insulation, and the other targeting 5000 megawatts. Hyundai is particularly well-positioned for these projects, with the 5-megawatt wind turbine that we designed and developed with them.

During the third fiscal quarter, Hyundai ordered its initial 5-megawatt wind turbine electrical control systems from us, and Hyundai continues to make progress outside Korea as well. For instance, just this past December, they commissioned some of their wind turbines in New York.

Another market that we continue to be encouraged by is India. The third largest wind power market in the world behind China and America, India is now transitioning from a tax credit system to a generation-based incentive for wind power. In other words, rather than providing a tax break on a wind project, regardless of the project's performance, India is incentivizing project developers to maximize their power output. So the benefit to the project owner and operator increases for every megawatt hour they produce.

This is how Western markets operate, and it is the ideal scenario for AMSC, because we enable our partners to provide competitively priced wind turbines with exceptional performance and reliability. This change in policy has led to increasing participation from independent power producer in India's wind sector, which broadens the addressable market for companies like Inox, our partner in India. We believe these changes will serve as a strong foundation for Inox. And Inox isn't relying completely on project developers to drive their demand for their 2-megawatt wind turbines. They are developing their own wind projects as well.

And then there's China. Many have faced challenges in this market recently, and of course, we have had more than our fair share. But as the market continues to evolve and mature, we are in a strong position to take advantage of this market with our best-in-class engineering, advanced technology, our local presence, and our strong partners.

In January, the China Wind Energy Association issued a preliminary report, saying China's wind installations may have exceeded 20 gigawatts in 2011, setting a new record. This was a bit of a shock to most industry experts, who had been expecting a double-digit decline from the 19 gigawatts that China installed in 2010. Just this week, the Global Wind Energy Council came out with a report of its own, saying China's wind installations were about 18 gigawatts in 2011. We'll see where the number shakes out in the end, but it's clear that China will remain, by far, the world's largest installer of wind power, representing nearly half of the global market. 2012 will be an important year for our business in China, as we prepare to take market share with partners like Jingcheng New Energy, XJ group, Shenyang Blower Works, and Dongfang.

Up until now, China's wind industry has relied heavily on wind turbines with power ratings of 1.5 megawatts or less. We expect the market to continue shifting to higher megawatt ratings. And each of our Chinese partners are now offering grid-friendly wind turbines with power ratings of at least 2 megawatts.

Now let's turn to the grid side of our business, where we continue to make further progress. Our sales force continues to pursue and win orders for our D-VAR system from a diverse range of customers. You've heard us talk about this product for quite some time, and some of you may take it for granted. We do not. This is a product line that is a real strength for us, and, more importantly, one with a great deal of potential. The fact is that our D-VAR product is very versatile. It resolves a variety of issues for a variety of customers. Wind and solar project developers are using our D-VAR solution to reliably and effectively connect their renewable power to the grid. That's been the major driver for this business in the past.

But we are expecting to grow sales from a diverse customer base going forward. Electric utilities use D-VAR systems to enhance transmission system performance, eliminate power transfer limitations, and prevent widespread blackouts. And industrial operations benefit from the product's ability to maximize their uptime and their output while, at the same time, protecting the broader network from disturbances that stem from these operations.

To date, our D-VAR product sales have been concentrated in a handful of countries, namely the United States, Canada, the United Kingdom, and Australia. This is due in large part to grid codes that have been adopted in these countries, related to renewables. But no matter where large wind and solar plants are installed, grid interconnection opportunities exist for us.

Since the Fukushima tragedy, Western European countries have been thinking long and hard about shifting more of their energy mix away from nuclear towards renewables. Germany has turned away from nuclear altogether. And France, which generates about 80% of its power from nuclear, has been scaling back its activities. We recently won our first D-VAR system order for a wind farm in France, and we continue pursuing other business in Western Europe.

In Eastern Europe, wind power installations in countries like Poland and Romania have been increasing substantially over the past couple of years. Assuming this continues as expected, Eastern Europe could be a key growth market for us. Time will tell. During the third fiscal quarter, we won our first D-VAR system contract in Romania. It will be used to connect a 34-megawatt wind farm to the grid.

These wins demonstrate we are expanding our footprint, and maintaining our position as the world's leader in grid interconnection systems for renewable energy projects. However, as I mentioned before, we see great opportunities to grow D-VAR system sales with electric utilities and industrial companies. In years past, virtually all of our sales to electric utility customers have been in the United States. In the near future, we'll be entered energizing our first D-VAR system for Ergon electric, an Australian grid operator. It will replace their existing Static VAR Compensator system and will allow Ergon to provide improvements in the power reliability and stability for their customers in Queensland.

And then there are opportunities in the industrial sector. For instance, the mining industry is now in the midst of a global boom. These types of operators rely on large and steady flow of power. And they tend to employ massive induction motors that can cause voltage instability on the greater power network. D-VAR systems can mitigate these types of issues and ensure high power quality for both the industrial customer and the grid operator. While still small, relative to the revenues we are generating with electric utilities and renewable project developers, we believe the industrial sector could serve as an incremental growth driver for us as we move forward.

In terms of our cable business, we continue to make headway on two projects that are underway here in the United States. Both are taking place in New York, a state with significant population density and power demand. Later this year, we'll be replacing one phase of Long Island Power Authority's superconductor cable system with a cable made with our second-generation, or 2G, wire. This will be the first long jet length 2G cable to be energized in the US, and it follows the energization of the world's first long-length 2G cable in Korea that occurred in late 2011.

We also are forging ahead with Project HYDRA along with our partner, Consolidated Edison. Funded in part by the United States Department of Homeland Security, this project is aimed at demonstrating the advantages of a fault current limiting cable in the power grid. Fault current limiting cables create more resilient and cost-effective power networks by enabling the connection of substations, something you can't do with conventional technology today. By connecting substations, utilities can maximize the use of equipment within those substations and also share load between regions and neighborhoods.

As a result, these utilities can defer, or avoid altogether, the construction of new substations, addressing power bottlenecks more rapidly -- and in the process, saving tens or even hundreds of millions of dollars. Fault current limiting cables are an exciting technology, but people don't buy technology; they buy what it does. These types of cables can transform the way electricity is transmitted and distributed. They can enable tightly matched, highly reliable power networks that can energize nations around the world.

Korea, which energized its first distribution voltage superconductor cable in the grid last year, is now moving forward with two new projects of its own -- one to deploy a transmission voltage alternating current cable system, and the other to deploy a transmission voltage direct current cable system in South Korea's grid.

Both cables will be manufactured by our partners, LS Cable, and they will utilize our Amperium wire. We have seen activity to develop initial superconductor power cable systems in the grid in Europe, as well. And we've also won recent wire contracts in countries like Russia, China, and India. All of this activity bodes well for our long-term business.

As we move forward, we will continue to focus on three core financial objectives. The first is driving growth, and doing it with a diversified base of products and customers. The second is managing our cash, an issue that we are effectively addressing. And the third is continuing on our path to sustainable profitability.

We still have work to do in the fourth quarter, but our existing backlog provides us with confidence that we will close fiscal 2011 on a firm footing. We have taken aggressive action to lower our cost structure, which, in addition to our growth, positions us well to improve our bottom line and further reduce our cash consumption. We expect to benefit from our November cost reduction efforts in the March quarter, and will see the full benefit in the June quarter. At the same time, we will focus on continuing to build our book of business so we can drive year-over-year growth in fiscal 2012.

With that, let's open the call to your questions. Jennifer, would you please provide the instructions?

(Operator Instructions). Jim Ricchiuti, Needham & Co.

I wonder if you could comment on the backlog. How much of the backlog -- which I guess is around $300 million -- is shippable over the next 12 months? And I have a related question on gross margin.

We don't provide -- we are not looking to provide, at this time, information on how much is shippable next year. We'll provide that when we give our guidance for next fiscal year, when we do our next fourth-quarter update. But we do -- we know what our backlog is, we know when it ages in. And that gives us the confidence to say that we do expect to have revenue growth year over year. And that that revenue growth, combined with our reduction in operating expenses, will allow us to reduce our cash consumption going into fiscal '12.

Okay, but, Dave, maybe you could help with the issue of gross margins. You're assuming a decent sequential improvement in revenues in the March quarter. At what point do we see your gross margins begin to turn positive? That, to me, is the biggest issue here -- at least in the near-term. Can you give us some sense of where your gross margins are going to go?

Sure. Let me tell you what's -- so in the third quarter, one of the things that we benefited from in the third quarter was, we got some cash collections from one of our customers in China. And, given -- and this was for shipments that were in the past, back in the last fiscal year. And so given the accounting that we are now under, that became 100% fall-through margin revenue. Keep that in mind for the third quarter. As we move to the fourth quarter, a couple of things on our gross margin -- one, our guidance. We never forecast for cash receipts from these customers in China. We don't count on it. We don't run our business assuming we're going to get any.

So there's the 100% margin business in the third; that's revenues in the third quarter that's not in the fourth quarter. And then, some of our sales contracts -- and I think this is a bit unusual -- in the fourth quarter, some of our contracts have -- some of the terms of them from a payment standpoint and from when some of the timing of when the payments will happen, have some accounting consequences which will force us to defer revenue in margins moreso than in other quarters. And so there's going to be some of our shipments this quarter that will be very low-margin, and less margin than we would otherwise normally expect.

I think that's an important point when you look at it -- how we are doing the accounting. We said that we made changes in how we are doing cash-based accounting for revenue recognition in China. And you're also seeing, when we look at projects, that you're going to see larger projects probably have more backend-loaded margin than front-end loaded margin. It is not a reflection on the health of the business; it simply relates to accounting issues, and timing on how the contracts are structured.

Jesse Pichel, Jefferies.

This is Elaine for Jesse. Thanks for taking my question. Just to follow up a little bit on the gross margin issue -- what are the levers there, also, that you have on improving margin? How much of that is tied to volume, for example? And have you pretty much taken out what can be done on the variable cost side and what's left, potentially, on fixed costs? Just trying to get a sense of where you can get to, in terms of adjusting the structure for the new level of revenue.

Yes. I would say the answer to your question is no, we are not done with all the levers yet. Our fixed cost structure -- you know, our objective is to not grow, or grow it as minimally as possible. On the variable cost side, there's a number of things we can do. We are now switching our business mix. As you know, in the past, our business mix, particularly on the wind side, was core components. That is now shifting to ECS. At the present time, the ECSs that are sold to our customers are manufactured by subcontractors. We have the ability to pull some of that manufacturing into China and to lower our costs. And also by doing that, source some of the material locally, as well, and further lower our costs. Those things take time to execute. It needs to be done right. The quality has to be appropriate. And so, those are things that are certainly on our plate for the next fiscal year.

If you think about what we have done to date, really, we've focused around operating expense. And going forward, I think we've gotten, as we said in the remarks, we start to see that hit steady-state in the June quarter. The other thing the Company is really very much focused on is improving gross margin. So there's a lot of efforts throughout the Company to help make that happen, and it becomes a key focus for management.

Thanks. Could you say how much of grid revenue in the quarter was from superconductors? And it looks like you had, basically, a one-to-one book-to-bill ratio in the quarter. And could you talk about the split between wind and grid there in the bookings?

In terms of the -- we don't really characterize the bookings. But on the revenue split, in terms of the grid revenue, that was $7.9 million. Probably less than $2 million of it was superconductors. Actually, probably closer to $1 million. And the rest of it was D-VAR.

Tim Arcuri, Citigroup.

A couple of things. You guys have historically characterized op margins by segment. Can you give us some sense of what the op margins were by the wind and the grid segments? And then I had a question on backlog. Thanks.

The operating profit -- or operating loss, I should say, for the wind business was about $14 million. We do allocate any expenses related to the Sinovel legal action to our wind business. So be aware of that. And then the grid operating loss was $6.3 million. And then, so -- the difference between our consolidated operating loss represents stock comp and restructuring charges that we don't allocate to be the segments.

Okay, Dave, thanks. Can you give -- before I ask the question on backlog, can you give a sense of -- revenue now is pretty low, but can you give a sense of any large customers in the quarter, any greater than 10% customers?

Yes. Our largest customer in the quarter was -- I believe it was Inox, at 27% of revenue. Doosan was 12%; Ergon, which is a D-VAR customer, was 11%. And then, all the rest of our customers were less than 10%.

And the good thing you're seeing, Tim, is you're seeing diversification across wind and grid. You're seeing diversification across the different product lines, as well as the different geographies. So the benefit is, we have a much more diversified business. The challenge will be that you'll see lumpiness, not only on the grid side, but you'll see a bit of that on the wind side as well. But we think that overall, as we said, the upward trend that we would anticipate to deliver year-to-year growth for 2012.

Ben Schuman, Pacific Crest Securities.

Can you give us some color on the arbitration proceeding with Ghodowat mentioned in the latest Q.? Specifically, kind of the background of that dispute; your position; the risk of a $24 million payout?

Well, we view the risk of it as low. The background of the dispute is, is that Ghodowat was a licensee; things weren't progressing well with them.

On their end. They had some issues on their own end, with how the business was set up, and what they were going to commit to do going forward.

And they did not meet the conditions of the license. We didn't see any future means for them to be able to meet the terms of their contract, so we canceled the license with them. They objected to that, and hence the claim against us. But things have -- they really have not progressed in any meaningful way. There's really no update other than what's in the 10-Q last quarter that's of really any significance, in terms of new information on that. It's kind of at a stall, at this point.

We have to focus on our customers that we think will deliver growth for us, and that will be long-term partners with us. And we don't consider Ghodowat as one of those. (multiple speakers)

There's one other thing. Any payout around Ghodowat, or anything like that, would be covered by insurance.

Okay, great. Then, last quarter, you guys had the visibility to give us an idea of how Q4 was going to look, just roughly, in terms of revenue. Is there anything you guys can give us, in terms of the trajectory of the June quarter, at least on the top line?

Well, we are -- other than what we said is -- that we expect that, given our backlog, that we expect to be able to deliver year-over-year revenue growth in fiscal 2012. We're not going to go to into any further detail right now as to how that goes over the quarters next year. We'll provide further color next time.

I think the key, too, is to really recognize -- for everybody on the call -- is that you're going to see lumpiness in the business. What we are focused on is the long-term shareholder value and being able to utilize the technology portfolio we have, and monetize that as best we can for the Company. But we are exposed -- when you start to see this diversified list of customers, that you may see revenue a bit up and down quarter to quarter. Don't expect us to be doing 17, 18 quarters straight of revenue growth. That's not what we're trying to build the business to do. We're trying to build the business for the long term, to make sure that the overall trajectory for growth is upward, and that growth is not only sustainable but diversified.

Tim Arcuri with Citigroup.

Just a quick follow-up from me. Two things -- first, can you characterize the backlog? You have $300 million in backlog -- you have about 10 quarters worth, which is even more than you had when Sinovel was a big piece of the backlog. Can you speak to the security of the backlog? Is it at all covered by deposits? That's the first question. And then the second question is on breakeven date. Can you tell us what P&L and also cash flow breakeven is?

I want to make one comment on backlog, so that it's clear. What we are trying to do is build backlog overall, over a longer period of time, to build stability into the business. I'll let Dave comment on the --

Yes. I know on the breakeven we are still focused on the -- delivering quarter to quarter, saying what we do, doing what we say. And so, we are not looking to provide information like that other. But we do know, and we are cognizant of the fact that people are looking at the cash balance and looking at when breakeven is going to happen. What I can tell you is, is that we do have ample cash to get through the next 12 months to fund our operations and capital requirements. Beyond that, we are not prepared at this time to give a breakeven target -- something out long-term like that.

Carter Driscoll, Capstone Investments.

First question -- if you could possibly break out the revenue split geographically, and then maybe by segment? And then a follow-up.

The revenue split was -- by segment, was provided in the press release. So of the $18 million for the third quarter, $10.1 million was wind, and just under $8 million was grid. Geographically, the majority of the revenue was in Asia -- it was about just under $12 million came out of Asia, including China. With the rest of it -- the vast majority of the rest of it in the US.

Actually, the US and Australia -- Australia was a good contributor as well.

All right. I'll leave that alone. Could you talk about, maybe, the transition you think from your current technology, double-fed, to full conversion of direct drive, and the progress you're seeing there? Any initial feedback from customers, when you think you might start to see that transition over to newer technologies?

Yes, I think so. When you look at the full conversion turbines, that's what many of the customers are going to market with now. That and China, coupled with the fact that these are larger turbines -- twos and threes, and better -- that that should help the Chinese partners to deliver market share growth for them. When we turn to India and Korea, in India they are going forward with, I think, the right turbine technology for the market now in India. And then the Koreans have developed a product line that really can fit the overall global market.

So we feel very comfortable with the product offering, now that we are entering the market with our partners, with the right technology for the near-term and for the future, and that we continue to develop technology for direct drive and for larger wind turbines. But we see that as part of a technology pipeline, and we want to make sure we have that ready for the market as required.

JinMing Liu, Ardour Capital.

Good morning. Thanks for taking my question. First, just about the $300 million backlog. Can you give us some more clarity on the breakout of that backlog, either by country, like, say, China and non-China? Or by segment, like say, with breakouts between the wind and the grid?

Yes. We don't really break out the backlog. And I guess that's frustrating for everybody that develops their model. I think the thing that we comment on is, we are starting to see backlog grow a bit, which we feel very good about. And we said before that backlog was roughly two-thirds wind and one-third grid, and that remains relatively consistent. But I don't think we can go into any more detail than that at this time.

One thing to -- I think Tim maybe had a question on that, earlier, regarding some of the security of our backlog. There are some customers we do take advance payments from, to the extent that those advance payments are not long-term in nature. They are generally -- those advance payments come right before shipment. So they are going to have a de minimis effect on the backlog. But in terms of the composition of the backlog, it's entirely firm contracts. It's not forecasts or anything like that. These are firm contracts that we have in place. To the extent -- I would characterize all of our backlog as firm.

Okay. The next question is related to the Chinese market. The Chinese government just released a tough five-year energy technology development plan, which actually diversifies the priorities with develops them to 10 megawatts class turbines. Do you have any ongoing discussion or collaboration with your partners over there to develop the large turbines?

Yes, our partners globally -- it's a general global trend. And from a discussion standpoint, I don't want to comment with any specificity on which customers. But, in many cases, where we are being pushed is where the market needs to go, with larger turbines. We think our Company is very uniquely positioned in the way that we develop our technology -- from the design of the turbine, all the way through the whole supply chain, the drivetrain, and the controls -- that as the market moves to larger sizes -- six, seven, all the way up to 10, maybe to 15 and beyond -- that we have a very unique technology that will really help change the cost paradigm for these larger turbines. But we have not announced, specifically, partners for that size range, JinMing.

(Operator Instructions). Craig Irwin, Wedbush Securities.

Was hoping you could give us a little bit more color on your cash consumption guidance. In the December quarter, you consumed just under $10 million for working capital. What sort of working capital assumptions do you make for your guidance for the March quarter? And can you discuss whether or not -- well, can you give us some clarity around CapEx and maybe some of the other moving pieces in there?

Yes. On the working capital, our overall cash consumed for working capital was about $10 million in the third quarter. Of that, about $4.5 million was related to settlements -- or payments against these adverse purchase commitments for liability (technical difficulty) on our balance sheet. We are expecting payments of a similar nature in the fourth quarter against those adverse purchase commitments. I did mention that the legal expenses associated with Sinovel, we expect those to be lower in the fourth quarter. We are also, as we undertake some of the cost reduction actions and the severance, a lot of our severance is in the form of salary continuation. So that's going to be rolling off from a cash standpoint.

Those are the reasons why we believe that we will consume less in cash used for working capital in the fourth quarter. And then we will eventually, as our revenues year over year grow, we will be settling into more of a steady-state from a working capital standpoint. And the large swings that we had, and the large task consumption earlier in the year for working capital, we won't see going forward.

Great. And then, just to clarify one thing you said previously, having sufficient capital to operate throughout the rest of the -- the following 12 months, does that include continued reductions in your adverse purchase commitments at roughly the same rate we've been seeing? Or does that assume that that's going to be basically flat over the course of the next 12 months?

Yes, we are very pleased with how our vendors are supporting us through this process. They understand that we want to pay them, and that the situation with Sinovel is sort of the key to allow us to be able to do that, getting that resolved. I did just mention that we are expecting sort of a similar amount of payments against that adverse purchase commitments in the fourth quarter. But beyond that, I'm not going to -- I don't have, really, visibility at this time to say what's going to be happening going down in time. I do expect to go down, but at what number I'm not prepared to say.

Alex Morris, Raymond James.

I was just curious on the case that was dismissed -- is there any specific reason, I guess, why you're opposed to it going to the arbitration commission? I think that's where you said that's where your largest $700-million-plus case was headed. I guess -- do you see that as potentially less favorable for you than Hainan province court?

We don't see it as really materially impacting what we're trying to do. So that you understand -- so, Hainan is where some of the wind turbines are actually erected and operating. Hainan is an island province off the south of China; it's kind of a vacation kind of place. So, one of the things that we were aware of going in, is that the judicial system there is probably not as sophisticated as it would be in Beijing. The key is to make sure that the evidence obtained there would be part of the case, and it will be, going forward. We would like to maintain the case in Hainan, I think, simply to keep the breadth of the claims that we have; to keep the breadth of the pressure that we have; to bring a positive resolution for our Company and for our shareholders.

Jeremy Hellman, Divine Capital Markets.

I know it's a long-dated question in nature, but the Atlantic offshore wind effort here on the East Coast seems to be moving forward a little bit. I was just kind of curious, do you guys have any thoughts whether you're assigning any probability to that actually becoming a legitimate project in the water? Any kind of visibility, or thoughts you might have around that would be interesting.

Yes, I mean, we are out actively trying to help our Asian partners bring their wind turbines over here to this market. We think, from a power curve standpoint, from a performance standpoint, we have equal to or better performance than what's out in the market. And if we can bring forward the combination of Asian manufacturing costs coupled with American installation, there may be the ability to change the cost for some of these projects.

But other than that detail, project by project, we are aware of what's going on in the US. But, as I said earlier on the call, where we really see the activity and the growth is going to come from India, Korea, China -- really Asia. It will take some time, we think, for offshore wind to really get going in the US -- probably see that driven out of Europe and Asia first. And we think we're in great position with the existing partners and with our existing technology portfolio, to be able to help change the cost paradigm for offshore wind.

At this time, I would like to turn the call back over to CEO Dan McGahn.

I want to thank everybody for taking part in today's call. I think we had a really strong quarter. If you go back to what we said on the previous call, we not only did everything we said, but more. We want to be able to responsibly manage the Company; responsibly manage our cash position; really focus, now, on growth and diversification of that growth, in order to ensure that we get back to profitability as soon as we can.

So thank you all for taking the time. And we look forward to speaking with you once again when we wrap up, finally, the wonderful year that was 2011. Thank you, everybody.

This does conclude today's conference call. We thank you for your participation.