American Superconductor Corp (AMSC) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to the AMSC conference call. This conference 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 President and CEO Daniel McGahn, 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 conference over to Mr. Jason Fredette. Please go ahead, sir.

Thanks, Anthony, and welcome to the 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 forpurposes of the Safe Harbor 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, 2012, which we filed with the SEC on June 6, and subsequent reports we 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 subsequent date 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'll be referring to non-GAAP net loss, or net loss before amortization of acquisition related in tangibles, restructures and impairments, stock based compensation expense, change in fair value of derivative liability and warrants, non-cash interest expense, and other unusual charges. Non-GAAP net loss is a non-GAAP financial metric, a reconciliation of 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 investor's page of our website at amsc.com.

Now CEO Dan McGahn will begin the quarterly review. Dan?

Thanks, Jason, and good morning to you all. There's been a lot of news out there recently that impacts our business prospects, perhaps the in a very positive way. We'll touch on these topics throughout the call today. But before getting to the first quarter highlights, similar to the past few calls, let's begin our discussion this morning with an update on Sinovel.

For those of you that are new to AMSC, Sinovel is a former AMSC customer who without prior notice rejected substantial contracted shipments from us in March of 2011 and was eventually found to have stolen intellectual property from us. As evidenced by the confession and imprisonment of Sinovel's co-conspirator in this crime, the merits of our case can't really be any stronger.

In recent months, the political focus on the conflict with this former customer has been intensifying. With roughly a quarter of our workforce located in Austria, our Europe ties are significant. Leaders from the European union have been focusing their attention on ensuring AMSC receives equitable compensation. In the United States, leaders as Senator John Kerry, former Secretary of Commerce and now ambassador to China Gary Locke, Secretary of State Hillary Clinton, and Vice President Biden have been personally pressing our case with their counterparts in the Chinese government.

Meanwhile, we are continuing to press our case through the Chinese courts. The legal proceedings include three civil suits and a commercial arbitration case, which in total amount to about $1.2 billion. Two of our civil cases deal with Sinovel's copyright infringement. The first is in Hainan, a southern province in China, and the second is in Beijing.

Sinovel had made motions to dismiss both of these cases, saying that they should be added to arbitration. The Hainan courts sided with Sinovel, dismissing our case there. The Beijing courts recently sided with AMSC, rejecting the motion. AMSC and Sinovel have both now filed appeals on these rulings with China's supreme court. We are now awaiting a hearing date.

We also are awaiting a court date on our third civil case, which deals with Sinovel's infringement of trade secrets. In this case our claims amount to more than $450 million. We believe that this is the largest intellectual property case ever undertaken in China.

We continue to see progress in our fourth legal proceeding, which is with the Beijing Arbitration Commission. Here we are seeking payment for approximately $70 million in past product shipments and enforcement of our existing contracts with Sinovel, which amount to more than $700 million. As we discussed on our last call, we've all ready completed two sessions with the Beijing Arbitration Commission. A third session will be held next week in Beijing. While it is possible that additional sessions may be needed to complete the evidence submission and rebuttals, we are hopeful that the tribunal of arbitrators will begin their deliberations in the not too distant future.

Also, just yesterday, the Financial Times and other media outlets reported that one of Sinovel's customers outside China, Brazilian project developer Desenvix, has also filed a suit against Sinovel in connection with our intellectual property cases. Desenvix has signed a contract to purchase wind turbines from Sinovel last fall, and the turbines arrived in Brazil earlier this year.

Since that time, Desenvix has been trying to determine whether these wind turbines contain AMSC's stolen intellectual property. It is our understanding that despite numerous attempts, they have been unable to obtain adequate assurance on this issue from Sinovel. So both AMSC and Desenvix have now made filings in Brazil, requesting a court imposed inspection of those turbines.

This certainly adds momentum for our side. It may even open up new opportunities for us in Brazil, because this is a market that's very well suited for our business model. Our legal team has been and will continue to be intensely focused on each of these cases.

Now let's move on to the state of the business. Financially, we again met our stated objectives for the first fiscal quarter. Our guidance called for us to generate more than $26 million in revenue, and we generated more than $28 million. This is more than three times our revenue in the year ago quarter, which marked our inflection point. We again generated positive gross margins, even excluding a benefit of roughly $7 million that we received from settling a substantial portion of our outstanding adverse purchase commitments.

Our GAAP net loss was about on par with our guidance, despite the fact that we incurred more than $2 million in mark to market charges associated with our recent financings. And our non-GAAP net loss of $10 million compared favorably with our guidance of less than $13 million.

Finally, we said we expected to end the quarter with about $85 million in cash, cash equivalents, marketable securities and restricted cash. Thanks to a concerted effort and commitment by our employees across the organization, we ended the quarter with more than $87 million. This compares with $66 million at the end of March, a reflection of the financings that we completed in the first fiscal quarter.

In simple terms, we've been executing quite well in both our Wind and Grid segments. In our Wind business, we provide a unique set of products and services for wind turbine manufacturers. The products are a set of power electronics and controls, including hardware, software, and firmware, that serve as the brain of the wind turbine. We call this fully integrated, holistic set of products ECS, or electrical control systems.

In addition, we provide proprietary wind turbine designs, on-site manufacturing training, certification support, and various other services. Our solutions allow manufacturers to reduce the cost of wind energy, and as a result, increase their market share. In the first fiscal quarter, we quadrupled our wind architects year-over-year, as our ECS shipments to customers like Inox in India, Hyundai Heavy in Korea, and JCNE in China accelerated.

This was an eventful quarter for JCNE. As you may recall, we partnered with JCNElast year, agreeing to provide them with designs for two megawatt, three megawatt, and five megawatt wind turbines. The two megawatt platform is their initial focus, and in May a team from JCNE and AMSC successfully connected their first two megawatt wind turbine to the power grid in [Jongbei], which is located near Beijing.

We are currently working with JCNEto obtain low voltage ride through, or LVRT, certification for these turbines, which is now a prerequisite in China in order to effectively compete for market share. From time to time, rapid and significant drops in voltage can occur on the power grid. LVRT functionality enables wind turbines to remain connected, or ride through these events.

Our ongoing LVRT work with JCNEfollows on the heels of successful certifications with XJ Group in February 2012, and most recently with Shenyang Blower Works in June 2012. Shenyang Blower Works is another two megawatt wind turbine partner in China.

Over the past year, we have stressed the importance of collaboration across departments and geographies within AMSC. Our LVRT is one result of this effort. Our wind turbine engineers in Austria have worked closely with our power electronics experts in Wisconsin and our service personnel in China to retain LVRT certifications for our partners. And the work they're doing in this area can now be transferred to other markets, and most importantly, tailored for them too.

We also had several notable accomplishments on the Grid side of our business. From a financial prospective, we more than doubled our revenues year-over-year, thanks for an increase in shipments of our D-VAR static compensator, or STATCOM. Our D-VAR product is a versatile and powerful team. It's allowing wind and solar project developers to connect their renewables to the grid safely and effectively. It's helping electric utilities carry more power through their existing transition and distribution assets. And it's helping industrial companies cleanup their power supplies.

In the first quarter we reached a key milestone, generating our 100th STATCOM contract. This is by far the most of any company in the industry. More than international power houses like ABB and US companies like S&C Electric. This milestone is really a tribute to the years of commitment our engineering, sales, and service teams. Through their dedication, determination and innovation our D-VAR platform as emerged as the leading STATCOM solution on the market today.

Our 100th order came from Iberdrola, a company that is involved with more than 50 renewable energy projects in North America alone. They will utilize this particular D-VAR system to connect the 48 megawatt Groton Wind Farm to the power grid in New Hampshire later this year.

Our other major offering in our grid business, our superconductor wire and cable. I spent a good deal of time last quarter discussing the progress that our Massachusetts team has made in boosting our superconductor wire production and yield, while at the same time streamlining our costs. These accomplishments continue to pay dividends for us.

In the first quarter, we made another wire shipment to Korea's LS Cable under our existing contract with them. As a reminder, LS Cable energized the first superconductor cable in Korea's power grid in September 2011. This is a distribution voltage, alternating current, or AC, cable system that has all ready provided Korea Electric Power Corporation, or KEPCO, with the real world in-grid experience that is required to facilitate broader adoption.

With one successful installation under their belt, LS Cable and now KEPCO have begun moving on to their next project, which is a long length direct current, or DC, transmission voltage cable. In the first quarter, we made a significant wire shipment for this cable. And next up for LS Cable and KEPCO will be a transmission voltage AC cable system.

At the end of the day, LS Cable will have developed the three main superconductor cable solutions that electric utilities around the world will require going forward;transmission AC, transmission DC, and distribution AC.

And then there's the Poseidon project in Europe. Just a couple of weeks ago, we announced that we were selected as the wire supplier for this project, which is funded by the European Union and aims to provide the blueprint for improving the efficiency and reduction the environmental impact of Europe's commercial shipping fleet through the use of superconductor propulsion, power generation, and power distribution systems. We have all ready shipped this wire to GE's energy power conversion division, formerly known as Converteam. And they will use the wire to manufacture and test megawatt scale superconductor motors and generators.

With that, let me turn the call over to Dave Henry from for a few minutes to discuss our first quarter financial results and outlook. Dave?

Thanks, Dan, and good morning, everyone. Let's get right to the numbers. AMSC generated $28.7 million in revenue for the first quarter of fiscal year 2012. This is up from $9.1 millionin the year ago quarter. As Dan discussed, this growth was driven by both of our business units.

Our Wind revenues grew to $16.5 million in the first quarter of fiscal 2012 from $4.3 million in the first quarter of 2011. And our Grid business grew to $12.2 million in revenue from $4.8 million in the year ago quarter. Our backlog on June 30 was approximately $269 million, down from $291 million as of March 31, 2012, but up from $225 million on June 30, 2011.

Our gross margin for the first fiscal quarter was 41.1%. As we advised on last quarter's earnings call, this figure was positively impacted by the recover of adverse commitment liabilities or $7.3 million due to settlements with certain vendors. Excluding this recovery, gross margin for the first quarter was 15.6%,which compares with a negative gross margin from a year ago quarter. Please note that this figure also includes approximately $3 million in cash payments from certain Chinese partners for fiscal 2010, product shipments that fell through at 100% margin.

Our R&D and SG&A expenses for the first fiscal quarter were $17.7 million, down from $30.1 million in the first quarter of 2011, and in line with our guidance for annualized R&D and SG&A expenses of around $70 million.

We incurred $2.7 million in interest expense associated with our recent debt financings, of which $2.3 million is non-cash. The non-cash interest is an accounting phenomenal under US GAAP that results in the requirement to discount the debt. The discount on the debt arises from the allocation of a portion of the value of the debt to derivative liabilities associated with the debt and warrants. Non-cash interest is the amortization of the debt discount.

We also incurred a $2.4 million non-cash charge during the first fiscal quarter for a change in the fair value or mark to market of the derivative liabilities and warrants I just mentioned. Changes in fair value of these derivatives will be reflected in our financial statements each quarter until the earlier of the exercises of the options underlying these instruments or their expiration date. In general terms, when our stock price increases during in quarter, like in the first quarter, the mark to market impact will be unfavorable. If our stock price decreases, the impact will be favorable.

Finally, we recorded an income tax benefit during the quarter of approximately $800,000 due primarily to the receipt of a refund for 2011 income taxes in China.

Our net loss for the first fiscal quarter of 2012 was $10.3 million or $0.20 per share. This is a substantial improvement from a net loss of $37.7 million or $0.74 per share in the year ago quarter. We also reduced our non-GAAP net loss for the June quarter to $10.2 million, or $0.20 per share, from $30.8 million or $0.61 per share in the first fiscal quarter of 2011.

We ended the June quarter with $87.1 million in cash, cash equivalents, marketable securities and restricted cash. This is up from $66.2 million as of March 31, 2012, as a result of the financings that we completed in April and June of this year. Excluding the net proceeds from the financings, our cash usage was approximately $12 million in the first quarter.

Now let's turn to our financial guidance. As we said on our fourth quarter call and many other times in the past, we will see some fluctuation in our revenues from quarter-to-quarter. This is generally a reflection of the timing of shipments.

For the second fiscal quarter of 2012, we expect that our revenues will be greater than $20 million, which is down from Q1 and roughly flat compared with the second quarter of fiscal 2011. All of this revenue is currently in backlog. We expect that our revenues will resume their growth in the third fiscal quarter, and we continue to expect that our revenues for the full year fiscal 2012 will grow nicely as compared with fiscal 2011.

We expect that our net loss for the second quarter of fiscal 2012 will be less than $22 million or $0.43 per share. This guidance does not factor in any mark to market adjustments associated with our derivative liabilities and warrants. Our non-GAAP net loss for the second fiscal quarter, which excludes mark to market adjustments, non-cash interest associated with our debt and other non-cash items, is expected to be less than $17 million or $0.33 per share.

In terms of cash usage, our ability to pay the amortization on the convertible note to Heights Capital Management in stock is dependent upon meeting certain stock price and volume criteria. Note that the first amortization payment due on August 6, 2012, will be made in stock. However, our ability to make future payments in stock is not certain. Therefore, we believe it is prudent to assume on our cash forecast that we will make future amortization payments on the convertible note entirely in cash.

Based on this assumption, we expect to end the second quarter of fiscal 2012 with more than $70 million in cash, cash equivalents, marketable securities and restricted cash.

Finally, for full fiscal year 2012, our capital expenditures are expected to be less than $3 million. Now let me turn the call back over to Dan. Dan?

Thanks, Dave. I'd like to touch on a couple of key points before opening up the call to your questions. From a macro prospective, we like what we're seeing from the T&D market. Spending remains stable and solutions that make the power grid smarter and more resilient continue to garner greater attention and a bigger piece of the pie.

In fact, we're all ready beginning to see a renewed call to action in the T&D market following historic blackout in India earlier this week, that has left more than 600 million people without power. Our AMSC India team has been serving this market for several years on the Wind side of our business. Most recently they've begun working hard to establish roots for our Grid business. Now is the ideal time.

But this blackout also has brought the need for T&D investment to the forefront worldwide. An article in this morning's Washington Post discusses recent outages in cities like New York, San Diego and Boston, and it talks about the threats that exist throughout the grid here in the United States. Multiple billions of dollars of investment are needed in the US alone to modernize our power network, and we can help make this happen with our Gridtec solutions.

In the renewable space, meanwhile, the headlines have taken on an increasingly negative tone, with the production tax credits set to expire here in the US, competition from Asia increasing, and dumping cases heating up in various countries. Also, the China wind market is not the growth engine it once was. Turbine manufacturers there must meet rigid new standards and fight for market share in a flatish environment.

Given this environment, why is there cause for optimism? For one, Asia is where most of our wind partners are located, and they are fielding advanced, high performing turbines that comply with local codes at local costs. In other words, they are well equipped to gain market share, and as a result, we are as well. We're seeing that happen today with Inox in India and with Hyundai and Doosan in Korea.

And we believe JCNE,XJ Group and Shenyang Blower Works are well equipped to do the same in China. We now would like to see our Chinese partners build their order books and execute their growth plans. And as these manufacturers compete more heavily, they will help to drive down the costs of renewables, which will ultimately make wind power even more competitive with traditional fossil fuels.

The reality is, from a global prospective, wind and solar installations are as strong as ever and are expected to continue growing in the years ahead.

I am proud of what we have accomplished as a team this past year and this past quarter. We have remained focused on what we can control, and as a result we have met our core objectives with our customers and partners. We have energized our workforce, we have changed the way we manage the business, and we've executed to plan. In fiscal 2012 we're committed to maintaining that track reported of execution, generating year year-over-year revenue, and driving towards sustainable profitability.

Now, Anthony, would you please provide the instructions for the question and answer session?

Thank you. (Operator Instructions). We'll take our first question from Jim Ricchiuti with Needham & Company.

Hi, thank you, good morning.

Hi, Jim.

I was wondering if you would comment on your view of the second half of the year? You're suggesting stronger growth second half over first half, and I was wondering if you -- Dan, if you might just comment on where you see that coming from in terms of the two segments, Wind versus Grid?

Yes, that's a good question, Jim. As you look what we've done in Q1, and we look at the guidance that we've put out for Q2, I think a lot of the attention of you all and certainly ourselves are on the second half. We've said consistently that we anticipate growth year-over-year for the year, and that would mean that the second half would be certainly stronger than the first, and we believe this simply from how when we talked to our customers and we look at the order book, and how the shipments lay out over the next month.

You know quite well that our ability to book new orders takes some time. So we have long-term contracts with some of these customers, we have shipments scheduled for those contracts, and the growth we see coming from is from both the Wind side and the Grid side. On the Wind side, we see growth coming in each of the three major regions; inc China, in India and Korea. On the Grid side, hopefully we see a real good third quarter and fourth quarter as well. So we think that the prospects are quite bright here in 2012, and it's a very different year for sure than 2011.

So the Grid you're expecting -- sounds like a pick up in bookings this quarter in Grid that would get to you some stronger growth in Q3?

Yes, we see that coming in the Grid segment as well as in the Wind segment. And some is in orders that we have, and also when we look at the pipeline and visibility of orders, we see that quite strong as well for the second half of our year.

We'll take our next question from Ben Schuman with Pacific Crest Securities.

Hi, guys. Thanks for taking my questions. Dave, it sound likes if we adjust for the one-timers, we get to something around a low single digit gross margin for the quarter. I know you guys aren't giving guidance, but is that a good way to look at the business going forward for the next couple of quarters?

I think as we look ahead to the second quarter, I think you can expect that normalized gross margin that you calculated to be kind of in the ballpark, but I think as we move forward, we've talked in the past about cost reduction opportunities that we're working on, ways that we can cost reduce the electrical control systems. We continue to execute to those plans, and we would look to hopefully improving gross margins as we move forward through the rest of 2012 and into 2013.

If we look at the year as 2011 as OpEx control, think of 2012 as the year of costs of good control. It's a major effort among the Company, the people in the different geographies, and in the different product lines to contain costs of the products and continue to improve the gross margin. I think, Dave, in the prepared remarks you actually have a number that you --

It up 15%. It was 15% gross margin, and then when you take out the $3 million of revenue that was at a 100% margin that he was doing, you get a normalized 5% to 6%.

All right, great. Then, Dan, we've seen a decent amount of M&A and consolidation as conglomerates maybe see a little bit more strategic value in some of these energy technologies than the public markets do right now. Can you just talk to how you feel about AMSC as a potential acquisition candidate, and if you guys have put energized any thought or effort in trying to sell the Company?

To directly answer the question, when we look at the whole set of solutions that we have, we have a very nice offering in how we touch the customer, and the fact that we touch -- at least for power and electricity, we touch really the whole range, from power generation all the way through the distribution.

Our intent is to continue to operate as a standalone Company. Our intent is to try to drive revenue growth, get back to profitability, and really make sure that we return equity value to our shareholders. That's Dave's responsibility and my responsibility, and that's how we operate the Company.

As for any considering on M&A, as a general policy, we don't comment on those things, but we're very happy and bullish on the prospects that we have. We see events in the overall market changing, we think to our positive. And we position the Company in a way where we can grow not only within China, but outside China as well, and we see this as a very attractive business here in the next quarters and many quarters in the future.

(Operator Instructions). We'll take our next question from Aaron Chew from Maxim Group.

Good morning, gentlemen. I appreciate the questions. I understand the limitations in discussing some of the contract details, both from a competitive and disclosure prospective. Just given how critical the Jingcheng -- JCNE and other Chinese contracts are to your outlook and profitable, I was wondering if you could offer some level of update on how the two big contracts are really tracking versus their gross dollar amount and maybe versus your expectations?

The reason I ask is it just seems, that you obviously don't disclose any specifics in a given quarter, just the back of the envelope suggest that the Jingcheng contract in particular may be track well behind where you think it would be given the 2013 end of the contract. Am I doing the math right? Is that part of the terms of the contract, or is it of the quarter by quarter phenomena that we have to let Jingcheng guide, or are you getting any insight from this customer as to the timing and expected ability to fulfill it? Thanks much.

Let me bring it back up a couple of levels, and then try to answer the detailed questions you put in there. When we originally entered into the agreements, and you're focusing on JCNE and Shenyang Blower, both in China, they established with us a shipment schedule that at the time they thought was rather conservative. So the idea of giving forward orders -- usually a customer, if they're willing do that, will only do that with numbers that they believe are certainly going to be met and perhaps exceeded.

I think the fundamental challenge in the market has been in 2011 with LVRT. That's now leaked into 2012. When we went through the update on the different customers, what you're seeing is only recently has XJ and Shenyang have received LVRT certification for the two megawatt, and we continue to work with JCNE here in the coming weeks and months to get them to LVRT certification. That really is a price to entry.

At the time these contracts were established, I don't think anyone really foresaw what was going to happen around LVRT in 2011 and 2012. That for certain has impacted both of their businesses. Good things about Shenyang and JCNE are that both have arms of their business that go out and develop projects. So their ability to control when they ship, control costs, and ultimately control value to their customer -- which is not seen in wind turbines, it's seen in electricity -- really gives them good visibility in their future.

Overall, China has slowed down. The growth is not what it once was, and the overall numbers for the market are seen to be relatively flat. We believe -- and our partners are telling us first hand -- that through the differentiated technology that we provided to them that they believe and their forecast show them gaining market share quite rapidly.

As we said in the prepared remarks, I think now we all focus on China and the execution of these partners for their plans. We remain optimistic, because we see that optimism and share that optimism with our partners, but I think the belief will be in seeing, and we hope and anticipate seeing that in the next quarters coming forward.

Okay, excellent. Thanks so much.

We'll take our next question from Pavel Molchanov with Raymond James.

Thanks very much. You referenced the terrible Indian blackout. Realistically, what's the opportunity there? Particularly as an foreign Company where there's a degree of economic nationalism with respect to the utility grid, howdo you see your competitive positioning there compared to some of the indigenous suppliers there perhaps?

I think the I think you have to remind yourself of is our business model. We don't go to the market in the way that GE or ABB. We localize our people, our content and technology, and ultimately work with local partners to deliver a local solution at local cost. Some the power that we think exists within our brand in India is the fact that we would work through and with partnerships.

We've established that with Inox on the Wind side. We kind for foreshadowed what we saw happening in India. We talked a lot about the AMSC India and the fact that we started in Wind, we now moving to Grid. We believe both of the principle solutions on the Gridtec side, be it the D-VAR for utility stabilization or grid interconnection, and also the superconductor cables we see have a great and promising future in India.

The interest level in quite high, and I think we've seen just in the past days here the interest skyrocket in India. The number of people that we need to send out there to support and really try to help build this market, given this new window of opportunity, really is something we've gotten good at doing. We're very adapt and adept at being able to come into these markets and support our local AMSC India staff with support from Europe and America and even China.

So we think that the opportunity in India really presents something nice for the Company. We now have to go develop that opportunity a bit and deliver on that opportunity. And as we said, really foreshadowing in last quarter's call, we see AMSC India playing a big role in our business in 2012 and beyond.

Appreciate the color, guys.

(Operator Instructions). We'll take our next question from Philip Lee with Mangrove Partners.

Hi, guys. Can you go through thank you $3 million cash payment you received during the quarter? Just like what was it for? Who was it from? Things like that.

You got to go back a little bit to when we had to restate and change our revenue recognition for certain of our Chinese partners for shipments that we made back in the fiscal 2010 time frame. At the time that we did that, we basically any -- since they had not paid and in retrospect met the conditions for revenue, basically anything related to those customers from a balance sheet standpoint was written off. Any receivables or any inventory, and despite the fact that we had actually shipped product to them. And that we would ultimately recognize that revenue once we were paid.

So we received payments for some of those shipments from back in that time in the first quarter. As a mentioned, that was about $3 million, and because of the accounting, it was at 100% margin.

And I think it's important if you think about that as being indicative of the status of our partners in the Chinese market, the fact that these guys are now finally paying for the past puts them in a position to grow in the future. And I think it -- you see this an important inflection point in their business. They're obviously getting orders and getting cash flow that can get up-to-date in the past, which puts them in a good position to grow here in the next quarters and beyond.

Got it. And then just last question on the backlog. Can you comment on the backlog trends? It's up nicely year-over-year, but trending down on a sequential basis.

I think the thing you have to pay attention to the backlog is the way orders come in sometimes are in bunches. So the backlog is supported by a number of longer term contracts. We burned off some of the backlog on those longer term contracts, which means that as we get a series of smaller orders, it's a bit of noise in the overall number.

We see the health of the business in the short-term as being there. The feedback we're getting from the markets and from our partners are that they're seeing an uptick in their businesses. So we would anticipate -- we believe that we'll see additional orders here in the third quarter, the fourth quarter and beyond, and at some point we have to start to see larger orders.

When we think about the Wind business, we've seen that in China, we've seen some of it in India, and we've seen a little bit of it in Korea. As the Indian and Korean partners further establish their businesses locally, and probably Korea as they continue to establish their business globally, they're going to need to place additional orders on us, and it's our job to deliver that in the backlog.

On the Grid side, it's always been a bit of hand-to-mouth six to nine months out. I think the thing that has changed in 2012 is the visibility on not just two quarters, but now four and five quarters out. And we see good health on the Grid side of the business.

So although your can say in the backlog it hasn't translated to a higher backlog, that the pipe line and visibility on additional orders is there. It's quite healthy. Now we need to realize that and make those orders happen.

It appears we have no further questions in the queue at this time. I would like to turn the conference back over to President and CEO Daniel McGahn.

I want to thank everybody taking the time to listen. I think given the news out in the past days, the opportunity for our Company continues to brighten. The news out of India presents us with an opportunity to utilize our business model there. Fortunately, we've made the strategic decision to be in India a time ago, and we're ready to be able to take advantage of that opportunity today.

The news out of Brazil I think similarly puts our Company in a position to repeat what we've done in Korea and India, perhaps in Brazil. There's a market there that requires the solutions that our Company has, and our Company is gearing up first with dealing with this litigation, but second, there may be a business opportunity for us there, and then the news out of the Washington Post today, really calling for action for investment in the US grid is a good sign for our Company. The fact that they're singling out major metropolitan areas within the US is great news for our Company, and particularly our superconductor cable business.

So we see the prospects bright. We believe that we've turned the corner in the business. Now it's our job to go execute on that and be able to deliver value to our partners, to keep our employees energized and focused on the mission ahead, and ideally be able to provide value to shareholders as well. So thank you very much for your time, and we'll talk to you in a few months.

That does conclude today's conference. Thank you for your participation.