American Superconductor Corp (AMSC) 2013 Q3 法說會逐字稿

Good day, everyone, and welcome to the AMSC 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 President and CEO, Daniel McGahn; Senior Vice President and CFO, David Henry; and Senior Manager of Corporate Communications, Kerry Farrell. For opening remarks I would like to turn the call over to Kerry Farrell. You may begin.

Thank you, Aaron, and welcome to our call to discuss the third-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 Risk Factors section of our annual report on Form 10-K for the year ended March 31, 2013, which we 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 or recoveries, losses, stock-based compensation, amortization of acquisition-related intangibles, restructuring and impairment charges, Sinovel litigation costs, consumption of zero cost basis inventory, non-cash 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 on the Investors page of our website at www.AMSC.com. And now I will turn the call over to CEO, Dan McGahn. Dan.

Thanks, Kerry, and good morning, everyone. I will begin today by providing an overview of our financial results for the third quarter of fiscal 2013. Dave will then review our financial results in detail and provide guidance on our fourth fiscal quarter. Following Dave's comments I will provide you an update on our business outlook and after that we will open up the line to your questions.

We had a stronger than anticipated third fiscal quarter highlighted by increased revenues, improved gross margin and reduced non-GAAP net loss. Much of our revenue growth was driven by our Wind customers. We continue to reduce cash burn and are reporting a higher cash balance than the previous quarter.

The Wind market in India has begun to sort itself out now that the incentive structure has been clarified. The Chinese Wind market is beginning to show signs of improvement. However, we do not see the immediate translation into our business. As expected, the political climate in Australia had an adverse impact for our D-VAR business in the third fiscal quarter.

Despite these facts, which we expect will continue for several quarters, we remain optimistic that the markets we serve represent solid growth opportunities long-term. Before I discuss our business strategy, third-quarter highlights and business outlook I will turn the call over to Dave for a financial overview.

Thanks, Dan, and good morning, everyone. AMSC generated $20.6 million in revenues for the third quarter of fiscal 2013. This is up 18% from $17.4 million in the year-ago quarter. The year-over-year revenue growth was driven by higher Wind revenues.

Wind segment revenues for the third fiscal quarter nearly doubled year-over-year primarily due to higher revenues from customers in India and China. Revenues from China include payment received from CSR for past shipments and services for which revenue is recognized at the time of payment or as the associated costs were reported in a prior period. Revenues from CSR also include product revenues from the sale of core components.

Grid segment revenues decreased year-over-year in the third fiscal quarter primarily due to decreased D-VAR revenues. The 12-month backlog as of December 31, 2013 was approximately $43 million compared with $60 million as of September 30, 2013. The decline in the 12-month backlog is due to continued slow D-VAR bookings as well as the push out of contracted backlog from one of our Wind customers in China.

Gross margin in the third quarter was 22.9% compared with 5.1% in the year ago quarter and 6.5% in the prior quarter. The year-over-year and sequential increases were primarily due to the CSR revenue I referred to earlier.

R&D and SG&A expenses for the third quarter were $11.2 million. This is down from $14.7 million in the year ago quarter. The decrease is primarily due to the savings realized from our cost reduction actions in both fiscal 2013 and fiscal 2012, as well as lower legal costs. More than 30% of this R&D and SG&A spending in the third fiscal quarter was non-cash.

Net interest expense was $1.6 million in the third fiscal quarter of which $1.1 million was non-cash interest expense. This compares with $3.5 million of interest expense in the prior quarter of which $3.1 million was non-cash and $4.6 million in the year ago quarter of which $3.9 million was non-cash.

The decreases in interest expense on both a sequential and year-over-year basis were due primarily to payments to the holder of the convertible note in shares of stock in these prior periods at a 15% discount to market. This discount was reported as non-cash interest expense. The holder of the convertible note elected to defer amortization payments due during the third quarter of fiscal 2013.

We also reported a non-cash gain of $500,000 in the third 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. In the year ago quarter this amount was a gain of $5.2 million. The year-over-year decrease in the gain is due primarily to a lower principal value of the convertible note and a lower reduction in our stock price compared to the prior year period.

Our net loss in the third quarter of fiscal 2013 was $8.4 million or $0.14 per share, a significant improvement from the net loss of $20.1 million or $0.38 per share in the year ago quarter and from $14.6 million or $0.24 per share in the prior quarter.

On a non-GAAP basis our net loss was $5.7 million or $0.09 per share for the third quarter of fiscal 2013. This is a significant improvement from a non-GAAP net loss of $10.8 million or $0.18 per share for the prior quarter and from a non-GAAP net loss of $13.5 million or $0.26 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 third quarter with $41.7 million in cash, cash equivalents and restricted cash. This compares with $32.8 million as of September 30, 2013. Third-quarter cash includes net proceeds of $9.8 million received as a result of the closing and funding of our new term loan with Hercules.

As of December 31, 2013 the principal balance of our debt arrangements, excluding the debt discount and including the new term loan, was $25 million compared with $16.2 million as of September 30, 2013. We are in compliance with the covenants under our debt arrangements.

In addition, during the quarter we raised $3.3 million from the issuance of common stock under the At-the-Market or ATM sales agreement with MLV & Company. Net of the proceeds from these financing activities our cash burn was approximately $4 million in the third fiscal quarter.

Turning to our financial guidance, for the fourth fiscal quarter of 2013 we expect that our revenues will be greater than $16 million. Less 100% margin revenue was forecast in the fourth fiscal quarter and is expected to result in both a lower gross margin and increased sequential GAAP and non-GAAP net losses.

We expect that net loss for the fourth fiscal quarter will be less than $16 million or $0.24 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 fourth fiscal quarter, which excludes mark-to-market adjustments, non-cash interest associated with our debt arrangements and other non-cash items, is expected to be less than $12 million or $0.18 per share.

Despite the higher forecasted net loss we expect a reduced cash burn on a sequential basis and expect to end the March quarter with more than $38 million in cash, cash equivalents and restricted cash as we expect to generate cash from working capital in the fourth fiscal quarter. This forecast does not assume any proceeds from the ATM in the fourth quarter.

We continue to actively market the sale of our non-core assets, Tres Amigas and Blade Dynamics. Our priorities for enhancing our liquidity are first to improve operations including revenue growth and managing costs followed by the sale of our minority investments and finally additional equity financing.

We believe that we have sufficient liquidity for at least the next 12 months and we continue to expect our cash burn will be reduced in fiscal 2013 compared with fiscal 2012. With that I will turn the call back over to Dan.

Thanks, Dave. Let's start with our Wind business. We currently have wind turbine manufacturing partners in India and China in volume production and we believe Korea will transition to volume production based on local market demand.

The wind turbines they manufacture using our Windtec Solutions technology result in some of the highest performing turbines on the market today. While we generate revenue from the design services that we provide, the significant majority of our Wind revenue comes from the sale of our electrical control systems.

Our customers in volume production tend to place large, long-term contracts. Therefore, we do not receive new orders from customers every month or even every quarter. These contracts lay out a delivery schedule that will fulfill their anticipated needs for that timeframe. However, our contracts also provide the customer the flexibility to adjust the contracted delivery schedule to fit their current business needs.

One of our customers in China is not needing their original contracted delivery schedule and during the quarter we adjusted our 12-month backlog with this customer to reflect currently anticipated deliveries. I will talk about the Chinese wind market in a few minutes. First, I'd like to discuss India.

Our partner, Inox, signed a contract in February of 2013. Over the past 12 months we have been consistently delivering product to meet Inox growing demand. If Inox continues to execute to its forecasted growth then it is reasonable to believe that we will receive a follow-on order for electrical control systems sometime in 2014.

We have begun discussions with Inox and we continue to reaffirm the close working relationship between the two companies. India continues to be a bright spot in the global wind market. With the Indian government's recent actions to encourage investment in wind projects, annual installations are expected to grow steadily for the next several years.

Industry analysts believe that more than 2.5 gigawatts of wind energy will be installed in 2014. With an installed capacity of more than 18 gigawatts, India is the world's fifth largest producer of wind power.

Analysts expect that India's wind capacity could more than double by 2020 to more than 40 gigawatts. And the government is now offering low interest loans for wind projects through the National Clean Energy Fund. This creates a stable and predictable policy environment in which businesses can feel comfortable investing in wind energy generation. Inox continues to expect to double its size within the next few years and has already moved to the number three spot in the market.

We have said that to reach our objective of cash flow positive, our wind business in India should be supplemented by our wind business in China. Early market reports indicate that the Chinese wind market was flat in 2013 and the domestic overcapacity and grid issues continued.

The government is expected to continue to support the clean energy sector in 2014. The National Energy Administration announced that it plans to add 18 gigawatts of grid connected capacity in 2014. For comparison, while official numbers are not yet out, it is believed that China connected 14 gigawatts to the grid in 2013. This includes getting both new and existing turbines connected to the grid.

Additionally, State Grid has made progress in building the first ultrahigh voltage long-distance transmission line. This transmission line will allow wind produced in Zhenjiang province to be transported to other regions.

Additionally, more ultrahigh voltage lines will be commissioned in 2014 and 2015 that will connect power producing regions with demand centers. These are all positive signs for the industry and ultimately for AMSC.

While there are signs of improvement in the Chinese wind market, our customers have not yet fully recovered. In the third fiscal quarter we delivered on a new order for spare parts and received payment for past services and shipments of core electrical components from CSR-ZELRI, which was recorded as revenue.

JCNE has also indicated that they are beginning to see the market turn. On the technology front, JCNE's 3 megawatt turbine, which is a Windtec design, successfully completed LVRT testing and they now are seeking certification. These signs indicate an uptick in our customers' businesses.

We currently believe that our customers in China may be in a position to use their existing inventory over the next few quarters. Following that they may be in a position to take on additional contracted shipments to meet new demand.

Finally, moving on to Korea. Korea has a small onshore market. More significant growth is contingent upon the offshore industry. Early estimates suggest that around 500 megawatts were installed in Korea in 2013. While not as large a market as China or India, our partner, Hyundai Heavy Industries, is an active player most recently winning a 40 megawatt project on top of 24 megawatts already installed in Northeast Korea.

To reiterate our wind objectives, revenue from India should be supplemented by sales to our licensees in the Chinese market. This can be augmented by demand from our wind turbine manufacturing partners in Korea.

Moving on to our Grid business, we will start with our D-VAR product which offers a voltage stability solution for utilities, renewable developers and large industrial facilities. Our primary D-VAR markets are North America, Australia and the United Kingdom.

In the United States you may have heard that the production tax credit, or PTC, was not renewed in December by the federal government. The PTC is an enabler of our D-VAR business because one of the primary applications for the system is to safely, efficiently and effectively connect wind farms and other renewable energy power plants to the electrical grid.

The PTC was last renewed for one year at the beginning of 2013. The renewal states that wind farms that began construction in 2013 are eligible for the credit. And therefore we are continuing to bid on projects that started in 2013 but require D-VAR equipment in 2014. Our pipeline in the United States remains healthy.

The Austrian market remains challenging. The leadership changed to a party that is not as supportive of renewable initiatives. In the third fiscal quarter we experienced the push out that we anticipated in our order pipeline. But we're beginning to see signs that the uncertainty from the elections has sorted itself out. We believe that installations will pick up again during the next fiscal year. And we remain optimistic about the long-term opportunity in Australia.

We have also invested into new markets such as Africa, Europe, the Middle East and South America. We continue to make progress in both the utility and renewable applications in these regions.

Moving on to our superconductor product line, we remain engaged in conversations with utilities in the United States for our resilient electric grid system. And we also remain engaged with the US Navy on the degaussing systems. We believe that we will receive an order for the resilient electric grid and degaussing systems in the near-term.

To summarize, while the near-term markets will be challenging, the fundamentals that have been driving our business for the past few years remain intact. We believe our longer-term outlook is positive. The strategic actions that we've taken over the past year to improve our cost structure and reduce our net loss and cash burn have paid off.

As we have done all along, we will continue to manage our cash and continue to explore opportunities to get more efficiency out of the business. We will do this while continuing to meet the demand of our customers and further diversifying our geographies and revenue streams by application particularly in the D-VAR market.

We offer the same high-quality products that we have come to be known for thanks to our dedicated team of employees. We continue to be focused on achieving cash flow positive on a quarterly basis by the end of fiscal year 2014. With that we will open up the line for your questions. Aaron.

(Operator Instructions). Carter Driscoll, Ascendiant Capital Markets.

First question, if we get back to your take on the inventory levels at some your Chinese customers, could you maybe quantify how quickly you think those could be worked off and what factors might or might not affect that before you could potentially see a re-up?

Yes I think what we have been able to do is to work very much in concert with them to understand their pipeline, to understand their backlog, to understand better when they are winning. I think the good sign this quarter is we're starting to see inventory move out of some of our Chinese customers' factories.

We talked specifically about JCNE; they're very excited about their 3 megawatt, so that is going to come down the pike here we believe in the near-term, which should add some additional growth potential for JCNE.

I can't really get into specifics on how fast or how much inventory is moving other than to say that I think we are cautiously optimistic that the signals that we're seeing in the Chinese market are different today, more positive than they were three, six, nine months ago.

Can you remind us again --? Obviously getting LVRT certification for the 3 megawatts positive. Can you mention again typically how long certification takes?

Certification it depends upon wind conditions, it depends upon where they are in the queue. These events have taken us as short as weeks to as long as several quarters. So we are not going to put out a timetable on when we think they're going to get certification.

But the belief is and the way to think about it is, they will want to go out as soon as they can and go build a small wind farm, not just one, but several using the 3 megawatt. And that is an extension of the current product line, that is a potential for revenue growth for us and we are looking at that with optimism.

And it is really because of the tremendous effort of a lot of our employees in China really centered around Austria and in our US sites that it has been a combined effort across the Company to get JCNE to this point.

Maybe shifting gears a little bit. Could you talk about some of the D-VAR opportunities in some of the emerging markets and maybe list a handful -- I mean, you've talked about South Africa before and I believe it is Romania. Maybe outside of what your traditional strength, UK, Australia and the US and then they want to talk about the PTC a little bit and its affects for this year.

Kind of from an overall trend what we're seeing is as more of these markets, and some of the ones you mentioned, but we see it also in Continental Europe. We see potentials in the Middle East, we see potential in South America as well -- that as they start to adopt renewables on a rate where they are doing hundreds of megawatts, that they are looking at some of the other geographies on how they handle gridding their connection.

And I think what you are seeing is some of the emerging markets that are adopting renewables later than the US, China and the traditional Western European markets are taking advantage of the full complement of technology that is available today. That in designing a grid, particularly using a D-VAR in that mix, really helps protect the grid against problems that could occur in the future as wind and renewables proliferate in those geographies.

So I think our team has done a very good job of trying to market the advantages of putting D-VAR into the market earlier than maybe we have seen particularly in some of the Asian markets. And it seems that in these markets that they are willing to pay for the product and that they see it as a way that they can really continue to develop the wind markets that got the rates that they want to go.

Many of these countries have targets out there they have to meet that are still quite aggressive. So there is more wind coming in these markets and that is why we want to be there and participate in them and to make sure our products are formatted in the right way for these markets.

And then just your take on that PTC looking at obviously last year, hoping for similar type of pattern (technical difficulty) gets reinstated or it attaches an amendment. You did see I think at least the wind projects really slow in the first half of the year.

But it sounds like you believe that because there was significant pickup in the second half of the year you still have a pipeline, at least for a particular period of time. How do see that playing out at least in comparison to last year?

Yes, I think the thing that is perhaps different is, for instance, if you were predicting a rush at the end of calendar 2013 for D-VAR, that is probably a little bit off in time because the way the PTC is structured for 2013 is the project only has to begin before the end of calendar 2013.

So what we are anticipating is whatever -- and the PTC rush means that whenever these projects would naturally complete they are going to require the D-VAR product towards the end of the project lifecycle towards connection to grid towards commissioning of the power plant. So that means in 2014 we see good visibility on projects in the US.

An interesting fact though, as we start looking at some of our larger turbine technology, we want to think about a vision for the Company to be in wind without a PTC in the US.

And the US Energy Information Administration states that wind is about $86 per megawatt hour without the PTC and this compares today with natural gas at about $67 per megawatt hour, obviously wind being a little bit more expensive than natural gas without the subsidy. But less than coal, which is at about $100 and nuclear which is maybe $108, when $110.

So I think what we are trying to work with our partners in the marketplace is to understand what life for wind in the US could be beyond the PTC. And I think it comes down to certainty of financing, it comes down to looking at wind sites perhaps for lower speeds, it comes thinking about the wind market in the US differently.

I think when you look at the past the PTC is -- without it it has really turned off the wind market because the assumption is that it will come back and I want to wait for it. I think going forward I don't know if people are going to be waiting for it to come back.

If you are going to want to develop wind resources in America you are going to have to figure out how to do it without the PTC. And that is where a lot of our technology, we think, will help be a differentiator in this market.

Okay. And just maybe expanding a little bit. You obviously introduced the new product recently, the full current limiters. Is that something that you are getting some quoting activity on? Can you talk about that new product? And then I just have one last follow-up if I may.

Yes, the product will be focused on -- and again, this is different than wind. This is on the other side of the grid so this is within the distribution system, this is the system that touches your business or touches your home.

And, yes, we've had significant quoting activity, we have conversations where we focused principally in the US because we see a lot of the macro events that occurred in the US around acts of terror, around storms, around issues of people trying to maliciously take out substations that there is an appetite in America for hardening and making the grid more resilient and then positioning the grid not only for increased reliability but for capacity in the future.

And through all the work that we have gone through with our team here with our supply chain and with the project that we are working on with the Department of Homeland Security today with Con Ed in New York, we basically believe we have a way to solve this problem that is unique to our Company, that is defensible by our Company, and that it uses proprietary technology and should change the way that we think about orders coming into at least the Gridtec part of our business. Because some of these projects compared to what our revenue levels today are substantial.

Just last question. You talked about -- obviously have done a good job this quarter shoring up the balance sheet. You still are potentially actively looking to divest your minority equity position. Can you talk about Tres Amigas and some of the hurdles it must come over?

I mean, do you have a significant minority position in that? And what that may or may not be able to do in terms of selling superconductor wire if that project continues to move forward and you get that last piece of financing?

Yes, this is Dave. We have about a 26% ownership stake in Tres Amigas. Right now they are in the process of raising capital for their Phase 1 construction. Phase 1 construction is for a 750 megawatt back-to-back line between the Eastern grid and the Western grid.

That process is underway, it is ongoing. From what I am being told things are going well. And that is really about all I can say for it at this point in time. But in terms of the future of any superconductors with Tres Amigas, it would not be until at the earliest Phase 2.

And Phase 2 would be a more fuller fit out of the facility towards its vision that they have of ultimately 5 gigawatts. But we have to -- if there are to be superconductors in that we would obviously have to be competitive with other alternatives before that could happen.

And we have been talking about that for a while now. I think the focus of Tres Amigas is to get the project really started, get it in the construction phase. And if the model makes sense the belief is that the demand will come and then therefore they will need additional capacity beyond the first phase and then we stand a chance to implement superconductors if and only if that capacity comes.

Got it, okay. I will jump back into queue. Appreciate your time, gentlemen.

(Operator Instructions). JinMing Liu, Ardour Capital.

First of all, just a housekeeping question. I may have missed this. How much was the zero cost revenue for the quarter?

It is in our non-GAAP table, JinMing. It was -- the inventory consumed, we don't report zero cost revenue, but the inventory that was consumed that had been previously written off was $1.1 million and that is an add back to our non-GAAP results. We don't take credit for it. But the real margin -- if you are asking what the margin benefit was during the quarter, it was really due to the CSR revenue that I mentioned that was 100% margin.

Right, that is what my question was about, how much revenue did you recognize from CSR?

Yes. Yes, they were 18% of our revenue in the quarter. And the consumption of zero cost inventory, it was $1.1 million in the quarter, but that is kind of been the run rate here for the last few quarters.

Okay, got that. I think another question related to CSR (inaudible). Recently I think they got a big contract, probably 500 megawatts. Those are a mix of 2 megawatt and 1.5 megawatt models. Are they going to use your components in those turbines?

That is an open question, I think. They don't have a 2 megawatt from us and we don't believe that they have one that they have ready yet to deploy. Could that be an opportunity for us? I don't see why not.

Clearly the relationship between the companies -- we demonstrate that they are active with us again with trying to clean up the past and move forward to a future.

So I guess I am cautiously optimistic always, JinMing, in China. But we have a nice 2 megawatt platform that has done quite well outside China and we are in this business of transferring additional technology to partners.

Okay. A question related to the tense market in general. From the data I have seen for 2013 it looks like market currently was -- at least for 2013 was concentrated in just a few large companies, turbine producers like [he has] some sort of relationship with the state. I just -- what is your take of your customers like JCNE competing against those larger competitors?

Yes, I think the big four take a good fraction of what is in China. But I guess I am still comforted by the fact that there is still a pretty big distribution through the top 20 players that you don't see. This threat of consolidation that was once maybe two years ago impending doesn't seem to really have happened.

I think the thing when we meet with JCNE's senior management, it is clear that they are going to be and the wind business for the long term, at least that is what they are communicating with us. They are getting the 3 megawatt going now; we do have a deal with them for the 5.5 megawatts turbine with them. And they believe that they are going to be a player here.

We want to see them move and start to bring more inventory out of their factory and we're starting to see the beginning of that now. So I think our thesis of allowing some of these guys to take share, be it JCNE or XJ or CSR or whomever, is a correct one because the technology that they are delivering to the market from a cost performance standpoint is at least equal if not superior to some of these other players.

And I think that you've seen some of the larger players, like our former friends, significantly stumble in the market. And I think that opens up a window of opportunity for some of our good partners in China to take share.

Okay. Switching gears to the Indian market. One thing I observed that actually alarmed me a little bit is that some Chinese (inaudible) producers came up with local companies (inaudible) got turbines into that market. But I think they got some early success so far. What is your take on that trend?

Yes, I tend to try to listen to Inox and the developers that we talk to in China. The Chinese want to market their winds outside China. I think that given what has gone through the market correction in China here over the past couple of years in order for these companies to really grow they have to get outside China.

India is an obvious market given the growth and that is partly why we are excited about it. But our Indian partners, rightly or wrongly so, they don't seem threatened by the emergence of the Chinese manufacturers. And I think the reasons are that they're able to make a turbine at similar costs to a Chinese turbine. So they don't see the Chinese coming in and significantly negatively affect pricing. And you have established names.

I mean the thing we hear about when we look at when our customers think of Inox, the things that they like about them is they are Indian and that that they are supported by a very large-company behind them, that has helped Inox to be able to gain share and take share away from (inaudible).

In the long-term will there be Chinese players in the Indian market? Sure. Will they take some share? Sure. Could they be some of our partners? Certainly.

But we see our focus in India really is through Inox. And we want to make sure that they get their objectives and they would like to become the top one or two, they are number three right now. And we want to do everything we can to support them. Because they have a product on the market that basically beats everybody when they are able to compete heads up with just the turbine.

That is a good point with just turbine. Because I know what strategy of some of -- at least some of Chinese turbine producers are that they (inaudible).

I think so far to date, I think there's been some announcements but -- and the Chinese can be -- I mean the Indians can be wrong about their own market. But there doesn't seem to be prevalence of fear of that coming. I mean that was supposed to come to America, it never really happened. Right?

I think it is a good model. I think the Chinese have -- they are on to something. But they have yet to be able to demonstrate more than press releases about growth of their wind turbine companies beyond the Chinese market. And I think our challenges that we have had with Sinovel have not only affected Sinovel but to some extent affected some of the other large names trying to export out of China.

Okay, that's a good point. Lastly, is there any update you can provide us regarding your potential contracts recently, Navy -- US Navy?

The main product that we're looking at and what we've been talking about here for the past quarters is the launch of this protection system for the surface fleet. What it does is it helps to increase the sensitivity of the protection for the ship from mines, but it is also really dramatically able to change the weight payload of the system that provides this feature today.

So as the ships get more concerned about weight, as the ships want to be able to be in theater closer and closer to the shore, the features that our system deliver are directly in line with where the Navy wants to go. We work very nicely in a partnership with the US Navy for the design to develop the test, the qualification of the system.

And as I said in the prepared remarks that we believe in the near term were going to see in order for that system. To think about again as AMSC, as the new Company. What we are doing is we are delivering full systems when it comes to superconductors.

Similar to what we do with our power electronics. We want to deliver full value to the market and that means further IP protection, it means further content and it means a direct interface with the end customer in this case really the Navy and the shipyard building the ship.

So we think we have a very nice product that is going to be needed in the near term and a business that we're going to be able to protect in the long term from a technology, from a continent, from an IP standpoint because one of the good things about the United States of America is we do believe in intellectual property.

Thanks a lot.

Carter Driscoll, Ascendiant Capital Markets.

Yes, I actually thought we were going to get through the call without mentioning the word Sinovel. Could you maybe just give us an update on the litigation and the potential that, after announcing another really bad operating performance, that they might get delisted? And any impact you think there may be if they were to continue to fall down on their own performance?

Yes, I will just give you an update on where we are and what we think it means and try to read through the tea leaves here. We continue to await a decision from China Supreme People's Court on the jurisdictional matter that we have discussed. The US case continues to make its way through the system.

But I think good news for us has occurred over the past few weeks where the media has really been focused on Sinovel, their struggles to grow, their cash burn and the fact that they are under investigation by the Chinese Securities Commission. It is clear that Sinovel has management challenges and growth challenges and we see those linked together.

These factors along with our case serve to continue to put pressure on their management to either change or change the way they do business. In order for Sinovel to really deliver on what its shareholders want, it's going to have to ship product outside China. And that road goes through American Superconductor.

Yes, no, I agree with you. Appreciate it, thanks, guys.

And this does conclude the Q&A portion of our program. I would now like to turn our program back over to our presenters for any closing remarks.

Great, thanks, Aaron. I think we were pleasantly surprised to be able to deliver these good results for the third quarter better than we had anticipated. If we look at cash, which is the main metric we know we are looking at and everybody wants to understand not only outside the Company but inside the Company.

In actuality our year-to-year cash and cash equivalents, if you just look at that part of the balance sheet, they have only change by about $4 million year-to-year. We only burned about $4 million here in the December quarter and from what Dave was saying with the numbers looking forward we're going to burn about that same amount of money we believe for the fourth quarter.

We have $40 million in the bank so we believe that from a liquidity standpoint we sit in a very good situation today, we have more levers that we can deal with. We want to grow revenue. We want to continue to manage our costs. We are actively pursuing the sale of the non-core assets that we have described and we do have this At-the-Market system set up that we can continue to enhance liquidity in the future if necessary through that mechanism.

So we are focused now on getting to that objective of getting to cash flow positive and how we have to do that are by growing our revenues. So thank you, everybody, for your attention and we look forward to getting back to you here in 2014 to report on our full fiscal year results here in a few months. Thank you, everyone.

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