MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that relate to future events or conditions, including without limitation, the statements in Part II, “Item 1A. Risk Factors” and in Part I under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry prospects, the timing of our resilient electric grid ("REG") system project with Commonwealth Edison Company, our prospective results of operations or financial position and adoption of accounting changes may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements represent management’s current expectations and are inherently uncertain. There are a number of important factors that could materially impact the value of our common stock or cause actual results to differ materially from those indicated by such forward-looking statements. These important factors include, but are not limited to: We have a history of operating losses, which may continue in the future. Our operating results may fluctuate significantly from quarter to quarter and may fall below expectations in any particular fiscal quarter; We have a history of negative operating cash flows, and we may require additional financing in the future, which may not be available to us; We may be required to issue performance bonds or provide letters of credit, which restricts our ability to access any cash used as collateral for the bonds or letters of credit; Changes in exchange rates could adversely affect our results of operations; If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired and may lead investors and other users to lose confidence in our financial data; We may not realize all of the sales expected from our backlog of orders and contracts; Our contracts with the U.S. government are subject to audit, modification or termination by the U.S. government and include certain other provisions in favor of the government. The continued funding of such contracts remains subject to annual congressional appropriation, which, if not approved, could reduce our revenue and lower or eliminate our profit; The novel coronavirus (“COVID-19”) pandemic could adversely impact our business, financial condition and results of operations; Our financial condition may have an adverse effect on our customer and supplier relationships; We may experience difficulties re-establishing our HTS wire production capability in our Ayer, Massachusetts facility; Our success is dependent upon attracting and retaining qualified personnel and our inability to do so could significantly damage our business and prospects; Historically, a significant portion of our revenues have been derived from a single customer and if this customer’s business is negatively affected, it could adversely impact our business; Our success in addressing the wind energy market is dependent on the manufacturers that license our designs; Our business and operations would be adversely impacted in the event of a failure or security breach of our information technology infrastructure; Failure to comply with evolving data privacy and data protection laws and regulations or to otherwise protect personal data, may adversely impact our business and financial results; We rely upon third-party suppliers for the components and subassemblies of many of our Grid and Wind products, making us vulnerable to supply shortages and price fluctuations, which could harm our business; Many of our revenue opportunities are dependent upon subcontractors and other business collaborators; If we fail to implement our business strategy successfully, our financial performance could be harmed; Problems with product quality or product performance may cause us to incur warranty expenses and may damage our market reputation and prevent us from achieving increased sales and market share; Many of our customers outside of the United States may be either directly or indirectly related to governmental entities, and we could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar worldwide anti-bribery laws outside the United States; We have had limited success marketing and selling our superconductor products and system-level solutions, and our failure to more broadly market and sell our products and solutions could lower our revenue and cash flow; We may acquire additional complementary businesses or technologies, which may require us to incur substantial costs for which we may never realize the anticipated benefits; Our success depends upon the commercial adoption of the REG system, which is currently limited, and a widespread commercial market for our products may not develop; Adverse changes in domestic and global economic conditions could adversely affect our operating results; We have operations in, and depend on sales in, emerging markets, including India, and global conditions could negatively affect our operating results or limit our ability to expand our operations outside of these markets. Changes in India’s political, social, regulatory and economic environment may affect our financial performance; Our products face competition, which could limit our ability to acquire or retain customers; Our international operations are subject to risks that we do not face in the United States, which could have an adverse effect on our operating results; Growth of the wind energy market depends largely on the availability and size of government subsidies, economic incentives and legislative programs designed to support the growth of wind energy; Lower prices for other fuel sources may reduce the demand for wind energy development, which could have a material adverse effect on our ability to grow our Wind business; Unfavorable results of legal proceedings could have a material adverse effect on our business, operating results and financial condition; We may be unable to adequately prevent disclosure of trade secrets and other proprietary information; Our patents may not provide meaningful protection for our technology, which could result in us losing some or all of our market position; We face risks related to our technologies; We face risks related to our legal proceedings; We face risks related to our common stock; and the important factors discussed under the caption "Risk Factors" in Part 1. Item 1A of our Form 10-K for the fiscal year ended March 31, 2020 and our other reports filed with the SEC. These important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. Any such forward-looking statements represent management’s estimates as of the date of this Quarterly Report on Form 10-Q. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
American Superconductor®, Amperium®, AMSC®, D-VAR®, PowerModule™, D-VAR VVO®, PQ-IVR®, SeaTitan®, Gridtec Solutions™, Windtec Solutions™, Smarter, Cleaner...Better Energy™ and Orchestrate the Rhythm and Harmony of Power on the Grid are trademarks or registered trademarks of American Superconductor Corporation or our subsidiaries. We reserve all of our rights with respect to our trademarks or registered trademarks regardless of whether they are so designated in this Quarterly Report on Form 10-Q by an ® or ™ symbol. All other brand names, product names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.
Executive Overview
We are a leading system provider of megawatt-scale resiliency solutions that orchestrate the rhythm and harmony of power on the grid™, and that protect and expand the capability of the Navy's fleet. In the power grid market, we enable electric utilities, industrial facilities, and renewable energy project developers to connect, transmit and distribute smarter, cleaner and better power through our transmission planning services and power electronics and superconductor-based systems. In the wind power market, we enable manufacturers to field highly competitive wind turbines through our advanced power electronics and control system products, engineering, and support services. Our power grid and wind products and services provide exceptional reliability, security, efficiency and affordability to our customers.
Our power system solutions help to improve energy efficiency, alleviate power grid capacity constraints, improve system resiliency, and increase the adoption of renewable energy generation. Demand for our solutions is driven by the growing needs for modernized smart grids that improve power reliability, security and quality, the U.S. Navy's effort to upgrade on-board power systems to support fleet electrification, and the need for increased renewable sources of electricity, such as wind and solar energy. Concerns about these factors have led to increased spending by corporations and the military, as well as supportive government regulations and initiatives on local, state, and national levels, including renewable portfolio standards, tax incentives and international treaties.
We manufacture products using two proprietary core technologies: PowerModule™ programmable power electronic converters and our Amperium® high temperature superconductor (“HTS”) wires. These technologies and our system-level solutions are protected by a broad and deep intellectual property portfolio consisting of hundreds of patents and licenses worldwide.
We operate our business under two market-facing business units: Grid and Wind. We believe this market-centric structure enables us to more effectively anticipate and meet the needs of the U.S. Navy, electric utilities, industrial facilities, power generation project developers and wind turbine manufacturers.
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•
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Grid. Through our Gridtec Solutions™, our Grid business segment enables electric utilities, industrial facilities and renewable energy project developers to connect, transmit and distribute power with exceptional efficiency, reliability, security and affordability. We provide transmission planning services that allow us to identify power grid congestion, poor power quality, and other risks, which help us determine how our solutions can improve network performance. These services often lead to sales of our grid interconnection solutions for wind farms and solar power plants, power quality systems and transmission and distribution cable systems. We also sell ship protection products to the U.S. Navy through our Grid business segment.
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•
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Wind. Through our Windtec Solutions™, our Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. We supply advanced power electronics and control systems, license our highly engineered wind turbine designs, and provide extensive customer support services to wind turbine manufacturers. Our design portfolio includes a broad range of drive trains and power ratings of 2 megawatts (“MW”) and higher. We provide a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility.
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Our fiscal year begins on April 1 and ends on March 31. When we refer to a particular fiscal year, we are referring to the fiscal year beginning on April 1 of that same year. For example, fiscal 2020 refers to the fiscal year beginning on April 1, 2020. Other fiscal years follow similarly.
On October 31, 2018, we entered into a Subcontract Agreement with Commonwealth Edison Company (“ComEd”) (the “Subcontract Agreement”) for the manufacture and installation of the Company’s REG system within ComEd’s electric grid in Chicago, Illinois (the “Project”). As provided in the Subcontract Agreement, the Subcontract Agreement became effective upon the signing of an amendment by us and the U.S. Department of Homeland Security (“DHS”) to the existing contract (the “Prime Contract”) between us and DHS on June 20, 2019. Unless terminated earlier by us, ComEd or DHS according to the terms of the Subcontract Agreement, the term of the Subcontract Agreement will continue until we complete our warranty obligations under the Subcontract Agreement. Under the terms of the Subcontract Agreement, we have agreed, among other things, to provide the REG system and to supervise ComEd’s installation of the REG system in Chicago. As part of our separate cost sharing arrangement with DHS under the Prime Contract, we expect funding provided by DHS in connection with the Subcontract Agreement to be between $9.0 to $11.0 million, which represents the total amount of revenue we are expected to recognize over the term of the Subcontract Agreement and includes up to $1.0 million that we have agreed to reimburse ComEd for costs incurred by ComEd while undertaking its tasks under the Subcontract Agreement (the “Reimbursement Amount”). In addition, we are required to deliver an irrevocable letter of credit in the amount of $5.0 million to secure certain Company obligations under the Subcontract Agreement, which we have done, and deposited $5.0 million in an escrow account as collateral to secure such letter of credit. ComEd has agreed to provide the site and provide all civil engineering work required to support the installation, operation and integration of the REG system into ComEd’s electric grid. Other than the Reimbursement Amount, ComEd is responsible for its own costs and expenses. DHS’s approval to commence with construction was obtained on June 20, 2019. Substation work on the project began in late 2019 and we are on schedule to deliver the REG project hardware in late 2020. The REG system is expected to be operational in 2021.
In March 2020, the World Health Organization declared the disease caused by the novel coronavirus, COVID-19 to be a pandemic. COVID-19, has spread throughout the globe, including in the Commonwealth of Massachusetts where our headquarters are located, and in other areas where we have business operations. In response to the outbreak, we have followed the guidelines of the U.S. Centers for Disease Control and Prevention and applicable state government authorities to protect the health and safety of our employees, their families, our suppliers, our customers and our communities. While these existing measures and, COVID-19 generally, have not materially disrupted our business to date, any future actions necessitated by the COVID-19 pandemic may result in disruption to our business.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including new information that may emerge concerning the severity of the COVID-19 pandemic and the actions to contain it or treat its impact, among others.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ under different assumptions or conditions. There were no significant changes in the critical accounting policies that were disclosed in our Form 10-K for the fiscal year ended March 31, 2020.
Results of Operations
Three months ended June 30, 2020 compared to the three months ended June 30, 2019
Revenues
Total revenues increased 54% to $21.2 million for the three months ended June 30, 2020, compared to $13.8 million for the three months ended June 30, 2019. Our revenues are summarized as follows (in thousands):
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Three Months Ended June 30,
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2020
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|
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2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Grid
|
|
$
|
17,715
|
|
|
$
|
9,855
|
|
Wind
|
|
|
3,498
|
|
|
|
3,915
|
|
Total
|
|
$
|
21,213
|
|
|
$
|
13,770
|
|
Our Grid business unit accounted for 84% of total revenues for the three months ended June 30, 2020, compared to 72% for the three months ended June 30, 2019. Our Grid business unit revenues increased 80% to $17.7 million in the three months ended June 30, 2020, from $9.9 million in the three months ended June 30, 2019. Grid business unit revenue in the three months ended June 30, 2020 was driven by stronger D-VAR, VVO and SPS revenue.
Our Wind business unit accounted for 16% of total revenues for the three months ended June 30, 2020, compared to 28% for the three months ended June 30, 2019. Revenues in the Wind business unit decreased 11% to $3.5 million in the three months ended June 30, 2020, from $3.9 million in the three months ended June 30, 2019. The decrease over the prior year period was driven primarily by decreased shipments of electrical control systems ("ECS") to Inox partially offset by increased ECS shipments to Doosan. As further described in Note 1 “Nature of the Business and Operations and Liquidity,” Inox is currently delinquent on its obligations to post letters of credit for sets of ECS that Inox has agreed to purchase under the terms of the supply contract, and on May 29, 2020, we sent written notice to Inox notifying Inox of its default under the supply contract due to Inox’s failure to post letters of credit in the amount of €6.0 million for the payment of ECS that Inox is obligated to purchase under the terms of the supply contract. If Inox fails to post letters of credit in the amount of €6.0 million in accordance with the terms of the supply contract within the ninety-day cure period after receipt of the default notice, then we may terminate the supply contract by providing written notice of such termination to Inox. In addition, Inox’s ability to perform under the supply contract has been and may continue to be hampered by the prolonged impacts of the COVID-19 pandemic. Starting in March 2020 through the end of May 2020, India’s manufacturing facilities were closed at the direction of India’s government and since such time have closed periodically in regions that become highly affected by COVID-19. We cannot predict if and when Inox will resume posting letters of credit for payment of contracted-for shipments of ECS. Inox's continued failure to post letters of credit and take delivery of contracted-for shipments of ECS has negatively impacted, and could continue to negatively impact, our revenues and liquidity. In the event we were to terminate the supply contract, our revenues and liquidity could also be negatively impacted. Inox has been active in the new central and state government auction regime in India and has a cumulative order book of over 1.4 GW. However, we cannot predict if and how successful Inox will be in executing on these orders or in obtaining new orders under the new central and state auction regime. Any failure by Inox to succeed under this regime, or any delay in Inox’s ability to deliver its wind turbines, could result in fewer ECS shipments to Inox.
Cost of Revenues and Gross Margin
Cost of revenues increased by 33% to $16.2 million for the three months ended June 30, 2020, compared to $12.2 million for the three months ended June 30, 2019. Gross margin was 24% for the three months ended June 30, 2020, compared to 11% for the three months ended June 30, 2019. The increase in gross margin in the three months ended June 30, 2020 was due to higher revenue and a more favorable product mix.
Operating Expenses
Research and development
Research and development expenses were $2.5 million in both periods. There was a slight increase in overall compensation offset by lower travel expenses in the three months ended June 30, 2020 compared to the three months ended June 30, 2019.
Selling, general, and administrative
Selling, general and administrative ("SG&A") expenses increased 7% in the three months ended June 30, 2020 to $5.6 million from $5.3 million in the three months ended June 30, 2019. The increase in SG&A expense in the three months ended June 30, 2020 was due to higher overall compensation expense than in the prior year period.
Amortization of acquisition related intangibles
We recorded amortization expense related to our core technology and know-how, trade names and trademark, and intangible assets of $0.1 million in each of the three month periods ended June 30, 2020 and 2019.
Operating loss
Our operating loss is summarized as follows (in thousands):
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Three Months Ended June 30,
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2020
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|
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2019
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Operating loss:
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|
|
|
|
|
|
|
|
Grid
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|
$
|
(1,188
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)
|
|
$
|
(4,663
|
)
|
Wind
|
|
|
(1,120
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)
|
|
|
(1,324
|
)
|
Unallocated corporate expenses
|
|
|
(909
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)
|
|
|
(249
|
)
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Total
|
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$
|
(3,217
|
)
|
|
$
|
(6,236
|
)
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Our Grid segment generated an operating loss of $1.2 million in the three months ended June 30, 2020, compared to $4.7 million in the three months ended June 30, 2019. The decrease in the Grid business unit operating loss in the three months ended June 30, 2020 was primarily due to higher revenues and a more favorable product mix.
Our Wind segment generated an operating loss of $1.1 million in the three months ended June 30, 2020, compared to $1.3 million in the three months ended June 30, 2019. The decrease in the Wind business unit operating loss was due to lower sales and marketing expenses.
Unallocated corporate expenses primarily consisted of stock-based compensation expense of $0.9 million and $0.2 million in the three months ended June 30, 2020 and 2019, respectively.
Change in fair value of warrants
There were no warrants outstanding in the three months ended June 30, 2020 The change in fair value of warrants resulted in a gain of $2.9 million in the three months ended June 30, 2019. The change in the fair value was primarily driven by changes in stock price, which is a key valuation metric.
Interest income, net, was $0.2 million in the three months ended June 30, 2020, compared to $0.5 million in the three months ended June 30, 2019. The decrease in interest income in the three months ended June 30, 2020 was related to lower cash balances earning lower interest rates than in the prior period.
Other expense, net
Other expense, net, was $0.2 million in the three months ended June 30, 2020, compared to $0.5 million in the three months ended June 30, 2019. The decrease in other expense, net, was primarily driven by lower foreign currency losses.
Income Taxes
Income tax expense in both of the three month periods ended June 30, 2020 and 2019 was $0.2 million. The income tax expense is due primarily to taxes incurred in foreign jurisdictions.
Net loss
Net loss was $3.4 million in the three months ended June 30, 2020, compared to $3.5 million in the three months ended June 30, 2019. The decrease in net loss was primarily driven by increased gross margin offset by the gain on fair value of warrants in the prior year period that did not recur in the three months ended June 30, 2020.
Non-GAAP Financial Measure - Non-GAAP Net Loss
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measures prepared in accordance with GAAP.
We define non-GAAP net loss as net loss before stock-based compensation, amortization of acquisition-related intangibles, changes in fair value of warrants, and other non-cash or unusual charges, and the tax effect of those adjustments calculated at the relevant rate for our non-GAAP metric, if applicable. We believe non-GAAP net loss assists management and investors in comparing our performance across reporting periods on a consistent basis by excluding these non-cash charges and other items that we do not believe are indicative of our core operating performance. In addition, we use non-GAAP net loss as a factor to evaluate the effectiveness of our business strategies. A reconciliation of GAAP to non-GAAP net loss is set forth in the table below (in thousands, except per share data):
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Three Months Ended June 30,
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|
|
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2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(3,417
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)
|
|
$
|
(3,539
|
)
|
Stock-based compensation
|
|
|
909
|
|
|
|
249
|
|
Amortization of acquisition-related intangibles
|
|
|
121
|
|
|
|
85
|
|
Change in fair value of warrants
|
|
|
—
|
|
|
|
(2,946
|
)
|
Non-GAAP net loss
|
|
$
|
(2,387
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)
|
|
$
|
(6,151
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)
|
|
|
|
|
|
|
|
|
|
Non-GAAP net loss per share - basic and diluted
|
|
$
|
(0.11
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)
|
|
$
|
(0.30
|
)
|
Weighted average shares outstanding - basic and diluted
|
|
|
21,689
|
|
|
|
20,514
|
|
We incurred non-GAAP net losses of $2.4 million or $0.11 per share, for the three months ended June 30, 2020, compared to $6.2 million, or $0.30 per share for the three months ended June 30, 2019. The decrease in non-GAAP net loss was due to improved operating loss driven by higher revenues and a more favorable product mix.
For a description and reconciliation of our other non-GAAP financial measure, non-GAAP operating cash flow, see below under “Non-GAAP Financial Measure – Non-GAAP Operating Cash Flow.”
Liquidity and Capital Resources
We have experienced recurring operating losses, and as of June 30, 2020, had an accumulated deficit of $982.1 million.
Our cash requirements depend on numerous factors, including the successful completion of our product development activities, our ability to commercialize our REG and ship protection system solutions, the rate of customer and market adoption of our products, collecting receivables according to established terms, the continued availability of U.S. government funding during the product development phase of our superconductor-based products, whether Inox is successful in executing on SECI orders or in obtaining additional orders under the new central and state auction regime, and whether and the extent to which Inox fulfills its purchase obligations under our supply contract. We continue to closely monitor our expenses and, if required, expect to further reduce our operating and capital spending to enhance liquidity.
As of June 30, 2020, we had cash, cash equivalents, restricted cash, and marketable securities of $62.2 million, compared to $66.1 million as of March 31, 2020, a decrease of $3.9 million. As of June 30, 2020, we had approximately $6.0 million of cash, cash equivalents, and restricted cash in foreign bank accounts. Our cash and cash equivalents, marketable securities and restricted cash are summarized as follows (in thousands):
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|
June 30, 2020
|
|
|
March 31, 2020
|
|
Cash and cash equivalents
|
|
$
|
20,709
|
|
|
$
|
24,699
|
|
Marketable securities
|
|
|
35,330
|
|
|
|
35,195
|
|
Restricted cash
|
|
|
6,167
|
|
|
|
6,165
|
|
Total cash, cash equivalents, marketable securities and restricted cash
|
|
$
|
62,206
|
|
|
$
|
66,059
|
|
For the three months ended June 30, 2020, net cash used in operating activities was $3.1 million, compared to $5.9 million for the three months ended June 30, 2019. The decrease in net cash used in operations was due primarily to collections on accounts receivable, partially offset by higher payments on accounts payable and accrued expenses in the three months ended June 30, 2020 as compared to June 30, 2019.
For the three months ended June 30, 2020, net cash used in investing activities was $0.5 million, compared to cash provided by investing activities of $2.3 million for the three months ended June 30, 2019. The decrease in net cash provided by investing activities was due primarily to the receipt of the second installment payment under the note receivable from the sale of our former Devens facility in the three months ended June 30, 2019 with no such transaction in the current fiscal year.
For the three months ended June 30, 2020, net cash used in financing activities was $0.4 million compared to $0.3 million in the three months ended June 30, 2019. The increase in net cash used in financing activities was due primarily to the repurchase of common stock in connection with employee tax obligations upon the vesting of stock awards.
As of June 30, 2020, we had $5.7 million of restricted cash included in long-term assets and $0.5 million of restricted cash included in current assets. These amounts included in restricted cash primarily represent deposits to secure letters of credit for various supply contracts and long-term projects, including the irrevocable letter of credit in the amount of $5.0 million to secure certain of the Company's obligations under the Subcontract Agreement with ComEd. These deposits are held in interest bearing accounts.
We believe we have sufficient available liquidity to fund our operations and capital expenditures for the next twelve months. In addition, we may seek to raise additional capital, which could be in the form of loans, convertible debt or equity, to fund our operating requirements and capital expenditures. We have no outstanding warrants as of June 30, 2020. Our liquidity is highly dependent on our ability to increase revenues, including our ability to collect revenues under our agreements with Inox, control our operating costs, and raise additional capital, if necessary. There can be no assurance that we will be able to raise additional capital on favorable terms or at all, or execute on any other means of improving our liquidity as described above. Additionally, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to raise additional capital, if necessary, which could negatively impact our liquidity.
Non-GAAP Financial Measure – Non-GAAP Operating Cash Flow
We define non-GAAP operating cash flow as operating cash flow before the Sinovel settlement (net of legal fees and expenses); and other unusual cash flows or items. We believe non-GAAP operating cash flow assists management and investors in comparing our operating cash flow across reporting periods on a consistent basis by excluding these non-recurring cash items that we do not believe are indicative of our core operating cash flow. A reconciliation of GAAP to non-GAAP operating cash flow is set forth in the table below (in thousands).
|
|
Three months ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Operating cash flow
|
|
$
|
(3,115
|
)
|
|
$
|
(5,866
|
)
|
Sinovel settlement (net of legal fees and expenses)
|
|
|
—
|
|
|
|
1,000
|
|
Non-GAAP operating cash flow
|
|
$
|
(3,115
|
)
|
|
$
|
(4,866
|
)
|
Legal Proceedings
We are involved in legal and administrative proceedings and claims of various types. See Part II, Item 1, “Legal Proceedings,” for additional information. We record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. We review these estimates each accounting period as additional information is known and adjust the loss provision when appropriate. If a matter is both probable to result in liability and the amounts of loss can be reasonably estimated, we estimate and disclose the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating transactions that are not required to be reflected on our balance sheet except as discussed below.
We occasionally enter into construction contracts that include a performance bond. As these contracts progress, we continually assess the probability of a payout from the performance bond. Should we determine that such a payout is probable, we would record a liability.
In addition, we have various contractual arrangements under which we have committed to purchase minimum quantities of goods or services on an annual basis.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in ASU 2016-13 provide more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that year. Following the release of ASU 2019-10 in November 2019, the new effective date, as long as the Company remains a smaller reporting company, would be annual reporting periods beginning after December 15, 2022. We are currently evaluating the impact, if any, that the adoption of ASU 2016-13 may have on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 provide for increased effectiveness of the disclosures made around fair value measurements while including consideration for costs and benefits. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those periods. As of April 1, 2020, we have adopted ASU 2018-13 and noted no material impact on our consolidated financial statements, primarily due to the fact that we do not currently report any Level 3 fair value measurements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 provide for simplified accounting to several income tax situations and removal of certain accounting exceptions. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim periods within those periods. We do not expect the impact of the adoption of ASU 2019-12 to be material to our consolidated financial statements.
We do not believe that, outside of those disclosed here, there are any other recently issued accounting pronouncements that will have a material impact on our consolidated financial statements.