Good day, everyone, and welcome to the AMSC's Conference Call. This call is being recorded. [Operator Instructions] With us on the call this morning are AMSC's 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 call over to Jason Fredette. Please go ahead.

Thank you, Dana, 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 for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 10-K for the fiscal year ended March 31, 2011, which we filed with the SEC on the 23rd of September 2011 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 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 on today's call to non-GAAP net income or net income before amortization of acquisition-related intangibles, restructuring and impairments, stock-based compensation, noncash interest expense, Sinovel litigation fees, other unusual charges and any tax effects related to those items. Non-GAAP net income is a non-GAAP financial metric. A reconciliation of non-GAAP to GAAP net income can be found in the press release we issued and filed with the SEC this morning on Form 8-K. All of our press releases and SEC filings can be accessed from the Investors Page of our website at amsc.com. I also would like to note that we'll be taking part in the Ardour Capital Energy Technology Conference tomorrow and the Citigroup Global Renewable Energy Conference on June 21. Both events will take place in New York City. And now, CEO Dan McGahn will begin the quarterly review. Dan?

Thanks, Jason, and welcome, everyone, to the call. Well, it's been a year since I became CEO, and what a year it's been. Today, we have more diversified revenue streams, we're in a better position in terms of operating expenses, we're generating better gross margins, we've reduced our net loss, we have more stable cash flows and we certainly have a much brighter outlook. It's going to be a pleasure to discuss all of these topics in great detail this morning. Now in terms of an agenda, I'll be starting out by bringing you up to speed on our litigation in China. I will then reflect a little more on how we resized the business, diversified our revenue streams and got back to growth in the fiscal year 2011. We'll then review our financial and operational accomplishments for the fourth quarter before describing our outlook and our priorities for fiscal year 2012. On the litigation front, our cases against Sinovel, formerly our largest customer, remain in motion. As a reminder, our litigation stems from Sinovel's contractual breaches at the end of fiscal year 2010, and from our discovery in fiscal 2011 that this former customer had stolen some of our intellectual property. We are pressing forward with 3 civil suits and a commercial arbitration case, which in total, amount to about $1.2 billion. Two of our civil cases, amounting to more than $450 million in claims, are in the Beijing courts. We're awaiting initial subsequent hearing dates on these cases, which deal with Sinovel's infringement of trade secrets and copyright. The third and smallest of our cases, with a value of about $200,000, is another copyright infringement suit that we have filed in Hainan. Hainan is a vacation destination in southeastern China, where we've obtained evidence demonstrating that Sinovel is…

Thanks, Dan, and good morning, everyone. I'll be getting into the financial review in just a moment. But first, let me talk about what we've done since the close of the quarter to strengthen our balance sheet. In April, we announced that we had raised $25 million in gross proceeds through the sale of 7% convertible notes and warrants to Heights Capital. This morning, we announced that we supplemented our $25 million financing through a new $10 million senior secured term loan with Hercules Technology Growth Capital. The loan has a term of 30 months with an 11% interest rate, which will increase if the prime rate increases by more than 50 basis points over the life of the loan. It also includes approximately 139,000 warrants at an exercise price of $3.59 per share. This new financing minimizes dilution per shareholders at a lower overall cost of capital as compared with our previous financing. In total, these financings added $35 million in gross cash to our balance sheet, providing a strong backstop for our business as we continue growing and diversifying our revenues and working back to positive cash flows and earnings. In addition, in October 2012, we may have the right to require Heights Capital to purchase up to an additional $15 million of convertible notes and warrants from us. This is subject to certain conditions contained in the agreements with Heights we filed with the SEC in April. Now turning to our fourth quarter financials. AMSC generated $28.6 million in revenue for the fourth quarter of fiscal year 2011. This is down from $59.8 million in the year ago quarter due to a lack of contribution from Sinovel, who had been our largest customer. But it is up from $18.1 million in our prior fiscal quarter due to…

Thanks, Dave. So let me just recap a few key points from the fourth quarter. We met our objective to generate more than $27 million in revenue; our net loss, both on a GAAP and non-GAAP basis, beat our guidance by a wide margin; our cash balance of $66 million far exceeded our $50 million target; and we reached settlement agreements with several vendors, which will lower our remaining balance of adverse purchase commitments to less than $20 million. The team here at AMSC is performing well. In fact, we're performing better than planned. And now, we're raising the bar. Given our successes in the area of cash management, some of you might ask why we've raised additional capital. While we did it -- while we did not have an immediate need and we felt comfortable with our near-term outlook, there was a perceived risk that we wanted to take off the table. And of course, we wanted to avoid any kind of situation where we truly would be in need. I believe that the cash we have on hand now provides the foundation we need to get back to profitability and to sustain those profits through a diversified revenue base. So that's where we stand financially. On the customer front, we also made progress in the fourth quarter. Let's first look at the wind business. For those who are new to AMSC, we provide a unique set of solutions for wind turbine manufacturers, including both products and services. The products are a set of power electronics and controls that work cohesively and serve as the brain of the wind turbine. And our services include proprietary wind turbine designs and various offerings aimed at enabling wind turbine manufacturers to quickly increase their production and market share, while driving down the…

[Operator Instructions] We'll go first to Jesse Pichel with Jefferies.

This is Min Xu for Jesse. Your pro forma gross margin this quarter is about 7.5%. Can you give us a breakdown of the gross margin for wind and grid segment? And also, how the margin will trend in the next few quarters?

Yes, we're -- we historically have not provided guidance for our segments in terms of gross margin. We only talk about our actual operating results down to operating margin. So to your second question, that means we don't give guidance by segment going forward on gross margins as well.

Oh, and can you give us some sense whether your grid gross margin is positive or negative?

Again, we don't provide -- sorry, but we don't give any guidance or any indications like that for competitive reasons regarding our gross margin on a segment basis.

Okay, that's fair. And can you give us a rough breakdown of geographic distribution of your revenue and also your backlog?

Not on the backlog. But from a revenue standpoint, for the quarter, broadly speaking, we had -- and this is based on customers, where we did the billing or based where all the billings come from, not necessarily were they're being shipped to, but Asia was around, call it, close to 70% of revenue in the quarter. U.S. was around 25%.

I think that to elaborate a little bit more, we're seeing good diversification within Asia, particularly China, India, Korea. And I think one of the other pieces in here that we saw really good revenue out of Australia, which is, I think, good news for the company because there's a nice market there for all of our products.

And we'll go next to Craig Irwin with Wedbush Securities.

This is David Giesecke in for Craig. Can you talk about potential revenue that might not be in backlog now? How we should be looking at that? And then I have a follow-up please.

So I think we've said it in our overall remarks, as we look into 2012, we have really good backlog for the first half on the grid side. We want to close out some additional orders to fill in our revenue for 2012. And then we also said that in wind, we're really looking more towards 2013 already. The pipeline that we see for orders starts to extend out further and further in time, and this is really a benefit of how we've realigned the business. We're much more in tune with the market. Our customers, we're looking really forward with them in how to improve their position, their market share. And that really gives us good comfort as we look at positive growth here for 2012.

One other thing I'll also mention too is that, we don't give forward guidance in terms of what we expect to book over the rest of the year. But just from a historical standpoint, if you go back to the beginning of fiscal 2011, we had -- we talked about the fact that we had about $50 million on backlog at that time, entering fiscal 2011, and our full year revenue was $77 million.

Right. So could you confirm the Inox wind deal recently announced is not included in backlog? And then would also say that, since you're looking for wind to 2013 already, that any fast book and burn business would come from the grid side?

Inox -- go ahead, Dan.

So I was going to say, it could, potentially. If you think about upside, it could from -- come from the wind side if you start to see growth in China or with Hyundai getting additional traction globally. Certainly, from India, maybe there's some benefit there. But I think you're right on, we were really focused on building that order book for the grid side.

Inox is in our backlog for fourth quarter that we reported.

We'll go next to Aaron Chew with Maxim Group.

I'm wondering if you could just highlight some of the top customers in fourth quarter. And if you're able to, even, what you're expecting the fiscal first quarter, maybe specifically, how much JCNE and Shenyang contributed? And also just wondering if you could comment a little bit on where the gross margin upside came from relative to your guidance? Was this something just related to product mix? Was it related to anything, related to your normalized profitability going forward? Any color would help.

Yes. So from a customer standpoint, our largest customer during the quarter was actually JCNE in China. They were a little over 20% of revenue. That was followed by Inox. Inox was around 15% of revenue. Well, actually, Carrara[ph], I should say, which is a company in Australia, was 17% of revenue, followed by Inox at 15% of revenue.

It's a good thing there, you see a good breakdown between China, Australia, India. So the diversification that we see -- really, if they're in the business, it's part of what the excitement that you hear from us is that we're able to continue to deliver revenue on all these geographies.

Yes. Then from a gross margin standpoint, you'd asked a question regarding gross margin during the quarter. I think it's a reflection of the cost reduction initiatives we've undertaken, including also a better revenue mix during the quarter as well.

And we'll go next to Jim Ricchiuti with Needham & Company.

Just wondering if you could comment on the customer concentration in the backlog that you have. It was helpful, which is the breakdown that you just provided.

Yes, I think as you look at the customer concentration, I mean, you don't -- you -- certainly, we don't have what we used to have, for sure. On the wind side, our business is principally in Asia, in China, India and Korea. We do have multiyear orders with some of those customers. On the grid side, we have a faster book and bill there. But we are starting to see longer-term visibility on some of these orders. We see backlog increasing, not only in amount, but in time horizon as well. Dave, do you want to add to that?

No. We wouldn't -- Jim, we historically haven't gone into backlog on a specific customer to customer basis. But just note what Dan said that we do have a diversified set of customers in our backlog.

We're focused on that. We want to keep delivering that. Obviously, shipments can ship quarter-to-quarters depending upon customer requirements. But we're doing everything we can to make sure, as we see revenue grow in one geography, that we're doing things to bolster revenue in other geographies. We want to make sure we have a very healthy, very diversified set of revenue streams.

Got it. And how should we think about gross margins, Dave, over the next couple of quarters? Is there any color you could provide on that just in terms of the mix of business and to what extent that could help your margin sequentially over the next couple of quarters?

Yes, I'm trying to -- I mean, I think the bigger driver -- I mean, obviously, as revenues increase in the second half of the year, as I mentioned, that will help our gross margins through better utilization. We do have cost reduction initiatives in place that we are executing on now that we also expect to see results on in the second half of the year as well. So I would say, looking ahead, more of the improvement in gross margin that we would expect to see then would be more towards the back half of the year.

And we'll go next to Ben Schuman with Pacific Crest Securities.

Dave, can you -- actually, this is a follow-up on that last question -- give us a sense of what capacity utilization is on the PowerModule side right now and kind of quantify the hit from underutilization in the quarter?

As it relates to China, I mean, it's not a huge fixed cost structure, Ben. I mean, there is some benefit that we get from better utilization, but you have to remember the type of manufacturing to build the PowerModules. The fixed costs are -- the space and the electricity to run test equipment. It's not like superconductors, which is much more capital intensive and depreciation intensive. So it's not a huge impact in terms of the effect of underutilization on our gross margin based on the manufacturer of PowerModules. But I'm not going to -- I don't have the information, nor would I quantify it at this time.

Okay. And then the follow-up, do you guys expect the commercial market for the HTS wire maybe this year, even into next year, to be larger than the market for the pilot projects over the last couple of years? And how does pricing kind of compare on a per meter basis between the commercial market in some of these pilot projects that you've been doing?

From a market standpoint, I think what you're seeing is an uptick geographically. We went through a long list of countries that are now developing applications. We talked about the different applications that they're working on. So the strategy really has been to build capacity so that the market doesn't feel like it should not invest in application development. And we think, in many ways, the fact that we have this capacity has helped customers really decide to invest in HTS because they know, not only could they make one, but they can make a commercial quantity at this point. We see a lot of countries really getting more involved in HTS application development. And what that means from a risk standpoint, it means that we're betting on multiple horses, which means that recurring markets really should happen some time here in the near future. Now I realize it's something that the companies talked about for a long time, but I think the thing that makes me excited about the superconductor applications is just the breadth of applications, the number of customers. I mean, we said it on the call here that we had about 2 dozen new orders just in the past year. And I don't recall a time where we actually had done that in the company's history. So we feel really good. But we want to be cautiously optimistic to make sure that we manage our cash well, that we manage our expense level well. But we think that we're really in great position as some of these applications start to really move the dial.

One other thing, this is Jason. I think Ben also had asked about pricing for commercial orders versus more demonstration type projects. I think in general terms, we tend to look at volume in the pricing scale and adjust as we go in terms of the volume, but there's also strategic customers in terms of the commercial side, where we could see in the future getting higher volumes from certain customers, and that is also accounted for in the pricing methodology. But Dan, I don't know...

Yes, I think on some of the government projects, as you recall, as we've gone through those, some of them might be cost-shared, which means we actually would foot some of the bill for the project. What we're talking about now are really just direct wire sales. So I think overall from a pricing, you're moving from a demonstration, government-sponsored type project or maybe we're participating in funding that to really just a straight sale. And I think the thing that's probably most interesting, as we look back at 2011, is we really had seen customers call up, place an order for something that we can make quickly or have an inventory and be able to turn around those shipments quickly. Now from a volume standpoint, we still have a ways to go. We think that the activity in Korea gives us a good base with the strategic partnership with LS Cable and with KEPCO. But the number of projects, again, on the cable side, and even the interest in SeaTitan as well, continues to get stronger and continues to increase in number. So again, we see positive signs. But I don't want to get too happy too soon. I want to make sure as a company, we can deliver on those orders and really move forward in a positive way on the superconductor business.

We'll go next to JinMing Liu with Ardour Capital.

My first question relates to your superconductor wires. What are the cost structure for your wire production at this moment? Are you still running at a loss for every meter of wires you sell?

Dave, I'll let you take that.

Sure. From a -- I mean, we don't -- I guess it gets back to the earlier question on segment gross margins. We don't disclose, for competitive reasons, our gross margins by segment or product line, for that matter. But I will say, from a superconductor standpoint, it is the -- of our product lines, it is the largest fixed cost structure that we have, so it's also the highest leverage in terms of gross margin improvement when wire -- when the wire production increases.

Well, as we looked at adjusting OpEx, it certainly impacted the superconductor part of the business, as well as everything else. We've been very focused on managing cost within that business, again, on the gross margin standpoint. We talked about, from a manufacturing standpoint, that production rates are very high; yields, up at really great levels. We don't talk about specific numbers because, again, because of competitive reasons. But I think, as you look at the superconductor contribution, it continues to get better. But we really need to build that order book even further. And that's what we're now focused on.

Okay. Switch to your wind business. Do you have any plan to expand your business into other geographical areas, other developing markets, such as South America?

Sure. I think that if you look at the business model, our business model fits very well when we look at developing economies, and there are a number of those in Eastern Europe, in South America, even parts of Africa right now, really starting to invest in renewables. And the model that we've delivered on in India, Korea, China is definitely replicable in these geographies, these are geographies that we're actively exploring relationships. At this point, we haven't announced orders. And I think, at the end of the day, that's what's really going to matter. I think additionally, when you look at how the company has invested in technology development on the wind side, things really have changed dramatically there. We're gone to larger turbines. We're ready for offshore. So now we have a technology portfolio that's not only amenable to the developing world, but perhaps as well to the developed world. And we look at Hyundai specifically, we look at Korea in general for our product line just really a window to the whole world. We're starting to see the traction of orders, not just in single geographies, but in multiples, in parallels. So we feel really good about our position in the wind market, even given or notwithstanding the macro effects of that are affecting renewables and wind. We should be able to deliver on unique technology. We should be able to deliver on a more diversified product line, which is really going to help our customers lower the cost of electricity and help them pick up market share, not just in Asia, but in other geographies as well.

We'll go next to Tim Arcuri with Citi.

It's Seth for Tim. I was wondering if you could maybe just expand a bit on your advantages relative to established turbine manufacturers in the offshore market. I mean, you've got technology for some of these larger wind turbines, as well as SeaTitan. I'm wondering to what extent you might be able to -- if you're going to expand on, what advantages you have there?

Sure. I think, when you look at the wind turbine manufacturers, in many cases, they're starting to reduce their R&D expense. And you can see that as a potential good sign for our company. So as the market -- it is what it is today in wind, we see a lot of these emerging economies investing and continuing to be committed into renewables. But the fact that some of the larger players are reducing some of their R&D expenses means that the technology that we have developed and are developing becomes even more valuable, particularly as we get positioned for an expanding market for larger turbines, that's real entry into offshore that we believe we have technology that would be valuable, not just to the Chinese and the Koreans or the Indians, but really to any player within the market. And we're trying kind of subtly here to move our business to not just be about the developing world, but really, to hit head-on with what the current wind players really need. And we see technology as a big part of that solution. And us really the unique position to deliver that technology.

If I can ask one quick question, just what operating income was by segment for the quarter?

Let's see. I have that handy here somewhere. I don't have it handy, but I'll get it to you at the -- when we call a bit later or by e-mail.

And it will also be in our 10-K, which we file very soon.

We'll go next to Pavel Molchanov of Raymond James.

Can I get an update on status of Tres Amigas?

I think, yes, Dave, I'll have you talk about this a little bit. Dave happens to be on the board of the project. But in general, it's moving forward. They're anticipating things happening here in 2012. I think the thing that we look at is the capacity. They're looking at the capacity of less than a gigawatt, and we think at that level, the design for a superconductor cable really becomes necessary at the multiple gigawatt level. And they're really, at this point, looking to connect to, I believe, Dave, the east and the west grid as a first step. You want to take that further, Dave?

That is true. They are -- as the first step, they'll be a back to back line between the eastern and western grids. They were -- they are looking -- they are hoping to start construction here in the next several months. They are putting -- right now, they're working very hard to put some of the contracts they need to put in place, not only from a vendor standpoint, but from a regulatory standpoint as well. And they're preparing to, like I said, to not only from a -- from an activity standpoint, but from a financing standpoint to hopefully begin construction here in the next several months.

I think the good thing about construction is that there's capacity that will be needed there. And what we're ultimately hoping is it helps to bring more renewable development to that region. And if that's true, it should benefit all of our business, not just cables potentially within Tres Amigas or connector lines or what have you, but even for development of wind assets there as well. So it really helps, we believe, the whole business.

And we'll go next to Carter Driscoll with Capstone Investments.

My next -- my first question is the Indian market, you obviously, I think, to some degree in contrast to what we've heard on the solar side, I just believe there's good growth in calendar '12. Can you talk about your opportunities there with in-ops versus adding new vendors? Obviously, Ghodawat, at one time looked like it was going to be a promising customer. Maybe just talk about the landscape outside of Inox and your potential to acquire new customers there?

Sure. I think, it's -- well, you hit it right on the head, it's twofold. I think that Inox has done some things to be able to put them in a position to scale. We know that from working with them closely that they are scaling, so that gives us hope that they can become a leader. Everything that they've talked about their company and where they want to be, is they want to be a top-tier player in India. It is the world's third largest market, so we think that Inox could become a real player. We are exploring the possibility of extending the product line in India. That could be with Inox, it could be with other partners. We see a lot of interest in our company in India, not just on the wind side, but on the grid side. So I guess, I remain, and I think in the remarks that we made, that I'm optimistic about India. But now we've got to go and deliver the orders, deliver new partners if that turns out to be part of the reality. But we see India as a very nice opportunity here for us, even in the near term.

Okay, that's helpful. Shifting gears a little bit, just -- it's kind of a different follow-up. The successful technology proved out of your LVRT in China, does that have any effect -- if I recall correctly, the original Sinovel's defense partially was that the LVRT did not work, whereas we know that you just didn't offer it to them. But could you talk about maybe -- does that have any effect on the case at all?

I think, in general, I guess you could reach to that conclusion. I think more importantly is, the customer that we're working with is XJ. They're part of the State Grid. So this is the grid company that's really necessitating this need for LVRT. And here, you have the division of the grid company making wind turbines that are fully compliant with the grid codes as they sit today. That should put them in a nice position to be able to start to gain some traction in the market. We talked about, earlier on the call, that we have LVRT capability for the 1.5-megawatt, the 3-megawatt, that's part of the case that we have. We've demonstrated that. We've gotten certifications for those. But I think, in some ways, your opinion, I won't say that it's unfounded. I think this movement towards LVRT and the fact that it's a competency in the company, it's a demonstrated competency, it's a demonstrated competency with multiple partners, multiple wind turbine sizes, I think really helps our brand in China. And I think, particularly when we think about the power cables and the grid company, they see AMSC really as a leader in technology, not just for the turbine, but for grid interconnection and grid management as well.

So one other thing I want to add, just getting back to a question that Ben Schuman had. I was able to get my act together and I have the operating income now, or operating loss for the segments for Q4. The wind operating loss was $7.5 million, and the grid operating loss was $5.1 million. The rest of the difference is unallocated, and those unallocated costs primarily are the patent charges we talked about in stock comp.

And we'll go next to Aaron Chew with Maxim Group.

I'm wondering if you can -- just speaking on the patent costs, I'm wondering, could you just help us maybe understand how to think about that going forward? Is there going to be some rhyme or reason to it? Or is it a bit lumpy along with revenue? Any guidance you can offer on how we should think about modeling the patent stuff and how you think that impacts your prior targets of annual run rate around $70 million or so.

Yes, sure. Just one thing I want to emphasize that the write-off, the charge that we took in the fourth quarter is not because the patents aren't valuable. All we're doing is we're changing our accounting for the maintenance of those patents. So previously, we capitalize the cost to maintain patents, legal and other cost to maintain patents as an intangible asset and then amortize that intangible asset into expense. Over the past few years, I would say that our run rate of cash that we consumed for maintaining our patents has only been maybe slightly higher than the amortization expense that we would report on a quarterly basis. So going forward, I really don't see a material impact for our future expenses as compared to our prior expenses as it relates to patent costs. It's just we're going to expense the cost as we incur them. This is what most other technology companies do. And it's also a good incentive for us to really work hard at the patents that we're choosing to maintain because those costs will now immediately hit our P&L.

And that is all the time we have for questions today. At this time, I'd like to turn the conference back to Mr. Dan McGahn for any follow-up or closing remarks.

Great. Thank you. I can't tell you how happy I am to finally be done with 2011. It really was a challenging year for the company. It really was an invigorating year. It put the management really in a situation we had to respond quickly to be able to adapt to business. And I think we're able to navigate our way through that. Looking into 2012, I can't be happier with what our team has been able to deliver. The enthusiasm, the focus, the general attitude throughout the company I think is very positive. I'm very pleased on what we're able to announce from a cash standpoint. We talked about having about $66 million in cash as we closed out the year. A quarter ago, we were talking about being at about $50 million, so we came out better. And as David mentioned on the call, we actually generated some cash in the last month of the quarter. So that certainly makes me feel good about the trajectory of the business. We talked a bit about, in the call, about diversification. We see that happening, not just one quarter, but over the past few quarters here, which makes us feel comfortable about our customer base, our regional reach and really, the overall health of the business. And I think, lastly, when we look at the backlog, we said in the remarks, backlog is basically where it is, where it has been from the past few quarters. We're able to bring on new backlog at roughly the same rate that we're burning it off and delivering revenue. But I think the key there is, as we said, that we have more than 1/3 of that backlog goes into this fiscal year. So that gives us great visibility what we think will be a very good 2012, and really will put the company in a great position into 2013 and beyond. And in many ways, on the sales side, we're already thinking about the second half of 2012 and really well into 2013 at this time. So I think we're in a great position. Now we have to go deliver on that. We have to keep challenging our team, keep working closely with our customers. And the brightness that we see in the business, I think you're going to see in delivery of results here in the coming quarters. So I thank everybody for their time. I thank you for continued support of the company through a challenging year. And I'm really looking forward here to 2012 and getting back to you here in the relatively near term to talk about the first quarter of 2012. Thank you, everybody.

Again, that does conclude today's presentation. We thank you for your participation.