Good day, everyone, and welcome to the AMSC conference call. This call is being recorded. [Operator Instructions] With us on the call this morning, AMSC President and CEO, Daniel McGahn; Senior Vice President and CFO, David Henry; and Vice President of Communications and Marketing, Jason Fredette. For opening remarks, I would like to turn the call over to Jason Fredette.

Thank you, Toya, and welcome, everyone, to our Q2 conference call. 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/A for the fiscal year ended March 31, 2012, which we filed with the SEC on June 26, and in subsequent reports that we filed with the SEC. These forward-looking statements represent our expectations only as of today and should not be relied upon as representing our views as of any 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'd also like to note that we'll be referring on today's call to non-GAAP net loss or net loss before amortization of acquisition-related intangibles, restructuring and impairments, stock-based compensation, change in fair value of derivative liability and warrants, noncash interest expense, and other unusual charges. Non-GAAP net loss is a non-GAAP financial metric. A reconciliation of non-GAAP to GAAP net loss can be found in the press release we issued and filed with the SEC this morning on Form 8-K. All of our press releases and SEC filings can be accessed from the Investors page of our website at amsc.com. And now, CEO, Dan McGahn will begin our quarterly review. Dan?

Thanks, Jason, and good morning, everyone. As we've done on the past several calls, I'm going to start this morning's discussion with a quick update on the legal front. Dave Henry will then review our financial results for the second fiscal quarter, and after that, we'll take some time to update you on the business and the state of our core markets. We'll then open up the call to your questions. Let's begin with a recap of our litigation against our former customer, Sinovel. Sinovel was formerly China's largest wind turbine manufacturer and AMSC's largest customer. That all changed last year when they breached multiple contracts with our company and stole AMSC intellectual property. Since that time, AMSC has been pressing a series of legal cases against Sinovel. In total, these cases, all of which are being waged in Chinese courts, amount to about $1.2 billion. Furthest along is arbitration where we're seeking payment for approximately $70 million in past wind turbine component shipments and enforcement of our existing contracts with Sinovel, which amount to more than $700 million. In August, we took part in another hearing with the Beijing Arbitration Commission. Both sides have now presented all of their evidence and we're awaiting a date for what we hope will be the final hearing to complete the proceedings. In addition to arbitration, we also have filed 3 civil suits with courts in Beijing and Hainan, a southern province in China. We continue to await a court date on the largest of these cases, a trade secret infringement suit filed with the Beijing Higher Court, with claims exceeding $450 million. There has been some activity on our other 2 cases. Both of these are copyright infringement suits, one that was filed with Beijing No.1 Intermediate Court and the other with…

Thanks, Dan, and good morning, everyone. AMSC generated $20.9 million in revenue for the second quarter of fiscal 2012, roughly on par with the $20.8 million that we generated for the second quarter of fiscal 2011. Our grid revenues grew by 21% year-over-year to $8.9 million, thanks to increased debar shipments. This offsets an 11% decline in our wind revenues due to lower shipments of our wind turbine electrical control systems. Our backlog on September 30 was approximately $257 million, which compares with $269 million, as of June 30. Our gross margin for the second fiscal quarter was 2.3%, which compares with a negative 5.5% for the year-ago quarter. Note that gross margin in both periods was favorably impacted by settlements of adverse purchase commitment liabilities with several vendors. Excluding these settlements, gross margin was a negative 2.5% in the second quarter of fiscal 2012, which compares with a negative 9.8% in the year-ago quarter. R&D and SG&A expenses for the second fiscal quarter were $15.4 million, down significantly from $24.8 million in the second quarter of fiscal 2011, and also down from $17.7 million for the first quarter of fiscal 2012. Note that in the year-ago quarter, SG&A expenses included approximately $3.3 million in Sinovel litigation costs. These expenses were down to approximately $300,000 in the second quarter of fiscal 2012. We now expect less than $68 million in R&D and SG&A expenses in fiscal 2012, down from our prior forecast of approximately $70 million. In the second fiscal quarter, we incurred $2.9 million in interest expense associated with our debt financings. $2.2 million of this is noncash interest, in line with accounting rules under U.S. GAAP that results from the requirement to discount the debt for accounting purposes and then amortize the debt discount into the P&L in…

Thanks, Dave. While macro conditions have proven challenging of late, particularly in the wind power sector, I continue to be encouraged by our team's execution, and I'm pleased that we once again meet our financial objectives in the second fiscal quarter. We cut our net loss and cash usage significantly year-over-year. We also reduced our adverse purchase commitments by over 30%, with most of the remainder to be settled this quarter as Dave just mentioned a couple of minutes ago. And as expected, our top line remained roughly flat year-over-year as a decline in revenues from our Windtec Solutions was offset by higher revenues from our Gridtec Solutions. Our Windtec Solutions include both products and services for wind turbine manufacturers. The products are a set of power electronics and controls that act as the brain of the wind turbine. We call our fully integrated set of products ECS or electrical control systems. And our services include proprietary wind turbine designs, certification support, as well as on-site training for manufacturing, testing, quality assurance, commissioning and supply chain management. These services allow manufacturers to rapidly introduce new wind turbines or upgrade existing turbine platforms to gain competitive advantage and market share. 2012 has proven to be a time of great change in the wind industry as a whole. In China, which has installed nearly half of the world's wind turbines in recent years, the government has greatly increased its oversight of projects in the sector in order to resolve grid-related issues. In fact, virtually all wind farm projects now must get formal approval from the central government before beginning construction. Ultimately, this is a change for the better, one that will ease grid interconnection issues and make projects more predictable. But looking at the here and now, the abrupt change in policy…

[Operator Instructions] And we'll move first to the side of Aaron Chew with Maxim Group.

But I'm wondering if I could drill down a little bit further, if I could ask you to. Any way you can highlight how much of the 2 big contracts you have, the Shenyang Blower Works and the JCNE/other, that you have booked to date? Even maybe roughly?

Booked to date.

Both contracts were signed a couple of years ago, and I'm sure some periods you book, some relative to other periods you don't, but little by little you've been eating away...

Yes, we don't have all that in front of us. And generally, we don't comment too much on the granularity of the backlog. What we've been focused on really is to make sure that the revenues that we're delivering quarter-to-quarter have this diversification that we've been focused on. I think -- and the good news is we look at the mix between China, which obviously JCNE is a contributor and as we mentioned in the remarks that JCNE was about 25%, we see it also from Inox, which is a major contributor as well to revenues, and we see quarter-to-quarter, the Koreans being able to contribute. And on the grid side, we see good business in Australia, the U.K. and the U.S. So really what we're focused on more so than the longer-term backlog is really the near term here quarter-to-quarter to make sure that our revenues continue to feel that diversified and that we do things to make sure that we're fostering additional diversification in revenues where possible.

Aaron, one extra little bit of color. I mean, you can go back in our 10-Q filings and see the 10% customers, and JCNE has hit there a couple of times over the past several quarters, so you can get some kind of inkling from that. SBW has not been a 10% customer recently.

Okay, that's helpful. Just sometimes it's a range in the filing, so just figured I'd ask. A couple of clarifications for my follow-up, if that's possible. One, first and foremost is, I just want to clarify a comment you made earlier in the prepared remarks about being fully booked for D-VAR. A, obviously, that's good news. But on the other hand, I just want to make sure I understand what that means. When you say fully booked, are you referring to fully booking out your capacity to produce D-VAR products? And does that in turn sort of suggest a $30 million, $40 million peak capacity in that segment? Or am I not thinking about that properly?

I think the way to think about it is we're trying to highlight that one of the niceties of the quarter, and as we look out going forward, is strengthening in the Gridtec Solutions business. We feel that we're in a very good position, particularly with the changes that we see going on in the U.S. We've talked about the storms a bit and how that changes the way utilities think about protecting their grids and increasing capacity of the grids that we feel really good about the grid segment. When we talk about fully booked out, what we mean is when we look at our sales team, their attention now is turning more and more to 2013. When we say fully booked out, we mean when we look at our original manufacturing plans for the year and what we had anticipated to make and sell. I would not ask you to try to correlate that at all to capacity. That's not explicitly what we're trying to say here. What we're trying to say is our selling activities now are going out further in time, which leads us to believe that we have very good prospects going forward on the grid side of the business. Even though when we look at the U.S. with the PTC as being perhaps a negative drag on that market, we still see growing revenues we mentioned in Australia, we see them in the U.K. and we see prospects being, we think, quite good in Europe as we go through the next several quarters. So I think the point I really want to try to get across is we really like our Gridtec business. We like the fact that we have the 2 businesses to be able to have natural diversification, and this really is a strength and an asset to the company.

Thanks for clarifying that, I just want to make sure. So there's no reason to assume you couldn't do $50 million revenue just based on manufacturing capabilities, obviously, not necessarily your order book?

I think the thing to be careful about is when we think about the timing for long lead-like items, it's not a business that's a quick turn business. These are usually 6-month-out, kind of, order cycle. And I think what you're hearing, as we hit the half-year mark, that we're really focused now in generating orders in 2013.

One thing also, Aaron, is that the D-VAR business, it's an assembled product and its cost is primarily labor and material. And so, if we get to the point where we feel we're capacity-constrained and the only way to deal with that is to add people, and then if we need extra space to go look for space. So it's not a capital-intensive capacity increase if we found ourselves in that enviable position.

We'll move next to the site of Ben Schuman with Pacific Crest Securities.

Dave, can you talk about how much overhead and underutilization is dragging on gross margins at this point? Maybe just qualitatively if you don't want to quantify it specifically?

Yes, I won't quantify it for you. But qualitatively, I mean, do remember we had, for example, an infrastructure in China that supported -- or China and around the world, $400 million of annual revenue. And now, we're on a path to somewhere north of $100 million. So yes, there is some excess capacity there. But remember that it's also -- the capital investment associated with that capacity was not that large on the wind business side in particular. There's not a huge difference between gross margin and contribution margin. I mean, there is a difference, but it's not huge. So there is some impact obviously. Now as we look forward to the second half of the year, we've talked before about the in-sourcing of the production of electrical control systems. That activity will be getting underway in earnest now here this quarter and ramping up as we go through the rest of this fiscal year. So we should start to see some incremental gross margin benefit from that activity.

A key way to think of it, Ben, is you had a big factory making a lot of parts for core components and we've gone through a transition of going to the ECS, which has more content per turbine and will occupy some of those fixed costs. But in the gap there, you are exposed from a fixed cost basis. We recognize that. We've spent a lot of effort over the past quarters really focused on tuning our operating expenses. And as we said in the last call, and I think we'll continue to make sure that we make this a focus of the company, is really to continue to improve gross margin. The hope and our belief is, going forward, we will see improvement there. But it's really part of management's directive is to get those gross margins in line with what we really think the business can get to be. We haven't talked quantitatively about where those are. But there are opportunities, particularly with the main initiative, as Dave talked in great detail about, which is bringing in-house the manufacturer of the ECS.

Okay, great. That's very helpful. And then Dan, do you have any early high level views on the wind opportunity in 2013 in the markets you serve? And do you think that the U.S. potentially falling off a cliff here, could cause any problems in the supply chain with vendors looking to these other markets to sell their products?

I think explicitly with the U.S. when we look at our market, it's really focused on the D-VAR product directly for our revenue. And we've been on an effort to diversify those revenues, I mentioned Europe and other places that we can go to with that product. I think what you're after is from a cost standpoint is as the U.S. market wanes a bit here in 2013, will that put pressure on manufacturers to drive pricing down in other geographies? I think the fact that we start in some of these low-cost manufacturing geographies like India, like China, they've already done a good job at driving prices down already. I think that we understand greatly that in China, it's a unique market. It's a bit of a protected market in many ways for the home team. We see a bit of that in India. That's happened. And we think Inox has benefited and will continue to benefit from it. I mean, it's interesting in the prepared comments we talk about Inox now being a top player in India, and that didn't take so long. So we feel very bullish about Inox and their prospects. And then we see Korea really being this window to the world, be able to develop it, deliver it in Korea, but then be able to expand globally. And that adds additional, perhaps, pricing pressure. But these are all things that we think that are going to benefit us. The move to the larger turbines, the move to more novel drivetrain technology should mean that our partners are more able to gain market share and are ultimately more competitive in the marketplace. I think looking at other markets, that there still remains many opportunities out there, not only in Europe, but potentially in South America as well, as we've talked about. So what we're trying to focus is where the growth is as opposed to being worried about the American market, where the growth certainly isn't, and be able to make hay in these local markets where we have a demonstrated track record of being able to do that, and we have some major activities across the company focused specifically on making that happen. But at the end of the day, the devil is in the detail and delivery of those revenues. So I look forward to being able to report back to you in future quarters, that we continue to expand the diversification of our revenues, particularly in the wind segment as you're getting at here.

[Operator Instructions] We'll move next to the site of JinMing Liu with Ardour Capital.

My first question is regarding your liquidity situation. Say, if you couldn't get any cash settlement from the legal proceeding against Sinovel or it may not be just simply on time, what are you going to do? Are you going to think about another round of restructuring or some potentially some divestiture?

Yes, let me kind of tee it up and Dave can talk a little bit. On our cash position specifically, we believe we have sufficient cash for at least the next 12 months, and cash will remain a key focus of the management team. On the revenues, I keep talking about diversification and we've been able to demonstrate that. That diversification gives us stability, but also greater chances for growth. And we see contributions coming not only from Asia, but Australia, Europe, North America. We've positioned ourselves with our product line for a stronger second half of the fiscal year and we're encouraged about our long-term prospects for the business. We believe we've done an awful lot to be able to change the cost basis and cost structure of the company. We're now working very aggressively with our partners on the wind side, as well as developers and utilities and industrial customers for D-VAR. So we feel very comfortable about where the business stands today, and that we will be able to grow revenues here in the near term. Ultimately, JinMing, that's our focus and that's what we want to be able to do, is to be able to drive that growth.

Yes, just to emphasize what Dan said. I mean, we are focused on our cost structure and looking at the markets, discussing with our customers and trying to be as close to that situation as possible so that we can adjust our expenses as we feel we need to, and we will continue to do that. But we only spent in the quarter, JinMing, about $300,000 on the litigation, so we feel like the lion's share of all those expenses are behind us. We see that as an independent piece of the value of the company. It's not distracting management and it's not something that we need or hold out hope that somehow it's going to change our business prospects. We see it as an independent event. The management is focused on operating the current business with the current partners to make them as successful as possible. And if we're able to do that, they're able to gain market share, you're going to see our revenue growth happen. We think we're in a very good position because the new technology on the drivetrain, on the turbine side, on connection of D-VAR and the new markets, really puts our company in an interesting position to be prepared to grow.

And in terms of the balance sheet and the liabilities and liquidity and such, our -- we have a couple of debt arrangements. We will begin to make principal payments on the term loan this quarter. That's factored into our forecast. We also have a convertible note outstanding that is payable in either cash or stock. For right now, the holder of the notes is not requesting any amortization payments at this time, they've been deferring them. I won't go into their motivations on this call. I mean, their motivations are their own. But they do view that note as more of a -- as an equity investment, if you will. And I think all things being equal, I think their preference would be to take cash versus stock in settlement of those notes. To reiterate, we believe we, from a liquidity standpoint, we have enough cash to get us through at least the next 12 months. And we will be, obviously, closely monitoring our expenses.

Okay. Switch gear to your superconducting wire business. I remember you lowered the price recently. And I just want to understand why you did that. Is that just to prevent competitors get into the market? Or you've cut cost enough to look for -- in order to do so?

To be a little bit more clear, when we talk about price, there's a couple of different ways that you can price a conductor. Don't think of it just as a per unit price. When we price the product, we price it for value, which is the overall carrying capacity of that conductor. So the fact that you've been able to double performance, as long as you're not cutting the price per unit by half, you actually are able to make a better business. So we're able to pass on to our customers and our partners what will be a lower system cost solution. It doesn't mean that we're cutting our prices because the product has improved. It just means that we're able to help a cable installation perhaps use less wire, which means lower cost, and also the balance of plant and all the other systems costs will scale on that as well, which means the rest of the material cost will come down. At the end of the day, what we're talking about are the things that LS Cable has talked to us about, Nexans has talked to us about, NKT Cable has talked to us about, Southwire has talked to us about, which is getting in this is price performance regime that really makes the system cost-competitive as a total solution. We talked a little bit in the prepared remarks about meeting the DOE objectives. The DOE objective is really to get to a certain cost-performance structure to be competitive with other alternatives. We think this is a big step for the company. It's really a testament to the effort of the manufacturing and specifically the R&D team here in Massachusetts to bring not only the capacity online, to bring the yields higher and higher, but also, in parallel, to be able to improve the product. We think, overall, that improves our prospects for wider commercial adoption for superconductor cables. We talked as well about fault current limiters. We talked about navy systems and wind systems as well. So it helps all of the different superconductor applications and helps to start to really transition our thinking more to full system costs and to be competitive in that regime.

And we move next to the site of Pavel Molchanov with Raymond James.

Just one question from me. You've obviously made a point of highlighting the difficulties facing wind industry players in China. You're suing Sinovel for pretty hefty amounts. And given the challenges they're facing in the business, what do you think, realistically, that you can collect even if you win any of these cases without effectively putting Sinovel out of business?

Well, I think -- and I've said this in the past. We've won simply by standing up, defending our IP, being able to continue the sanctity of the IP for the other partners to make sure that they're able to operate in the business. To speak specifically about Sinovel, yes, they've lost share. Yes, they've been highly challenged in overseas markets. Some have written that, that may be in part due to the complaints that we filed. We've been focused all along on a positive outcome. We still believe, and I firmly sit here talking to you today, that there will be a positive outcome for the company. We don't give it any handicap on time or amount or anything like that. We know that Sinovel's cash balance is still quite large. They have the ability to take on additional debt, which they've already been able to secure with banks. They have the full faith and credit of the Chinese Central Bank behind them to be able to develop capacity technology and overseas operations. So we don't see a liquidity constraint on them to be able to settle with us or to be able to deal with a judgment coming down from the courts. I think the challenge everybody wants to know in China is how long is this going to take and is the process tracking as planned? In any legal proceeding in any country, things take time. I think the good thing is that as we've had these battles, in large part, we've kind of won all the way along. Now, at the end of the day, it's going to be up to the Chinese courts to be able to make a decision that, upon looking at the evidence and the facts, seems very clear to us that the case is compelling, the evidence is overwhelming, and that somehow we believe that rationality and justice will prevail in China.

[Operator Instructions] We'll move next to the site of Aaron Chew with Maxim Group for a follow-up question.

Just a quick follow-up, if I may. Given the changing business dynamics since Sinovel got extracted from the revenue. Wondering if there are seasonal dynamics we should take into account? In other words, you had a pretty sizeable jump in quarterly revenue in the last fiscal fourth quarter. Was that just really something contract timing-oriented? Or is that something seasonal we should expect somewhat going forward...

I'll talk at a high level. I think one of the things that we're trying to make sure is we're trying to preserve the sanctity of what our partners have requested us or required us to do. So we want to make sure that if they need timing to move, either earlier or later, that we're flexible enough to be able to allow them to do that. That inherently adds some additional lumpiness quarter-to-quarter. It doesn't necessarily reflect upon the overall market. It may be as simple as a construction cycle has changed somewhat because of weather, there may be other issues that are kind of beyond overall market dynamics. Dave, if you want to talk about inherent seasonality in the business?

Yes. I mean, it's really hard to discern a seasonal pattern. And I mean, just at a high level, I would say, first quarter is probably a seasonally lower quarter. Things that affect -- when our backlog ages and when we ship things. I mean, in the wind business, a lot of the installations occur in the months when there's good weather. So that -- so obviously, shipments sort of ahead of that. That's one thing to expect. And on the grid side and on the wind side as well, a lot of things have -- they kind of depend on government subsidies or tax breaks. You see on the grid side here, I think we are seeing some benefit here in the U.S. as the Production Tax Credit is expiring, things are -- people are trying to get projects in that might qualify before the end of the year. So...

So the take away really is, it's still more a representation of lumpiness than there's anything to really read through into...

And the fourth quarter there'll be a pull of the new year and new budgetary dollars available. So each quarter has its own kind of pulls on it. I think the one that Dave highlighted is that, historically if you go back to the first quarter of our fiscal year is usually the lighter of the 4. But that's really the only inherent seasonality I think that the data at least lends us to believe.

And there are no further questions on queue. I'd now like to turn the program back over to Mr. McGahn for any closing remarks.

Thank you. I think we're able to get results here on another quarter that was successful when we compare what our core financial results we had planned on happening, we were able to deliver against those. I think it's really been a testament to the team. It has been a challenging time for the company, as we've had to shrink headcount and increase responsibilities of many of the employees within the company. We have a major initiative through the company about 1-AMSC [ph]. And I think the thing that I feel strongest about right now are our people. We've been able to, time and time again, be able to stand beside our customer, solve specific issues either in the field or with their own customers, to be able to help them to be in a position to grow their business. And I think that's really a testament to the people that have been with this company, not only in past months, but over the past many years. So I think that that's, as I sit here today, what makes me have the most pride and the hope for our company in the future. So I want to say thank you to everybody for your attention -- for your questions. And we look forward to getting back to you to talk about the third quarter here in the coming months. Thank you.

This concludes today's conference. You may disconnect at this time, and enjoy the rest of your day.