Good day, everyone, and welcome to the AMSC Conference Call. This call is being recorded. [Operator Instructions] With us on this call this morning are AMSC President and CEO, Daniel McGahn; and Executive Vice President and CFO, David Henry; and Senior Manager of Corporate Communications, Kerry Farrell. For opening remarks, I would like to turn the call over to Kerry Farrell. Please go ahead, ma'am.

Thank you, Steve. And welcome to our call to discuss our first quarter fiscal 2014 results. Before we begin, I'd like to note that various remarks management may make on this conference call about AMSC's future expectations, plans and prospects constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Annual Report on Form 10-K for the year ended March 31, 2014, which we have filed with the SEC on June 5, and subsequent reports that we have filed with the SEC. These forward-looking statements represent our expectations only as of today and should not be relied upon as representing our views as of any date subsequent to today. While AMSC anticipates that subsequent events and developments may cause the company's views to change, we specifically disclaim any obligation to update these forward-looking statements. I also would like to note that we will be referring on today's call to non-GAAP net loss, or net loss before stock-based compensation, amortization of acquisition-related intangibles, restructuring and impairment charges, Sinovel litigation costs, consumption of 0 cost based inventory, noncash interest expense, change in fair value of derivatives and warrants and other unusual charges, net of any tax effects related to these items. Non-GAAP net loss is a non-GAAP financial metric. A reconciliation of our non-GAAP to GAAP net loss can be found in the press release we issued and filed with the SEC this morning on Form 8-K. All of our press releases and SEC filings can be accessed from the Investors Page of our website at www.amsc.com. And now I will turn the call over to CEO, Dan McGahn. Dan?

Thanks, Kerry, and good morning, everyone. I'll begin today by providing an overview of our financial results for the first fiscal quarter of fiscal 2014. Dave will then provide a detailed review of our financial results and guidance for the second fiscal quarter. Following Dave's comments, we'll use today's call as an opportunity to focus on the recent Resilient Electric Grid, or REG, announcement. After that, we'll open up the line to your questions. Revenue for the first fiscal quarter was in line with our expectations. Looking at the Grid business, the D-VAR product continues to be impacted by macro factors. I will talk more about that later in the call. In our Wind business, Inox Wind in India continues to be a consistent customer. We are also working with our other licensees with the goal of getting at least one into consistent volume production. We believe that this is a requirement for us to be able to achieve sustainable positive cash flows. As expected, our revenue was down by 49% from the year-ago quarter, which was a quarter during which we had meaningful shipments to both Inox and JCNE. We believe this represents the low point in our revenues for the fiscal year. We mitigated the lower revenues in part in the first fiscal quarter through our cost-reduction actions. As a result of these actions, our R&D and SG&A expenses were down by more than 20% as compared with the year-ago quarter. We kicked off the second fiscal quarter with an announcement of a contract with the Department of Homeland Security, or DHS, and a partnership with ComEd, Chicago's electric utility. Before I get into detail on this achievement, Dave will provide a detailed review of our financial results. Dave?

Thanks, Dan, and good morning, everyone. AMSC generated $11.7 million in revenues for the first fiscal quarter, in line with our first quarter guidance, compared to $23.1 million in the year-ago quarter. Wind revenue declined by 48% year-over-year, driven by -- primarily by lower revenues from customers in China, partially offset by higher year-over-year revenues from Inox, who was the only customer generating more than 10% of revenues in the first fiscal quarter. Our Grid revenue declined by 52% year-over-year as a result of lower D-VAR shipments. 12-month backlog as of June 30, 2014, was approximately $62 million compared with $35 million as of March 31, 2014. The growth in the backlog is primarily due to the new $40 million contract with Inox that we announced in June. We announced in July a $60 million cost-sharing arrangement with DHS to help fund the installation of our Resilient Electric Grid System into Chicago's electric grid in partnership with ComEd. Our backlog does not include the $1.5 million for the first phase of our Resilient Electric Grid contract with DHS. That will be reported in our second quarter backlog. We expect that the remainder of the contract will be put into backlog once all of the parties agree to move forward. We currently expect the follow-on phases to take approximately 42 months after the date that all parties agree to proceed. This timeline is subject to change following the successful completion of the detailed appointed plan. Revenues will be recognized over the life of the project on a percentage of completion basis. The funding to be provided by DHS for the project is expected to cover all of the company's direct incremental costs associated with the project, as well as a portion of our fixed costs. Looking at the P&L in more…

Thanks, Dave. In June, we announced that we signed a multi-phased cost-sharing arrangement with DHS to deploy AMSC's Resilient Electric Grid System into an urban electric grid in the United States. ComEd, Chicago's electric utility and one of the nation's largest electric utilities, has agreed to be the lead utility in the program. As part of the DHS contract, AMSC will also initiate a deployment plan with at least 2 other utilities in the United States. The Resilient Electric Grid contract represents a milestone for AMSC. For more than a quarter century, AMSC employees have been committed to developing the quality and capacity of our high-temperature superconductor wire and manufacturing operation. We have also been focused on working with utilities to understand the challenges that they face so that we could determine how high-temperature superconductor, or HTS, technology could help them to overcome those challenges. Today, we are able to make wire in significant quantities. And we believe we have a solution that can enhance the reliability and capacity of urban electricity grids. Before I get into the application and benefits of the Resilient Electric Grid System, let me back up and tell you about how the product came to be and our relationship with Department of Homeland Security. DHS recognizes the vulnerabilities of the electricity grid and the significant impact to our safety, security and economy if the grid is compromised. The Science and Technology Directorate, a division of DHS, outlined an initiative that included ensuring that electric utilities in the country have the tools they require to self-heal from power disturbance events and operate resiliently against physical and cyber threats. In 2012, 8 million utility customers were without power when Hurricane Sandy swept to shore. Some were without power for weeks, and fuel distribution networks were paralyzed. The…

[Operator Instructions] Our first question is from Carter Driscoll from MLV.

Want to just make sure I understand the factors that give you confidence that your year-over-year growth, while it might not reach fiscal '13, might approximate that, because it implies a fairly strong second half of fiscal year '14. Could you maybe just outline -- I'm assuming it's Wind first, layering a little bit of REG, having D-VAR come back. But if you could help us with the confidence. Obviously, the backlog increase, mostly with Inox, but the REG product will take a couple of quarters to begin to kick in to the majority of contract. So maybe you could just high-level outline your confidence that gets you to such a strong back half.

Yes, the -- obviously, when we look at our backlog, we know how it ages. Inox, from -- we have a delivery schedule that they are -- that they have requested. As you'd heard from Dan's comments, they are -- they're in fundraising mode as well. As you know, companies who go out and fundraise will typically want to do -- will want to have good results coming on the back end of that. And so that's from the Inox standpoint. JCNE in China, they've had their fits and starts, but they do have a large -- one of the major power customers in China that they are working with to -- in terms of installing turbines with them. So the whole business, that's in -- the expectation is that we might see some orders or might see some shipments from them, hopefully, in the second half of the year. On the D-VAR side, we talked about some of the macro factors that are affecting each of the geographies. We see some positive signs there. But, of course, those do have to turn into orders. But just overall, looking at how our backlog is aging, if -- we've given the guidance of slightly lower revenue, so yes, we're not anticipating full year-over-year growth, but we do expect that this is a trough quarter for revenue and that we are expecting a better second half of the year.

All right, that's helpful. Maybe, Dan, you could elaborate a little bit on -- I know you spent a lot of time on the REG discussion, and it's been quite a bit of detail. You talk about the ability to sell the system as you are kind of spec-ing out and going through the logistics and developing the architecture. And at what point you think it is ready to be showcased to other utilities or maybe even within ComEd's territory, maybe some of the other subsidiaries? And can you talk to us about that timeline and how you expect that next 2 utilities, I think, which are required as part of that agreement to unfold? Maybe your idea of timeline, maybe idealistic and what might not be idealistic, just kind of frame it.

Yes, sure. I think that the phase that we're in now, we have a product that we believe, really, is ready to install. And that could be in Chicago, could be anywhere. What we have is the help of DHS to identify cities that are in critical need of this infrastructure upgrade. And we know Chicago has raised its hand that it believes it can do this installation. I think what we have to do now with them is this detailed deployment plan, cross the Ts, dot the Is, make sure that the schedule is appropriate, make sure that we understand every detail of the construction schedule and so on and so forth. In parallel, we've been working with additional utilities to try to identify specific needs within their systems. And what we anticipate here as part of this contract, this first phase here, is to identify at least 2 others. What we're getting in the feedback in the market is that this is a system that is considered necessary. I think the challenge is getting to the point where your -- our ultimate competition in the near term are the things that the utility needs to buy anyway. We commented a price point and a value proposition that we believe is compelling but also typical on the size that utilities buy equipment. So I think it's going to depend upon the cities that line up on how fast we can get to the next installation, which I think is what you're really after. Could that occur with -- in parallel with Chicago? Sure, there's the potential for that. We want to make sure that our infrastructure is ready to execute on that if that unfolds. But I think, really, what we're planning to do is to get going with ComEd; to really get this detailed implementation plan; get multiple cities lined up, at least 2; and then, hopefully, over the next quarters and years, you'll start to see the building of a pipeline of orders for this product. We were in discussion in parallel with other cities other than Chicago. So those discussions are mature, they're not just beginning. And we have a team here in the company that's dedicated solely to look at expanding that opportunity pipeline.

What are the big factors? I mean, is it kind of cost-sharing arrangement that -- obviously, you identified the need. I think the utilities recognize the needs for this type of system. Clearly, it's becoming an issue that is gaining more mainstream press. What are some of the big issues why a deployment might take longer or why the discussions may take longer than you hope? I mean, what are the limiting factors?

I think, at the fundamental level, it's the inherent risk profile of a utility. What DHS is doing with the funding is fostering an environment where ComEd will go forward and do an implementation. The desire is, after this implementation, we can go forward and sell a commercial article of commerce. I think the challenge that we're going to have from a timing standpoint is, as the project with Chicago gets much more mature, the more utilities are going to want to see that operating in the environment. I think we have enough data today, we have enough experience today, based upon all the work that DHS has helped us to do, and specifically the work in New York, that we can go into another utility. So now it's really about timing, it's about needs, it's about availability of funding, and it's about identifying that funding path to procure this equipment under kind of normal terms and conditions in a normal budget. And that would mean that this need would have to outweigh, in the short term, other needs that the utility has already identified. And in many cases, that may be true. I think we also have this challenge with utilities that they tend to plan, not on a year-to-year basis, but really looking at 5 years at a time. So we have been intimate in these discussions with utilities. Many of the discussions are rather mature. And we're going to do everything we can to go from the first installation to multiple installations in the future. But we need to make sure we execute properly on the current program with DHS and with Chicago. That has to work really well because that's going to be a showcase for the product globally, not just within the U.S. and, certainly, not just within the Exelon system of companies or Chicago itself.

Yes, understood. A couple more, if I may. The new 2-megawatt design that you've just announced, is that any part of the $40 million order? Or could that be potentially additional use by Inox? I know you said it might be more for China or some Europe centers, but it sounded like India was also a good region for that.

Yes, think of this announcement as a potential extension of our existing partners' product line or potentially make it more appetizing, in some of these emerging markets, to go forward with this design because it has some unique competitive advantages in the market. In order to get to volume production of ECS, that's not going to happen immediately, and I would see it as being additive to whatever we have on the books today.

Got it, okay. And then maybe just a little bit of follow-up with JCNE. If you do get them to reorder -- clear some of their inventory, hopefully, in the latter part of this fiscal year, you're still talking about the 2-megawatt product. You're not ready to begin shipping the 3, correct?

They're out marketing the 3. Your guess and my guess and their guess are as good as any. They have to go get orders for that, but they're getting to 5 in the prototype here sometime in the next quarters, and they'll begin marketing that. But I think the focus from our revenue standpoint for the next quarters is really going to come from the 2-megawatt platform. And it hinges, in many ways, upon this project with 1 of the 5 power companies. If that project goes well, our understanding is there will be follow-on orders with that customer, but it also will be a showcase for the other power companies, as well. To date, most of what JCNE has installed has been through their wind farm development arm. They are now reaching outside that arm directly to the power companies to be able to sell turbine products. So they've got enough experience basis in their own hands. Now they want to translate that to additional sales and growth throughout China. And if we're able to support them well and they're able to do their job and handle their responsibilities in this, then we believe that bodes well for future demand for the JCNE product.

Yes, it may -- it sound like a nice evolution for JCNE to finally get over that [indiscernible] and market externally. And just lastly, could you frame kind of dollar content for ECS between, say, 2, 3 and 5, just roughly?

I mean, roughly, we've talked about 10% to 20% of the total content, they're all within that range. We haven't guided if, as turbines get bigger, does our value increase or not, or is it linear? I think whatever assumption you make when you look at your aggregate model, it's going to be close enough.

Our next question is from JinMing Liu from Ardour Capital.

First, a simple question. I'm trying to understand your REG system product. Is that just a rebranding of your old fault current limiter product, or is something -- is a whole system?

Well, let me describe the legacy of it. So it's not a fault current limiter. It's a cable. And this is really the end result of the work that we've had over the last several years with DHS. So we talked for a bit of time about Project HYDRA. We also talked about secure super grids, which was the concept. And really, what -- Resilient Electric Grid is the product that comes out of that program. I think the news with having Chicago looking to deploy means that there's a variety of cities that are ready to embark on purchasing this product. I think, as we articulated it back in the days when we announced Project HYDRA, it really was a concept. It was a possibility that was not proven, not tested and not worked with in conjunction with the utility. What we have today is the end of that process and the beginning of a new business for AMSC.

Okay. So I'm just trying to understand the -- to try to understand the -- what the kind of revenue project you will get. I understand there's $60 million, but I'm trying to understand the cable content in that $60 million and also your current production capacity.

Sure. So let's talk about the content and revenue. The way we're positioning Resilient Electric Grid is we are the full system provider. So all of the revenue for the hardware would come to us. We would then work with our supply chain to manufacture a cable and then work on all the cryogenic and cooling equipment, and it would use our wire. So we stand at the position as a supplier to the utility. So any and all revenue for the hardware would come to us. It would be on the utility to handle and manage the civil, engineering and construction phase of the project. So they are buying and procuring hardware from us to be able to be installed in the grid. That's different, fundamentally, than the models we've talked about in the past, where we just sell wire and what the wire content is and so on and so forth. We're delivering REG as a product. The wire is an enabler. It is something that is built on our unique architecture and our unique manufacturing process that we can offer something to the market that we believe no other company in the world can. So I think you've got to think now about more content. Just as we had moved the Wind business from components to full systems, we've moved superconductors from wire to full systems, as well.

Okay. And the more details -- more questions about your current collaboration with ComEd in Chicago. It looks like -- first of all, what is the milestone that will trigger the next phase of the $60 million contract? And for me, it looks like ComEd is in the driver's seat in determining whether they will move forward or not.

Sure, they're the end customer. So the end customer is always in the driver's seat, nothing unique about that. What we need to do is we need to develop, in conjunction with ComEd, with assistance from DHS, a detailed deployment plan. And if you want to think of it this way is we would have a subcontract between AMSC and ComEd for ComEd to handle the civil and the construction. That is a requirement of the initial phase of the program, and that's something we're going to work on here over the next 6 to 9 months. At the end of the day, what we've seen from ComEd, from their lips, from their press, is that they are a believer in the product. They believe they have a compelling need to install, that they've been able to convince not only us but DHS that they want to go forward and do this. So at the end of the day, I think what we have is the beginning of adoption of Resilient Electric Grid.

Okay. And if you move to other utilities with similar projects, how well be -- would be the future revenue be determined, whether it's all determined by the size of the power grid of that utility or something -- or basically, your system is kind of one thing fits all kind of thing?

I would see it as configured to the system that we're going to go into. You're talking about a multi-mile, multi-point installation in Chicago. And you can see the DHS contract as reflective of the price, the value of the product for this implementation. What we tried to get to in the call is that most of the alternatives are in the billions of dollars. So the value proposition for REG should be in the tens of millions to potentially in excess of $100 million, depending upon the scope of the problems it solves within the utility. What we really need to do from a price standpoint is compete with other capital purchases that a utility would traditionally make. If they're going to go build a new substation or they're going to go build a new transmission line, the value of REG is substantial. If they're looking to increase reliability, the value of REG is significant. And if they're willing to have reliability but also capacity enhancement, now, really, what your alternatives are, do I go build a -- whatever the value of a substation is in my urban network, or do I purchase REG? So our cost, our competition no longer is copper. It really is, how much does a substation cost? Or how much does a substation enhancement program across this system cost? And can we provide REG at that value point? We believe we can. Part of what we're going to learn with Chicago is that we can. Part of what we're going to learn with these multiple other utilities are that they have interest at a certain price point. So before, when we were talking about this in general construction, we said that the revenue of a REG system would approximate the annual revenue of the company. That still holds true based upon what we've put out so far to date. So this is a transformative product, not just because it uses our core technology, the technology that was -- the company was founded on. It's really because it moves the needle significant from a revenue growth standpoint. That's what I fully appreciate about REG, the fact that we see demand in the market at this kind of price point, it seems to make sense. Now what we have to do is go off and deliver on that with Chicago.

Okay. Switch to your Wind business, 2 questions there. First of all, do you know what kind of inventory level JCNE has right now? Secondly, if there are any updates for your litigation against the Sinovel?

I think the simple answer for the JCNE answer is yes, but we don't feel it's in our ability to share that. On the litigation standpoint, things continue to proceed in China. Things continue to proceed with the Department of Justice case. These are legal things. These are slow, slower than we had anticipated, for certain. I think the thing that makes me not be frustrated about the legal cases is the fact that we've resized the business, the fact that we're in good position to get to growth, and we've insulated the business from the legal activities here in the U.S., in the EU and in China, as well.

Okay. Lastly, just a couple of housekeeping questions. Your accounts receivable level increased significantly in the first quarter. What happened there? And also, there were -- was about an over $600,000 inventory write-off. What happened there?

First, to your question on the receivables, it was -- we have -- on some of our contracts, we bill on milestones. But sometimes, those milestones do not coincide with the recording of revenue. That revenue will get deferred. So that's the primary reason why you saw the accounts receivable increase. On the inventory, you mentioned a $600,000 write-off. We are always seeing a part of our accounting policies and procedures are to look at inventory, whether it's aged, whether it's potentially excess or obsolete. And those are just -- the $600,000 was a result of the -- just the ongoing review of our overall inventory and its continued ability to potentially generate value going forward. So in that particular case, we found that we should take some small write-offs of that particular inventory.

Our next question is from Theodore O'Neill from Ascendiant Capital.

Just a quick question about the -- another follow-on, on the inventory. If there's going to be a sort of big ramp in the second half, wouldn't I expect to see inventory levels go up rather than down sequentially from March?

Right now, we're tightly managing our working capital, obviously. And a lot of what we trigger our purchases of inventory from are the actions by our customers to make their prepayments as they're called for under the contract. And so as those prepayments are made, we will then use that -- help use that cash to help -- make sure that our supply chain is ready. So obviously, we -- the revenue in the first quarter, we anticipated that -- we guided to lower. We didn't have much production activity like, for instance, on the grid side of the business because we consolidated -- we're in the process of consolidating the manufacturing operations. So I don't think it's unusual that the inventory declined in the first quarter. But if we are to exceed growth in revenue in the second half, as our guidance implies, that you should start to see a buildup of inventory starting in the second quarter in preparation for that.

And we have no further questions at this time.

Great. Thanks, Steve, and thanks, everyone. In the fourth fiscal quarter of 2013, we generated positive operating cash flow. Last month, we announced an order for the Resilient Electric Grid System. The rhetoric is turning into reality. We remain focused on execution with the goal of growing revenues in 2015 and beyond. Look forward to talking to everybody next quarter, and take care.

This does conclude today's program. You may now disconnect, and have a wonderful day.