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; 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 Ms. Kerry Farrell. Please go ahead.

Thank you, Aaron, and welcome to our call to discuss our first quarter of fiscal 2015 results. Before we begin, I would 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 filed with the SEC on May 28, 2015, and subsequent reports that we have filed with the SEC. Those 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, our net loss before stock-based compensation, amortization of acquisition-related intangibles, restructuring and impairment charges, consumption of 0 cost-basis inventory, change in fair value of derivatives and warrants, noncash interest expense 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.

Thanks, Kerry, and good morning, everyone. I'll begin today by providing an overview of our financial results for the first quarter of fiscal 2015, which ended June 30, 2015. Dave will then provide a detailed review of our financial results and guidance for the second fiscal quarter, which will end September 30, 2015. Following Dave's comments, we will provide an overview of our activities and future expectations. And after that, we'll open up the line to your questions. In the first quarter of fiscal 2015, we demonstrated significant financial progress, as we more than doubled our revenues as compared with the first quarter of fiscal 2014. We shipped Electrical Control Systems to both Inox Wind in India and JCNE in China. We saw and continued to see strong activity for the renewable application of the D-VAR. We also significantly improved gross margin as compared to the same quarter a year ago. Just a few weeks ago, we announced that Potomac Electric Power Company or Pepco, Washington, D.C.'s electric utility, is undertaking a study of our Resilient Electric Grid or REG system. We'll talk more about the REG program later in the call. I'll turn the call over to Dave to discuss our financial results for the first quarter of fiscal 2015. Dave?

Thanks, Dan, and good morning, everyone. AMSC doubled its revenues to $23.7 million for the first fiscal quarter compared to $11.7 million in the year-ago quarter. Wind revenue more than doubled year-over-year, and grid revenue grew more than 35% year-over-year due to increased D-VAR shipments. 12-month backlog as of June 30, 2015, was approximately $39 million compared with $41 million as of March 31, 2015. The decrease in our backlog is a result of shipments of ECS against existing contracts with Inox, partially offset by our new navy contract announced in the first fiscal quarter. We expect to receive a new order from Inox before the end of the second fiscal quarter. Looking at the P&L in more detail. Gross margin for the first fiscal quarter was 13.6%, which compares with a negative 3% in the prior year quarter. The year-over-year increase in gross margin resulted from higher revenues which included payment of past due royalties from Inox, which are recorded at 100% of margin upon payment. R&D and SG&A expenses for the first fiscal quarter were $10.7 million compared with $11.1 million for the same period a year ago. Approximately 16% of this R&D and SG&A spending in the first fiscal quarter was noncash. In the first fiscal quarter, we incurred a charge of approximately $700,000 to impair the remaining book value of our investment in Tres Amigas. We expect Tres Amigas to close on a transaction in the coming months to finance a project to construct an overhead transmission line. We do not expect that the cash proceeds from this transaction will be sufficient to repay its liabilities and provide a meaningful return to existing shareholders in the near term. Therefore, we've made a decision to write-off our investment in Tres Amigas. Below operating loss, we reported a…

Thanks, Dave. Before we begin to talk about the core business, I'm going to take a few moments to discuss the litigation in China. We haven't talked about our former customer during our formal remarks in almost 2 years. This is because we're focused on the business, and the business is not dependent upon the outcome of these cases. However, since there has been some activity over the past months and we've received questions, we felt it prudent to provide a general update. So please bear with me as it will take a few minutes. Two years ago, the U.S. Department of Justice indicted Sinovel, 2 of its employees, and AMSC's former employee in a criminal action for stealing trade secrets in the United States. Sinovel had requested the case be dismissed on the grounds that the company was not properly served. In July, the United States Court of Appeals for the Seventh Circuit rejected Sinovel's appeal and its stated concern that, "The Chinese government's dignity will be adversely affected," by a trial. As for our litigation in China, we still have yet to see substantive movement. That said, we have had a few procedural changes over the past few months. As a reminder, we have 4 legal actions against Sinovel for the theft and use of our intellectual property and for Sinovel's refusal of contracted shipments. Three of these cases are in the civil court system and one is in arbitration. Two of our civil cases are copyright infringement cases. One is worth $6 million and is in the Beijing court system. The other is worth $200,000 and is in the Hainan court system. After we filed these cases in late 2011, Sinovel appealed both on jurisdictional grounds. The Chinese Supreme People's Court rejected Sinovel's appeals in both of…

[Operator Instructions] And we can take our first question from Carter Driscoll with H.C. Wainwright.

Dan, could you maybe talk just about the engagement process with Pepco versus ComEd? And maybe -- you talked about potentially being a larger order or maybe you could talk about the complexity of whether that's contributing the order or maybe just compare and contrast the way you think you might approach this and maybe the timeline in terms of potentially securing an order from Pepco. Just trying to get a framework of what the intricacies between the 2 projects involves.

Yes. I think the positive news here we're trying to articulate is that the potential scope could be similar or, in some cases, we're showing can be larger. From a timing standpoint -- I mean, recall that we announced the arrangement with the DHS funding in Chicago back a year ago. The discussions that we originally had with Chicago date back probably an additional year. So Washington, D.C. is kind of at the stage that we were at with Chicago prior to obtaining the DHS funding. So from -- going forward from here, it's looking at that conceptual plan or series of options and starting to drill into the detail, looking at their budget, looking at their availability of funding, looking at how they would be able to schedule this, and ultimately get financial recovery for installation of the project. The hope, the desire, the belief, the way that we're presenting it to Pepco is that this would be a commercial sale. So I think positively, we're not embroiled with the challenges of working with 3 parties like we are in Chicago. But obviously, you don't have the funding and the leveraged investment coming from DHS.

Okay. So does -- DHS isn't necessarily going to be involved in this project is what you're telling us, and so it's...

We're not making that expectation. It's not a requirement. We believe that the value is there. But Washington, D.C., I think, has a lot of assets there that relate to the government, right? So there may be an opportunity or a need where the government gets involved simply because it's -- they're the user of the electricity. And a lot of the reliability concerns, at least from what we've seen, relate to specific government assets. So we want to position this, we want to market it and we want to sell it in a way where it's a commercial sale to the utility.

Yes. No, actually, that's a great way to turn that into other sales as well, just being the lead, without the DHS necessarily intervening, as you said. Could you talk about what's going on with the ComEd project in terms of your initial expectations, the timeframe? Has anything changed from the last update you gave in the prior earnings call in terms of completing the first phase and kind of moving on to the second phase? Are there any new challenges or anything that you've been able to solve since the last time we talked about it publicly?

I think kind of net-net, we are in the similar position as we were a quarter ago. I think what's changed is, within the utility, they've done a lot more work. I think that their comfort level with us and with the solution remains very high. We recently had meetings with DHS in Chicago to try to outline the plan to go forward. So there is a clear path that's there. I don't think it wildly changes our expectations or should change your expectations. But ultimately, we want to get to a decision where all 3 of us want to go forward with the next phase of the project. I'm not at liberty today to kind of handicap how much longer that will take. If you remember, as we set out our objectives for this year, we saw a decision coming for that project certainly not within the 2 -- for the first 2 quarters of the fiscal year.

Yes. No, understood. Okay. Shifting gears a little bit, back to maybe talk about Inox for a second. So they're obviously doing extremely well, needing to expand the capacity. There's been a lot of different people targeting the Indian market. Have you seen any change in the competitive environment there? Would it be prudent for them to maybe play devil's advocate, second source because they have such a huge backlog? And is it something where your relationship, you still feel is extremely secure? And if it's still the same product you've been shipping to them all along?

So I think from a share standpoint, I think they see their competitors as being largely Suzlon and Gamesa. I think they positioned themselves in the market with a performance advantage that comes from our technology. I think as we see them ramp and as we see their revenue grow, we have to realize that our mission is to make them successful. I think in the future, we need to make sure that we do what's necessary to ensure their success. And I think we have a lot of lessons learned from our own past, where we can take what we've been through and ideally use that as a competitive advantage in India. In the future, we'll see what the future holds for us. We believe that they're developing a nice business, and the relationship is very strong, and we want to be a good partner to support them through this growth year.

Last question, just talking about the Navy. When -- can you talk about the timing -- or I shouldn't say the timing. Within a particular platform, are there both -- I want to say, I know there are obviously retrofit opportunities and -- would a retrofit opportunity, I guess is what I'm asking, lead to potentially a sale within a new platform or are they completely different sales? Just trying to understand just, like, the purchasing power. A lot of different parties, obviously, within U.S. Navy. Do you have to deal with each platform separately? Or are you dealing with one kind of central command, for lack of a better term?

So I think, it's D, all the above, fortunately or unfortunately. So I think from -- to use your vernacular, a central command, I think we have strong buy-in that this will be the technology for the future for the Navy. When you look at their objectives, what they want to accomplish, and even the way that they articulate their solutions, they literally have super conductivity written all over them. What we then have to do is to work platform-by-platform and shipyard-by-shipyard to determine is the right path a retrofit, a cut over or a forward fit. And we have to do that ship by ship. I think the good thing is we have a vehicle in place for the Navy to be able to procure parts. We standardized a system that can be configured for a variety of the service fleet. The demand is there. The product is ready, and now the work is literally getting it on the ships. I think the other piece to this as we talk about kind of the next solution for ship protection systems, that's really focused on a retrofit market. So from a retrofit standpoint, we'll be able to have multiple options. If a ship is in dry dock for normal maintenance or has damage to it and needs to be worked upon, that may give us an opportunity to be able to install a degaussing system into the ship during that level of service. This next product in the product line, we believe, could be deployed really on any surface ship that's in the fleet that's deployed today. So we're trying to be able to give the Navy solutions that solve problems now, for the foreseeable future as well as the long term, and that's really the product vision that we share with the Navy.

And we can take our next question from JinMing Liu with Ardour Capital.

Yes. First, just a couple of questions about Inox. How much was the sales in -- to Inox for the last quarter?

Inox represented 47% of revenue in the first quarter.

Okay. So the balance of the wind revenue I assume went to JCNE?

That's right. JCNE was 25% of revenue.

Okay. The last number came out of Inox saying that the 2-megawatt turbines became more popular model there. So have you seen any activity from your other customers from China?

That's where we're starting with the customers in China that each one has a 2-megawatt platform. As you know from listening to us and seeing in the market, JCNE has started their path. The others have done prototype and small wind farms, but they really haven't gotten into production that JCNE is currently at. And certainly none of them are near where Inox is. So I think our partners are in a good position. I think we are able to give them leading-edge technology that now -- probably between now and the end of the decade become more standard fare, which may mean that they can compete in a more meaningful way.

Okay, I understand. So, Daniel, you mentioned that the -- you may sell D-VAR into other markets beyond the renewables. Can you just give us more clarity on that?

Yes. So really, the 2 -- the 3 applications are connecting a wind farm, and the lion's share of all of our installations have been in that specific application. Sometimes it's solar, but usually wind. We have sold some directly to electric utilities for voltage stability within the grid. One of the things -- our sales focus is here for 2015, 2016 and beyond is really how do we cultivate that part of the business? How do we grow that? There appears to be an appetite on utilities. There appears to be money there. There appears to be problems within the transmission system that we believe we can uniquely fix from a price performance standpoint, so let's try to focus on that. The third application is really, at the end of the grid, large consumers of electricity, semiconductor fabs, mines, mills, people like that, as we see changes in the mining market or the semiconductor fab market, particularly new builds of semi-fabs, those represent opportunities for us to be able to sell a D-VAR as a full factory voltage protection system. It seems like those markets are actually moving pretty well, and we believe that there may be opportunities for us to sell D-VAR into that market as well. Historically, we've really focused on this as a grid connection solution, and we're looking at fully expanding the product line to take advantage of these other 2 markets that are there in front of us today.

Okay, good. Lastly, I saw some increase in your R&D expense during the last quarter. Was that related to the new research initiative with the Navy or that was related to something else?

Yes. I think you're referring to not just R&D, but overall R&D and SG&A. Recall in the last quarter, we had a $2.2 million benefit from the reversal of some legal charges related to the Ghodawat matter that we had paid to our -- we did not have to repay our insurer, but we had accrued anyway. So that was a benefit that we took in the fourth quarter. If you back that out, our R&D and SG&A expenses were basically flat quarter-on-quarter.

[Operator Instructions] We will take our next question from Jeff Osborne with Cowen and Company.

I think the 10-Q made reference to some delays in the D-VAR and recording some costs with revenue not attributable to that. Can you just expand on that?

Well, it just relates to the revenue accounting on D-VAR. So sometimes you are not able to match up the revenue with the costs, depending on what the milestones are and what the terms of delivery are. And so -- in this -- in the particular case in the first quarter, we saw some lower margins on the D-VAR revenue that we did record because we weren't able to record all of the revenue, but we had to record 100% of the costs. So we would expect that situation to reserve -- reverse itself next quarter.

Okay. And then on the guidance as it relates to the upcoming quarter, did -- should we think about the bulk of the sequential decline in revenue fully attributable to the, I assume, the lack of JCNE revenue, per your comments about them working off inventory or is there some other moving parts as you look at the different segments?

Yes, that's the biggest part of it.

Okay. And then I was just wondering if you could just expand on the Pepco REG evaluation. Specifically or in broader terms, what is -- what exactly does that entail? How long do you think it will take? Are they at a juncture where they would be evaluating specific substations that they would want to do with this and then come up with a total cost and then seek Public Service Commission approval? Or what exactly is the ultimate outcome of the deliverable they're working on?

Yes. The deliverable for DHS is really to identify a scope, a cost and a timetable that makes sense to them, and a path to be able to get recovery, and then the idea as we go forward with them and figure out how they would get funding for the product. We're in the same stage really with Boston as well. I think that the difference is, there is a series of potential installations in Washington D.C. and what we're going to have to do is pick a scope that makes sense and provides the near term value that the utility wants to go forward with the product. On a timetable, all we really know is what we've been through. It took us about a year to do the initial studies with Chicago. I don't know if this is going to take longer than that or shorter than that. I think maybe the difference is you're in a city that is much more sensitive to grid reliability issues because many other customers are the government, and therefore, electric reliability is something that is paramount, particularly given the types of threats that our country sees. So I think it resonates really well with Chicago from a value, from bringing more reliability, from being able to enhance their grid. I think in Washington D.C., you have the added specter of -- there is a political part of this that is dealing with threats that may affect the city and the operation of the city. And the activities that go in Washington affect the nation at large. So we're going to try to push to try to have this come along as fast as we can. And certainly, if we are able to get progress that's demonstrable, we'll report back to you all that progress as we see it.

That's great to hear. The last question I had was just on Inox. How do we think about kind of the key variables of the upcoming contract? Would you be looking at more of a longer-duration contract and some kind of frame deal over multiple years or multiple quarters? Or do you expect as they add capacity and continue to grow like a weed that it would be more kind of quarter-to-quarter? And in particular, if it is a shorter duration, just how do we think about the cadence of pricing for your offering relative to the prior contracts?

Do you read what's on my desk, Jeff, is that what you're doing? I mean, you got all the points. I really can't give you clarity on the call on what we think it's going to be. We still have to negotiate it with them. We've been in constant communication with them. The relationship is very strong. I don't want to get into what margin would be or what the timing would be until we announce such an order. We'll try to be as clear as we can, Jeff, so you can update your models and see how it affects the business. They've gone through an inflection point of growth here. They're going to go through another one with the doubling of their capacity, and we want to make sure we're going to be a good partner through this period and beyond.

And this does conclude today's question-and-answer session. I'd like to turn the program back over to our presenters for any additional comments.

Great. I think in the year-to-year quarter, we've posted some very nice results. We see the growth in the business starting to come, but that growth is going to take some additional time for sure. But we're putting in some of the key pieces of the business here. We had the announcement with Eversource Energy and Boston looking at the Resilient Electric Grid product. We had the announcement of Potomac Electric Power in Washington D.C., looking at the Resilient Electric Grid product. So we're very happy now to have really 3 cities fully engaged and looking at this product to be deployed here in the near term. We were able to report on a significant uptake in orders. And we're also seeing good visibility on a nice healthy business for D-VAR. That part of the business, we believe this quarter and in the near-term quarters, is quite healthy. We were also able to secure the Navy contract for the ship protection systems. You've also heard about us developing the next ship protection product. You've also heard us about developing the next segment for the Navy, which is really power distribution within the ship. So we are on an upward trajectory, certainly, on the Navy. Expectations here going forward. Given the level of discussions we're having with Inox, we believe that we'll be able to get an order in place between now and the end of September. And then looking at the longer-term, beyond September, we clearly see additional business coming from the U.S. Navy. We are singularly focused, the team is, on getting the decision to move to the next phase with Chicago. We've been able to fix a lot of parts of the business. We've been able to build these product lines, and now we are starting to see the beginning of some of the growth that we've been talking about that would happen. We are executing against our goals, and that's really to a credit of our employees. The level of work, the dedication to what we're after here and the desire to really turn this into the company that we've all dreamed it could be is what our employees are engaged, and it's really a testament to them that we've been able to endure some of the challenges ahead of us, get them behind us and start to put the business in position for growth, which is really what we look forward to reporting in the future to you all. So thank you very much for your time, and we'll be talking to you again in a few months. Thank you.

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