Good day, everyone, and welcome to AMSC's First Quarter 2016 Earnings Conference Call. This call is being recorded. [Operator Instructions] With us on the call this morning are AMSC President and CEO, Daniel McGahn; Executive Vice President and CFO, David Henry; and Manager of AMSC Investor Relations, Brion Tanous. For opening remarks, I'd like to turn the call over to Brion Tanous. Please go ahead, sir.

Thank you, Erica, and welcome to our call to discuss our first quarter of fiscal 2016 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 safe harbor provisions under 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, 2016, which we filed with the SEC on May 31, 2016, 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, impairment of minority interest investment, 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 form the Investors page of our website at www.amsc.com. And now I will turn the call over to CEO, Dan McGahn.

Thanks, Brion, and good morning, everyone. I'll begin today by providing an overview of our financial results for the first quarter of fiscal 2016, which ended June 30, 2016. Dave will then provide a detailed review of our financial results and guidance for the second fiscal quarter, which will end September 30, 2016. Following Dave's comments, we'll provide an overview of our activities and future expectations. After that, we'll open up the line to your questions. First quarter of fiscal 2016 revenues came in as we expected. We anticipated the sequential decline in ECS shipments to Inox during the first quarter. On July 25, Inox made the advance payment of $2 million required under the new supply contract, and they have communicated to us that they intend to return to more normal levels of wind turbine production during the September or second quarter. However, because of the timing of the letters of credit being received from Inox, which we require before we can ship ECS, we are getting off to a late start on ECS shipments in the second fiscal quarter. We continue to be optimistic about the wind market in India and believe we are well-positioned to support any expansion of Inox's business. Our Gridtec segment has its sights set on growth. We're working hard to further penetrate renewable energy applications as well as industrial and utility opportunities for our D-VAR products. Regarding our Ship Protection Systems products, I am pleased to report that during this past quarter, we made considerable progress towards securing our HTS technology as a production alternative for Navy vessels. Separately, our team at AMSC is working hard to deliver the beta version of a second Ship Protection Systems product and begin qualification efforts for this product with the U.S. Navy this fiscal year. With respect to our Resilient Electric Grid, or REG product, our message and value proposition to electric utilities are being well received, as utilities are now requesting engineering and procurement contractors, or EPCs, to quote on superconductor solutions. I'll talk more about these developments later on this call. I'll now turn the call over to Dave to review our financial results for the first quarter of fiscal 2016 and guidance for the second fiscal quarter, which will end September 30, 2016. Dave?

Thanks, Dan, and good morning, everyone. AMSC generated revenues of $13.3 million for the first fiscal quarter compared to $23.7 million in the year ago quarter. Total revenue for the first fiscal quarter decreased year-over-year to the lower wind segment revenues during the period. Revenues from our wind segment were down in the first quarter of fiscal 2016 as a result of reduced ECS shipments to Inox. As we noted in our last earnings conference call, Inox has been dealing with working capital constraints, which negatively impacted demand in the first quarter. Wind segment revenues represented approximately 43% of total revenues for the first quarter of fiscal 2016. Grid segment revenues for the first fiscal quarter increased 38% year-over-year as a result of higher D-VAR and HTS project revenues versus the year ago period as well as revenues from the joint development effort with BASF. Our 12-month backlog at June 30, 2016, was approximately $86 million compared with $89 million at March 31, 2016. 12-month backlog includes forecasted demand under the new Inox supply contract. In late July, Inox completed making all of the necessary prepayments specified into the license agreement and supply contract. Looking at the P&L in more detail. Gross margin for the first fiscal quarter was 6.5%, which compares with 13.6% in the first quarter of fiscal 2015 and 33.6% in the previous quarter. The year-over-year decrease as well as the sequential decrease in gross margin in the first quarter was primarily due to lower revenues including 100% margin BASF license revenue in the fourth quarter that did not recur in the first quarter. R&D and SG&A expenses for the first quarter were $10.2 million. This was down from $10.7 million for the same period a year ago. Approximately 15% of this R&D and SG&A spending in…

Thanks, Dave. I'll start today with an update on our activities within our Gridtec business unit. Why don't we start with Windtec actually. Through our Windtec Solutions, we provide our wind turbine licensees with fully integrated Electrical Control Systems, or ECS. The ECS consists of the electrical pit system, converter system, power distribution cabinets and various turbine control cabinets as well as our SCADA solution and our software. By using our integrated Electrical Control Systems, we believe our customer's wind turbines provide higher availability, reliability and optimized energy output. Our primary market for our wind products today is in India and we service this market segment through our partner Inox Wind. According to the Global Wind Energy Council, the Indian Wind Energy sector had a total installed wind power capacity of 25 gigawatts at the end of calendar 2015. In terms of wind power installed, India is a major player in the global wind energy market and ranks fourth in the world in key [indiscernible] installations according to industry analysts. The Indian government has announced an impressive target of having 60 gigawatts of wind energy capacity installed by 2022, which is more than double the existing installed capacity. We are keeping an eye on changes in the macro environment in India. According to news reports, some states in India are not paying wind power producers in a timely manner for power generated and also lowering their tariffs. One example is the state of Madhya Pradesh. According to Inox, roughly 25% of their backlog is for projects in this state. The slow payment by certain states in India can be expected to negatively impact the cash flows of wind power producers. This may also be a factor in Inox's recent working capital constraints. There are other changes in the macro environment…

[Operator Instructions] And we'll go first to the side of Colin Rusch of Oppenheimer.

Can you give us a sense of what normalized working capital should look like? Obviously, you've done a nice job collecting and it will liquidate this inventory. But should we be thinking about a 30-day receivable level? And can you just give us an update on where you think inventories pencil out by the end of the next quarter?

On the receivables, generally because Inox is our largest customer and hence, the largest components of our receivables quarter in and quarter out, and the fact that they're under letters of credit means that collection's assured and it’s on specific timetable. So our DSOs really have been -- the normalized level is around 50 to 60 days. I think it's pretty good. Inventories are, like I've mentioned, significantly higher this quarter and we have to bring them down. We chose to continue to keep our factory operating during the first quarter and because we had material to build, we went ahead and built it. So you'll see that in our 10-Q, that finished goods increased. And so we're going to be looking in the second quarter to decrease the amount of finished goods that we're carrying and adjust the levels of production in Romania. From a cash standpoint, overall, what we've said in the past, I think still holds true. When the working capital isn't swinging like it did in the first quarter and like we expect it to in the second quarter on that sort of a normalized basis, at levels of revenue at around $20 million a quarter, the cash burn with normal levels of working capital usage is going to be somewhere in the neighborhood of $4 million to $5 million a quarter on an operating basis and that continues to hold true.

Okay, perfect. And then once we kind of work through the adjustment here in the September quarter and you look at incremental revenue, obviously, some of this is going to be mix dependent. But can you talk a little bit about incremental operating margins? You've done a nice job with controlling operating expenses. Would just love to understand how you think about incremental cash flow as you start to grow revenue again.

Well, most of our -- as it relates to certainly to the Electrical Control Systems and to the D-VAR, the gross margin that we achieved on those products is actually the incremental margin and the overall GAAP gross margin are actually fairly close because there's not a lot of fixed cost per se that's associated with the manufacturing of those products. Roughly 85% of the cost of those products is going to be in materials for the most part on average. So that being said -- sorry, I just lost my train of thought. What was the end question?

The end question is on the incremental operating margins.

So like I said, the gross -- the incremental gross margin and the GAAP gross margin are fairly close. We don't disclose gross margins on a product-by-product basis. But we've talked about where gross margins have been in the past for these types of products somewhere in the neighborhood of the mid-30s.

Okay, perfect. And then a final question for me, with the FERC rolling on wind and solar, can you talk a little bit about the growth in pipeline at this point in the conversations that you're having? And when you would expect to start seeing real material impact on the revenue line from that ruling?

I think the good thing with the U.S. market is the extension of the PTC through 2019, that's helping to support the pipeline today. This new FERC ruling will impact new wind projects that are just beginning to be studied. So there's a bit of a time lag between when we believe that this ruling will actually impact the market. We don't anticipate this helping the market this year or next year. But certainly, beyond that, hopefully, you'll start to see some uptick. And really what it becomes is an expansion of the U.S. market to have more geographies that require the most stringent grid codes, which really help enable D-VAR sales in the U.S. So the timing of the expansion of revenues will come over the next years, not the next quarters. But I think it puts us in a good position for U.S. revenues. We're very much focused on the diversification of revenue as you hear and as you know. And we think that this is a good tailwind for the D-VAR business in the U.S.

We'll go next to the line of Carter Driscoll from FBR.

It sounds like the visibility into ComEd has maybe gotten a bit murkier. Can you kind of contrast what you have learned over the implementation of phase 1 and trying to get towards phase 2 towards the other utilities you're starting to engage with? And maybe how you can potentially accelerate the adoption time line, if you can, at all?

Yes. I think the real kind of blunt answer to your question, which I think is right on for looking at Chicago is the thing that's changed with superconductor systems for utilities is we're not really talking about U.S. government-subsidized technology demonstrations. Granted, the project with Chicago will have federal funding support, but what ComEd really after is enhancing the reliability of their grid, which means putting the assets in the grid and putting those assets in the rate base like any other piece of hardware. That happening is a tremendous milestone for our company and for the progress with the REG product. So the challenge that the utility has or like they have with any other system, they have to go through their internal process, they have to understand how they're going to get recovery and what the system is going to be able to do, what alternatives could potentially do. And because this is the first-of-a-kind system, that work is first-of-kind work, which I think we've learned a lot with dealing with the pacing in Chicago that it's not just about the value, but it's also how quickly can we install and it's how they're going to get recovery for those assets. So fortunately, as part of the DHS contract, we were required to and have worked very hard to develop a pipeline of other cities that would be looking to install the technology. And I think there's a strong desire there to risk reduce and maybe not necessarily be the first. But what I was saying in the prepared remarks is, we're now moving into a situation with utilities where they're asking basically for pricing, for delivery timetables, for installation timetables. And they're also not asking just only us, but also very large engineering and procurement firms. So our belief today is, although Chicago is important in the development in the maturation of the Resilient Electric Grid product, what we have today is something that uniquely provides value to utilities that they can't get another way. And that some of these other utilities have the potential either to move prior to or concurrently with the implementation in Chicago. What we've tried to do is to mature these dozen or so conversations. And what you're hearing from us today is a bit more specificity that some of these are really starting to move forward to become more real and we've made tremendous progress here in the first quarter of this year doing that. We think REG is a winner and we think it's a winner because utilities are telling us, it uniquely solves a problem that they currently have in their grid.

If I heard correctly in the prepared remarks, Dan, you talked about an RFP release and then also a budgetary proposal. Can you kind of just compare and contrast those with the guys that you had been engaged with that you've talked publicly about and then maybe where you stand in terms of some of the other utilities potentially heading or at least moving into that type of phase this fiscal year?

Sorry, I'm unable to have permission from utilities to identify or link them to anything that we said previously and I apologize to that. So I can't give you additional clarity on that. I know that's an obvious question from what we put forth. But utilities and their communication sometimes are, let's say, different than how we would like to communicate to our investors.

That's fine. Let me ask this then, is the proposal with the EPC done in conjunction with you? Or is it a separate proposal?

Yes. It will be done in conjunction with us because the Resilient Electric Grid product is an American Superconductor patented technology that's dependent upon not only the wire, but value beyond the wire and how the system is designed, how the architecture of the whole system is put forth and really how you make it work within the grid is unique IP to our company.

Okay, okay. Maybe just shifting back to Inox. It sounds like the macro environment is maybe perhaps a little bit less settled than it was just a few months ago, obviously, some expiring and depreciation and the subsidy. Can you characterize was that surprising? I mean, is that impact, I guess, from Inox and their working capital, is that kind of like the missing link that you think maybe could persist as some of these states gets squeezed financially? Are you more concerned about potential lack of extension in some of these subsidies?

Yes. Trying to give some basic color on other issues that may be affecting collection in the near term, but also try to give you some color beyond this year. If you go back retrospectively in the market in India, they've changed their subsidy regime several different times over the past trailing few years. So we're trying to call to mind to our investors to really identify, it's a good market but it has some risk that it potentially could be lumpy. And we don't want particularly after a lot of the commentary questions that we had after last quarter, we wanted to make sure that people have kind of full disclosure on the market dynamics in India. We think it's a great market, we think Inox is in a great position and you've heard us talk about. They see this really as an opportunity to differentiate through technology and that's technology that comes from us. And that may give them some potential to be able to increase their market share. So going to a bigger rotor, going to a lighter wind speed product, which is something that we've developed for them, strategically probably was a very good decision. And that should help them in the coming quarters and coming years to continue to grow their business as they'd like to see.

And how important would you classify getting the 3 megawatt design with them in terms of continuing to be able to differentiate their solutions for them?

I think it's really up to them to dictate that. I mean, we certainly want to move forward with that product with them, everything that they said to us directly or that they've said publicly to their shareholders indicates this is important to them. So we continue to have discussions around the 3-megawatt product that remains an objective for us this year, remains an objective for them. But frankly, if they say, hey, they want this to wait 3 months or whatever, we don't see that as a negative impact on anything, it's just really making sure that they can bite off what they can chew. They've been very good at focusing on the 2 megawatt. At some point here, that we believe they'll be a 3-megawatt, there's a commitment to do that together. And we remain having it as an objective this year as does Inox.

Okay, just last question for me, what is the scope again of the beta product you're hoping to deliver to the Navy this year?

So it's a full system that would be deployed on a specific vessel. And that vessel has the ability to do a lot of things for the Navy. So we're trying to construct, if you what to think of it as a payload to go into a retrofittable solution that could be deployed to the 200-odd ships in the surface Navy today.

This does not address power propulsion, though it's for...

Everything we're doing today that we're working on is propulsion -- I'm sorry, protection. With that exception of we are developing a power solution for this ship distribution power. So if you want to think about it as maturity, the Ship Protection Systems, the degaussing system, the permanent installation that's what we're talking about with the $8.5 million contract, that's what we're talking about with progress that we announced today that we're very excited about with the Navy. The second product is another Ship Protection Systems product, which is this beta unit which is this deployable solution that could be a great retrofit extension of the market. That's the focus in the near term. But technology-wise, we continue to develop technology for the Navy as the Navy is paying us for 4 power cables. And then the long-term, we've gone through this for a few calls now, the long-term desire to see this technology really help enable the next generation weapon systems and propulsion systems, that's ultimately what the Navy's after later this decade, next decade.

We'll take our next question from the side of Jeff Osborne of Cowen and Company.

Just had a couple of quick questions. One on India, do you expect any type of surge in orders in the late December quarter and March ahead of the tariff reduction? It is kind of Question A. And do you happen to know the specifics of the rule? You mentioned that the percent changes, but is there any protection to developers similar to what we have here in the U.S. with IRS visibility in terms of percent completion accounting so that perhaps a there might not be a sudden drop off in margin there is a little bit more leeway for developers to still recapture this?

Yes. I think, projects that are ongoing usually are subject to the rules that were present when they started. I think what we're trying to is give you some color into 2017 and beyond in India. There have been past changes in how depreciation was structured, how the incentives were structured. And the markets kind of been able to handle and absorb those. And then we also made the comments of basically, this is the market that's going to go from to about 25 gigawatts installed to like 60 by 2022. So that's growth that's on the order of 4, 5 gigawatts a year, analysts are assuming that it's a market that's going to be approaching here in the next years in the 3- to 4-gigawatt range. So it's still longer-term, looks like a very nice growing market. In the near term, what Inox is trying to do is to differentiate through technology to gain share, which we think benefits them and should benefit us.

The other thing about the tariff regimes, Jeff, is that what we talked about 1 state like Inox has a good portion of their backlog with, which is Madhya Pradesh. Those tariffs are coming down but there are other states where the tariffs are increasing actually. So it's kind of a state-by-state thing in India, which is why I think the 60 gigawatts still seems to us like it is still achievable in India because there is still quite a lot of government support behind that and state support behind that as well.

There are 2 other ones. One on the FERC ruling 827. Historically, when there has been an electric code changes, for example, in solar, you've seen a lot of the functionality being added to the inverter. I guess, what's the risk of that some of the functionality that the D-VAR does is not added to an inverter 2 years down the road, as some of these facility agreements that people need to file facility studies agreement as part of the ruling for 827?

Yes. There’s always the potential for competition. There's been competition that's there. We fit very well with certain makers of wind turbines because we more dramatically augment their capability to provide reactive compensation to the grid. The fact that we know there's an opportunity here means we're not going to stand idle with our product development efforts. We see this as an opportunity for us. We see this as a market that we've been able to drive in many ways and we want to continue to be focused on growing the D-VAR business. So we see it as an opportunity for us to be able to grow not only the revenue, but maybe the feature set of the product line as well.

Last question is just around the 10-Q, I had a chance to flip through it before the call. Can you just elaborate on it? You've got 3 new 10% customers that are roughly 40% of revenues, so Reed & Reed in New England and Essential Energy in Australia, I believe, Xinjiang [ph] A Chinese company. Can you just talk about what you're providing?

So for the first 2, those are D-VAR customers on the grid side. So those are installations for D-VAR and XJ [ph] Has been a long time wind partner in China.

And Reed & Reed, is that as a result of wind farm, it looks like they developed is that as a result of the 827 rule? Or have...

Let me clear with the 827. The 827 is only going to affect new projects that haven't even been studied. So if anybody has looked at specific site, those are kind of under the current regime. If new assets want to be developed, particularly in these other states in the U.S., then they would be subject to FERC 827. So anything in the near term, that we're talking about today that's revenue for the next quarter, even the next year or 2 are going to be all things that are not being driven by the FERC 827 ruling.

That's helpful, maybe I was mistaken I thought in the past you had always highlighted D-VAR strength in wind in markets like Australia and South Africa...

Those are FERC jurisdictional countries, so FERC is not...

I'm moving beyond the FERC I think, I guess, this is Reed and Read new customer and what's there. It looks like they have a pretty strong presence in the wind development market.

They've been a customer of us before, I think what's interesting is because of the revenue level, you're starting to see some of the components that make up the grid revenue. Usually we have 1 D-VAR installation in the case of this quarter, there are 2.

[Operator Instructions] We'll go next to the line of Sameer Joshi from Rodman.

So I know you gave the backlog of $86 million. Is Inox expected to be still in that $55 million to $60 [ph] million range from this backlog?

Yes. They're still a big part of that backlog. And your number is I guess, it's in the ballpark.

Okay. In terms of revenues from Gridtec, you've been around $7.6 million, $7.7 million over the last 2 quarters. In terms of modeling going forward, based on the commentary that we just heard, should we see a gradual increase in that to $8.5 million, $9 million levels for the next 2 quarters? Or yet to be more specific in the $16 million to $18 million guidance of...

I think the blunt answer is, no. I think what we're trying to give you is an indication, what are we working on and what macro factors helped the company to continue the process of growing the Gridtec business as well as further diversifying the revenues. And sometimes on these calls, it's hard to give you color for next quarter versus the next years. We're attempting to try to step out and paint a little picture for the next few years as well and, hopefully, that's not making it hard to understand our comments today.

And D-VAR in particular, that business has been and remains -- has a lumpiness to it. So our objective is over the course of the full year to grow our D-VAR revenues. We're pleased to report that first quarter this year over first quarter last year, we grew revenue. I think I don't know if we're going to grow revenue each and every quarter year-over-year. I mean, I guess, you can model that assumption. But what we're really focused on is growing the full year.

Okay. Coming to Inox, are there any payments due towards or payments expected from Inox for the 3 megawatt ECS development? And are they forthcoming?

No, we haven't signed a deal. So we're clear. We entered into an agreement that we will be the provider, but we have yet to sign a license arrangement with them. So there's no payments in backlog, there's no payments that are planned here, in the guidance that we're talking about. Our hope is that we both elect to get this objective crossed off our lists mutually this year and at that point, then we would announce why that deal looks like and we can talk about how revenue recognition would work at that time.

So most of my other questions were answered. But just I don't think you discussed any of the Beijing High People's Court and the intellectual property court cases? Is there any update on that?

No, real update in China. The only update on all of the court cases is in the U.S. There was a hearing, which we've talked about that there would be an evidentiary procedural hearing, which has happened. We are still on track to have a court date of 5 December 2016. We got to get through a presidential election between here and there, so all that changes the world or not.

And at this time, we have no further questions. I would like to turn it back over to our speakers for any closing remarks.

Great. Thank you. This has been a challenging quarter, the first quarter and I think we're signaling that those challenges continue into the second quarter. I mean, frankly, we're getting a late start in the second quarter. We've tried to do the right thing with managing our cash and managing our cost, we're happy that the feedback that we get continually is that we do a good job with that. We are subjected to market demand and we're trying to be very clear about what our partner, Inox, is up against and how they're going to try to differentiate themselves. I think the good news in today's call is we've made a lot of really nice progress with the Navy and with the Resilient Electric Grid. And we look forward to being able to report back to you improving financial results in the future as well as additional progress on these new products. With that, I want to say thank you and we'll be talking to you very soon. Take care.

We would like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time.