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

Thank you, Jennifer, and welcome to our third quarter call, everyone. Before we begin, I'd like to note that various remarks management may make on this conference call about AMSC's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 10-K for the fiscal year ended March 31, 2011, which we filed with the SEC on September 23, 2011, and subsequent reports that we have filed with the SEC. These forward-looking statements represent the company’s expectations only as of today and should not be relied upon as representing the company’s views as of any date subsequent to today. While AMSC anticipates that subsequent events and developments may cause the company's views to change, the company specifically disclaims 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 income or net income before amortization of acquisition-related intangibles, restructuring and impairments, stock-based compensation, Sinovel litigation fees and other unusual charges and tax effects related to those items. Non-GAAP net income is a non-GAAP financial metric. A reconciliation of non-GAAP to GAAP net income can be found in the press release we issued and filed with the SEC this morning on Form 8-K. All of our press releases and SEC filings can be accessed from the Investors Page of our website at amsc.com. I'd also like to note that we'll be taking part in the Jefferies Clean Technology Conference on February 22, and the Raymond James Institutional Investors Conference on the 7th of March. Our presentation from the Jefferies conference will be webcast. More details on this will be issued soon. And now, CEO Dan McGahn will begin our quarterly review. Dan?

Thank you, Jason, and welcome to the call, everyone. I'm very happy to be reporting back to you on a successful quarter at AMSC. We exceeded each of our financial targets in the third quarter, which ended on December 31. We said we would generate more than $15 million in revenue, and we generated about $18 million. We said that we expected our GAAP net loss to be less than $30 million, and we met this target, despite the fact that our guidance did not account for more than $4 million in restructuring and impairment charges for the quarter. We said we expect that our non-GAAP net loss to be less than $24 million, and we came in with less than $18 million. And finally, we exited the quarter with more than $75 million in cash, cash equivalents, marketable securities and restricted cash, exactly as we anticipated. In addition to these results, we also grew our backlog quarter-over-quarter as we continued building our book of business for fiscal 2012, which begins on April 1. Dave will walk you through each of these numbers in more detail, but I think they demonstrate the substantial progress we've made to create a stronger, more diversified and more resilient AMSC. We believe that our best days lie ahead. We have a strong market-focused strategy, a great team, and we're working together globally as one AMSC to ensure the success of our wind and grid customers. Before getting into the financial details and our outlook, let me first bring you up to speed on the state of our litigation in China. As many, if not all of you know, Sinovel abruptly stopped accepting contracted shipments of wind turbine electrical systems and controls from AMSC last March. This was followed by our discovery last summer that…

Thanks, Dan, and good morning, everyone. We continue to be encouraged with the financial progress we're making here at AMSC. We are meeting, and in many cases, exceeding the objectives we have set for the business. We delivered positive top and bottom line results relative to our guidance. We continue to reduce our expenses and manage our cash in line with our plan. And we have built our backlog to a level that provides us with confidence that we will close fiscal 2011 in strong fashion and we'll be able to grow our revenues year-over-year in fiscal year 2012. Now, let's talk through the numbers for the third fiscal quarter. AMSC generated $18.1 million in revenue for the third quarter of fiscal year 2011. This was higher than our forecast, thanks to our ability to complete a couple of shipments earlier than we had expected and secured cash payments from a Chinese customer for past shipments, which we recognized as revenue. In the third quarter of fiscal 2010, our revenues were $31.6 million. The year-over-year decline was due to lower contribution from our grid business. In fact, AMSC generated record D-VAR revenues in the third quarter of fiscal 2010, thanks to a particularly large shipment to an Australian windfarm. Revenues totaled $20.8 million in the second fiscal quarter of 2011. The quarter-over-quarter decline was due to slightly lower shipments of wind turbine, power electronics and controls. We increased our backlog a bit quarter-over-quarter to approximately $300 million as of December 31. Our operating expenses were again down in the third quarter. R&D and SG&A expenses for the third fiscal quarter were $21.3 million, excluding over $2 million in Sinovel litigation costs, R&D and SG&A expenses were just under $19 million. This compares with R&D and SG&A expenses of $22.6 million…

Thanks, Dave. AMSC took another step forward in the third quarter as we met our expectations for both our wind and grid businesses. Our wind business continues to fare well, relative to the industry, for 2 primary reasons: Our unique business model and our strong presence in Asia. AMSC's business model, we define the companies we work with not simply as customers, but as partners. Partners because we're building relationships, not just executing transactions. We design wind turbines from the ground up for wind turbine manufacturers. This includes both onshore and offshore platforms, ranging from 2 megawatts to 10 megawatts, employing various types of drivetrains. We also provide value added services to our partners aimed at ensuring a rapid yet smooth manufacturing startup and commercial scale up process. Once our partners begin manufacturing its wind turbines, AMSC offers them a highly integrated set of electronics and controls for the wind turbine. These systems are, in essence, the brain of the wind turbine. They perform various functions including controlling the pitch of the blades and the rotation of the nacelle. Our systems also condition the power flow and connect the turbine to the power grid with low-voltage ride through, or LVRT functionality. Everything we do, from design to service, to component supply, is aimed at ensuring that our partners go-to-market with wind turbines that have compelling cost and performance advantages. And for each wind turbine our partner sells, AMSC benefits. This alignment of interest deepens our relationship and drives our growth. While our business model is one of the ways we are creating a sustainable, profitable business, the other is our foundation in Asia. Today, we're serving many customers in mainland China, Taiwan, Korea, and India, and we serve these customers locally. The wind power market in these countries remains vibrant,…

[Operator Instructions] We'll go first to Jim Ricchiuti with Needham & Company.

I wondered if you could comment on the backlog. How much of the backlog, which I guess is around $300 million, is shippable over the next 12 months? And I have a related question on gross margin.

Yes, we don't provide -- we're not looking to provide at this time information on how much is shippable. Next year, we'll provide that when we give our guidance for next fiscal year, when we do our next fourth quarter update. But we do -- we know what our backlog is. We know when it ages in and that gives us the confidence to say that we do expect to have revenue growth year-over-year and that revenue growth, combined with our reduction in operating expenses, will allow us to reduce our cash consumption going into fiscal '12.

Okay, but Dave, maybe you could help with the issue of gross margins? You're assuming I guess a decent sequential improvement in revenues in the March quarter? At what point do we see your gross margins begin to turn positive? And -- I mean, that to me, is the biggest issue here, at least in the near term. I -- can you give us some sense where you're gross margins are going to go?

Sure, let me tell you what -- so in the third quarter, one of the things we benefited from in the third quarter was we got some cash collections from one of our customers in China, and given -- and this was for shipments that were in the past back in the last fiscal year. And so given the accounting that we're now under, that became 100% fall through margin revenue. So keep that in mind for the third quarter. As we move to the fourth quarter, a couple of things on our gross margin. One, our guidance, we never forecast for cash receipts from these customers in China. We don't count on it. We don't run our business assuming we're going to get any. So we -- so there's 100% margin business in the third, that's revenues in the third quarter that's not in the fourth quarter. And then some of our sales contracts, I think this is a bit unusual, in the fourth quarter, some of our contracts have, some of the terms of them, from a payment standpoint, and from when some of the timing of when the payments will happen have some accounting consequences, which will force us to defer revenue and margin more so than in other quarters. And so there's going to be some of our shipments this quarter, but they'll be very low margin and less margin than we would otherwise normally expect.

I think that's an important point when you look at how we're doing accounting. We said that we made changes in how we're doing cash-based accounting for revenue recognition in China. And you're also seeing when we look at projects that you're going to see larger projects probably have more back-end loaded margin than front-end loaded margin. It is not a reflection on the health of the business. It's simply relates to accounting issues and timing on how the contracts are structured.

We'll go next to Jesse Pichel with Jefferies.

This is Elaine for Jesse. Just to follow up a little bit on the gross margin issue. What are the levers there also that you have on improving margin? How much of that is tied to volume, for example, and have you pretty much taken out what can be done on the variable cost side and what's left potentially on fixed cost? Just trying to get a sense of where you can get to in terms of adjusting the structure for the new level of revenue?

Yes, I would say there's -- the answer to your question, is no, we are not done with all the leverage yet. Our fixed cost structure, our objective is to not grow it, or grow it as minimally as possible. On the variable cost side, there's a number of things we can do. We are now switching our business mix. As you know, in the past our business mix, particularly on the wind side, was core components, that is now shifting to ECS. At the present time, the ECS that we -- that are sold to our customers are manufactured by subcontractors. We have the ability to pull some of that manufacturing into China and to lower our cost. And I, also by doing that, source some of the material locally as well and further lower our cost. Those things take time to execute, needs to be done right, the quality has to be appropriate, and so those are things that are certainly on our plate for the next fiscal year.

If you think about what we've done to date, really we focused around operating expense. And going forward, I think we've gotten, as we said in the remarks, we start to see that hit steady state in the June quarter. The other thing the company is really very much focused on is improving gross margin. So there's a lot of efforts throughout the company to help make that happen, and it becomes a key focus for management.

Great. And could you say how much of grid revenue in the quarter was from superconductors? And it looks like you had basically a one-to-one book-to-bill ratio in the quarter, and could you talk about the split between wind and grid there in the bookings?

In terms of the -- we don't really characterize the bookings, but on the revenue split, in terms of the grid revenue, that was $7.9 million. Just probably less than $2 million of it was superconductors, probably -- actually, quite closer to $1 million. And the rest of it was D-VAR.

We'll go next to Tim Arcuri with Citi.

A couple of things. You guys had historically characterized op margin by segment. Can you give us some sense of what the op margins were by the wind and grid segments? And then I had a question on backlog.

Tim, the operating profit or operating loss, I should say, for the wind business was about $14 million. We do allocate the -- any expenses related to the Sinovel legal action to our wind business, so beware of that. And then the grid operating loss was $6.3 million. And then so the difference between our consolidated operating loss represents stock comp and restructuring charges that we don't allocate to the segment.

Great. Okay, Dave. Can you give -- before I ask the question on backlog, can you give a sense of how -- I mean, revenue now is pretty low, but can you give a sense of any large customers in the quarter, any -- greater than 10% customers?

Yes, our largest customer in the quarter was -- I believe is Inox at 27% of revenue. Doosan was 12%, Ergon, which is a D-VAR customer, which is 11% and then all the rest of our customers were less than 10%.

And the good thing you're seeing, Tim, is you're seeing diversification across wind and grid. You're seeing diversification across the different product lines as well as the different geographies. So the benefit of it is we have a much more diversified business. The challenge will be that you'll see lumpiness, not only on the grid side, but you'll a bit of that on the wind side as well, but we think that overall, as we said the upward trend, that we would anticipate to deliver year-to-year growth for 2012.

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

Can you give us some color on the arbitration proceeding with Ghodawat mentioned in the latest Q, specifically kind of the background of that dispute, your position, the risk of a $24 million payout?

Well we view the risk of it is low, the background of the dispute is, is that Ghodawat was a licensee, things weren't progressing well with them.

I think they may have some issues on their own end with how the business was set up and what they were going to commit to do going forward.

And they did not meet the conditions of a license. We didn't see any future means for them to be able to meet the terms of their contracts, so we canceled the license with them. They objected to that, and hence, the claim against us, but things have -- they really have not progressed in any meaningful way. There's really no update other than what it's in the 10-Q last quarter that's really any significance in terms of new information on that, but it's kind of at a stall at this point.

We have to focus on our customers that we think will deliver growth for us and that will be long-term partners with us. And we don't consider Ghodawat as one of those.

Just one other thing, any payout on -- around Ghodawat or anything like that would be covered by insurance.

Okay, great. And then last quarter, you guys had a visibility to give us an idea how Q4 was going to look just roughly in terms of revenue, is there anything you guys can give us in terms of trajectory of the June quarter at least on the top line?

Well we aren't -- other than what we said is that we expect that given our backlog that we expect to be able to deliver year-over-year revenue growth in fiscal 2012, we're not going to go into any further detail right now as to how that goes over the quarters next year. We'll provide further color next time.

Yes. And I think the key, too, is to really recognize, for everybody on the call, is that you're going to see lumpiness in the business. What we're focused on is the long-term shareholder value and being able to utilize the technology portfolio we have and monetize that as best we can for the company. But we are exposed when you start to see this diversified list of customers that you may see revenue a bit up and down quarter-to-quarter. Don't expect us to be doing 17, 18 quarters straight of revenue growth. That's not what we're trying to build the business to do. We're trying to build the business for the long-term, to make sure that the overall trajectory for growth is upward and that growth is not only sustainable, but diversified.

We'll go next to Tim Arcuri from Citi.

Just a quick follow-up for me. Two things. First, can you characterize the backlog. You have, at $300 million in backlog, you have about 10 quarters worth, which is even more than you had when Sinovel was a big piece of the backlog. Can you speak to the security of the backlog? Is it at all covered by deposits? That's the first question. And then the second question is on breakeven, Dave, can you tell us what P&L and also cash flow breakeven is?

Let me make one comment on backlog so it's clear. What we're trying to do is build backlog overall -- over a longer period of time, to build stability into the business. I'll let Dave comment on that.

Yes, I know on the breakeven, we're still focused on delivering quarter-to-quarter, doing thing what we do, doing what we say. And so we're not looking to provide information like that other, but we do know and we are cognizant of the fact that there are people are looking at the cash balance, and looking at when breakeven is going to happen. What I can tell you is, is that we do have ample cash to get through the next 12 months to fund our operations and capital requirements. Beyond that, we're not prepared, at this time, to give sort of a breakeven target, something out long term like that.

We'll go next to Carter Driscoll with Capstone Investments.

First question, if you could roughly break out the revenue split geographically and then maybe by segment? And then a follow-up.

The revenue split was by segment, was provided in the press release. So the $18 million for the third quarter, $10.1 million was wind and just under $8 million was grid. Geographically, the majority of the revenue was in Asia, is about just under $12 million came out of Asia, including China. With the rest of it -- vast majority of the rest of it in the U.S. Actually, U.S. and Australia. Australia was a good contributor as well.

All right, I'll leave that alone. Could you talk about maybe the transition, you think, from your current technology double fed to full conversion of direct drive and the progress you're seeing there? Any initial feedback from customers when you think you might start to see that transition over to newer technologies?

Yes. I think so, when you look at the full conversion turbines, that's what many of the customers are going to market with now. That in China, coupled with the fact that these are larger turbines, 2's and 3's and better, that should help the Chinese partners to deliver market share growth for them. When we turn to India and Korea, in India, they're going forward with I think the right turbine technology for the market now in India. And then the Koreans have developed a product line that really can fit the overall global market. So we feel very comfortable with the product offering now that we are entering the market with our partners, with the right technology for the near term and for the future. And that we continue to develop technology for direct drive and for larger wind turbines. But we see that as part of a technology pipeline, and we want to make sure we have that ready for the market as required.

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

First, it is about your $300 million backlog. Can you give us some more clarity on the breakout of that backlog, either by country, like say, China, non-China or by segment like say, with a break out between the wind and the grid?

Yes. We don't really break out the backlog, and I guess that's frustrating for everybody to develop their model. I think the thing that we comment on is, we're starting to see backlog grow a bit, which we feel very good about. And we said before, the backlog was roughly 2/3 wind and 1/3 grid, and that remains relatively consistent. But I don't think we can go into any more detail than that at this time.

One thing to -- I think maybe Tim had a question on that earlier regarding some of the security of our backlog. There are -- some customers we do take advance payments from. To the extent that those advance payments are not long term in nature, they're -- generally those advance payments come right before shipments. So they are going to have a de minimis effect on the backlog, but in terms of the composition of the backlog, it's entirely firm contracts. And it's not forecast or anything like that. These are firm contracts that we have in place. And so to the extent -- I think it's -- I would characterize all of our backlog as firm.

Okay. Next question relates to the Chinese market. The Chinese government just released its 12th 5-year Energy Technology Development plan, which actually specifies the priority to develop 7 to 10 megawatts class turbines. Do you have any ongoing discussion or collaboration with partners over there to develop large turbines?

Yes, our partners globally is a general global trend. And from a discussion standpoint, I don't want to comment with any specificity on which customers, but in many cases, where we're being pushed is where the market needs to go with larger turbines. We think our company is very uniquely positioned in the way we develop our technology, from the design of the turbine, all the way through the whole supply chain, the drivetrain and the controls that as the market moves to larger sizes, 6, 7, all the way up to 10, maybe to 15 and beyond, that we have very unique technology that will really help change the cost paradigm for these larger turbines. But we have not announced specifically partners for that size range, JinMing.

[Operator Instructions] We'll go next to Craig Irwin with Wedbush Securities.

I was hoping you could give us a little more color on your cash consumption guidance. In the December quarter, you consumed just under $10 million for working capital. What sort of working capital assumptions do you make for your guidance for the March quarter? And can you discuss whether or not -- well, can you give us some clarity around CapEx and maybe some of the other moving pieces in there?

Yes, on the working capital, our overall cash consumed for working capital was about $10 million in the third quarter, of that, about $4.5 million was related to settlements -- our payments, again, these adverse purchase commitments, the liabilities that we have on our balance sheet, we're expecting payments of a similar nature in the fourth quarter against those adverse purchase commitments. I did mention that the legal expenses associated with Sinovel, we expect those to be lower in the fourth quarter. We're also, as we undertake some of the cost reduction actions and the severance, a lot of our severance is in the form of salary continuation. So that's going to be rolling off from a cash standpoint. So those are the reasons why we believe that we will consume less in cash used for working capital in the fourth quarter. And then we will eventually, as our revenues year-over-year grow, we'll be settling into more of a sort of a steady state from a working capital standpoint and the large swings that we have, and the large cash consumption earlier in the year for working capital we won't see going forward.

Great, and then just to clarify one thing you said previously, having sufficient capital to operate throughout the rest of the following 12 months, does that include continued reductions in your adverse purchase commitments at roughly the same rate we've been seeing? Or does that assume that, that's going to be basically flat over the course of the next 12 months?

Yes, we are very pleased with how our vendors are supporting us through this process. They understand that we want to pay them and that the situation from -- with Sinovel is sort of the key to allow us to be able to do that, in getting that resolved. I did just mention that we're expecting sort of a similar amount of payments against adverse purchase commitments in the fourth quarter. But beyond that, I'm not going to -- I don't have really visibility at this time to say what's going to be happening going down in time. I do expect it to go down, but what number, I'm not prepared to say.

We'll go next to Alex Morris with Raymond James.

I was just curious on the case that was dismissed. Is there any specific reason, I guess, why your opposed to it going to the Arbitration Commission? I think that's where you'd said that's for your largest $700 million plus case was headed? I guess you see that potentially less favorable for you than the Hainan Province Court?

We don't really see it as materially impacting what we're trying to do. So that you understand, Hainan is where some of the wind turbines are actually erected and operating. And Hainan is an island province off the South of China. It's kind of a vacation kind of place. So one of the things that we were kind of aware of going in is that the judicial system there is probably not as sophisticated as it would be in Beijing. The key is to make sure that the evidence obtained there will be part of the case, and it will be going forward. We would like to maintain the case in Hainan. I think simply to keep to breadth of the claims that we have, to keep the breadth of the pressure that we have, to bring a positive resolution for our company and for our shareholders.

And we'll go next to Jeremy Hellman with Divine Capital Markets.

I know it's a long dated question in nature, but the Atlantic offshore wind efforts here on the East Coast seem to be moving forward a little bit, and I was just kind of curious, if you guys have any thoughts whether you're assigning any probability to that actually becoming a legitimate project in the water? Any kind of visibility or thoughts you might have around on that would be interesting.

Yes. I mean, we're out actively trying to help our Asian partners bring their wind turbines over here to this market. We think, from a power curve standpoint, from a performance standpoint, we have equal to or better performance than what's out on the market. And if we can bring forward the combination of Asian manufacturing costs coupled with American installation, there may be the ability to change the cost for some of these projects. But other than that, detailed project by project, we're aware of what's going on in the U.S. But as I said earlier on the call, where I really see the activity and the growth is going to come from India, Korea, China, really Asia. It will take some time we think for offshore wind to really get going in the U.S. Probably see that driven out of Europe and Asia first, and we think we're in great position with the existing partners and with our existing technology portfolio to be able to help change the cost paradigm for offshore wind.

And at this time, I'd like to turn the call back over to CEO, Dan McGahn.

I want to thank everybody for taking part in today's call. I think we had a really strong quarter. If you go back to what we said on the previous call, we not only did everything that we said, but more. We want to be able to responsibly manage the company, responsibly manage our cash position, really focus now on growth and diversification of that growth in order to ensure that we get back to profitability as soon as we can. So thank you all for taking the time and we look forward to speaking with you once again when we wrap up, finally, the wonderful year that was 2011. Thank you, everybody.

This does conclude today's conference call. We thank you for your participation.