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 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, Erica, and welcome to our call to discuss our third 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 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 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'll be referring on today's call to non-GAAP net loss, our net loss before stock-based compensation, arbitration award expense, amortization of acquisition-related intangibles, restructuring and impairment charges, Sinovel litigation, consumption of 0 cost-basis 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 our CEO, Dan McGahn. Dan?

Thanks, Kerry, and good morning, everyone. I'll begin today by providing an overview of our financial results for the third quarter of fiscal 2014, which ended December 31, 2014. Dave will then provide a detailed review of our financial results and guidance for the fourth fiscal quarter, which will end March 31, 2015. Following Dave's comments, we will discuss the work we have done to build the business and explain why we believe that our product lines are positioned for growth. After that, we'll open up the line to your questions. During our last conference call, we told you that we expected a stronger second half. I am pleased to be reporting to you today 70% sequential revenue growth for the third fiscal quarter and providing guidance that supports an even stronger fourth quarter. Today, we also announced that we put the Ghodawat arbitration behind us. Looking forward, we continue to believe that we will get an order from the U.S. Navy by the end of this fiscal year. We remain focused on the successful completion of the first phase of our REG project in Chicago and moving on to the second phase. We typically don't discuss the stock on our conference calls, but I'd like to address our recently proposed reverse stock split. If approved, we believe that this will be sufficient to permit us to regain compliance with the NASDAQ minimum bid requirement while we continue to focus on improving the business fundamentals. We've worked hard to build the business to drive growth and improve financial performance. We believe that organic growth in revenues and improved financial performance will result in stockholder value. We believe that our product lines are positioned for growth. Why do we believe this? Today, we are focused on 2 established products that are…

Thanks, Dan, and good morning, everyone. AMSC generated $21.3 million in revenues for the third fiscal quarter, exceeding the high end of our Q3 guidance, compared to $20.6 million in the year-ago quarter. Wind revenue increased by 12% year-over-year driven primarily by increasing sales to our licensee in India, Inox Wind. Our Grid revenue decreased by 13% year-over-year as a result of lower D-VAR shipments in the period. 12-month backlog as of December 31, 2014, was approximately $53 million compared with $68 million as of September 30, 2014. Looking at the P&L in more detail, gross margin for the third fiscal quarter was 14.9%, which compares with 22.9% in the prior year quarter. The year-over-year decrease in gross margin resulted from 100% margin revenue in the prior year quarter due primarily to payment from a Chinese customer for past due receivables for which revenue had not been previously recorded, partially offset by higher usage of previously written off inventory in the current year quarter. During the third fiscal quarter, more than 60% of our revenues and a sizable amount of our backlog were denominated in euro. Approximately 40% to 50% of the cost associated with those revenues were denominated in euro. As a result, the ongoing strengthening of the U.S. dollar versus the euro had a negative impact on our revenue, gross margin and backlog during the third fiscal quarter. R&D and SG&A expenses for the third fiscal quarter were $10.3 million. This was down from $11.2 million for the same period a year ago due primarily to the benefit realized from our earlier cost-reduction actions and lower stock compensation, audit and legal costs. Approximately 20% of this R&D and SG&A spending in the third fiscal quarter was noncash. In the third fiscal quarter, we incurred approximately 500,000 in restructuring…

Thanks, Dave. I mentioned earlier that our full HTS systems are providing benefits beyond what the incumbent solutions can provide. How? Let's start by looking at our ship protection degaussing systems. Undersea mines can detect the magnetic signature of a naval ship. If detected, as the ship sails over the mine, the mine will detonate. The degaussing systems act like a cloaking device to dramatically reduce the magnetic signature of a ship. The system will interfere with undersea mines' ability to detect and damage the ship. The incumbent technology is a system primarily made of copper cables. We have worked with the U.S. Navy to design, develop, qualify and deploy a lighter weight, more power efficient HTS version that can be integrated into the Navy's existing degaussing systems. But even more important than the weight and power advantages are the performance advantages. We continue to believe that we will win an order for ship protection equipment from the Navy by the end of March. Our REG systems are also providing benefits beyond what traditional solutions can provide. We are currently in discussions with a variety of utilities on the benefits of deploying a REG system. As we have deeper discussions with a greater number of utilities, we are finding additional applications where we can solve utility challenges today. Our current discussions are around 2 separate and distinct REG applications. One application is the interconnection of urban substations, creating a ring-like configuration. With the ring, we are solving a reliability challenge, while also positioning the Grid for future growth. We've also identified how the REG solution can be used to solve urban load growth, a problem utilities are challenged with today. With traditional technologies, to address urban load growth, many times utilities need to expand existing or build new and costly…

[Operator Instructions] We'll go first to the site of JinMing Liu from Ardour Capital.

Regarding the potential Navy contract, you said it's going to be -- it's very likely to be secured by the end of March. So I would like to know a little bit more what -- if you secure this contract by March, what will be the delivery date and the -- also the nature of this contract, whether you just for a pilot or a trial system, or you just a prototype for many more units to come?

So let me answer the second part first. Where we are with these systems is we've done a lot of the design, we've done deployments, we've done at-sea trials. What we've attempted to do with the Navy is to configure the product in a way where they can purchase parts really for any ship in the surface fleet. That's been the main focus of our efforts with the Navy over the past several quarters. As the details about the order or the announcement of such an order, I think I'm going to leave that to the time when we secure the order and I would assume we would let people know the details of that order. We see it as a big step in the commercialization of the technology, it's really the next logical step, and it opens up the surface fleet as a market for our ship protection solutions.

Okay, got that. So just couple of maintenance questions. How much 0 cost inventories do you have?

We saw quite a bit. It's in the multiple millions of dollars. And we will -- at this current rate of usage, we will be continuing to use and drawdown this inventory through the next fiscal year, so through the end of fiscal '15.

Okay, got that. Regarding the Chinese market, do you have any other company, I mean, your customers to show interest because the installation in 2014 was very strong, over 23 gigawatts, and the 2015 supposedly will see some pull forward effect by the reducing feed-in-tariff. So what I'm trying to see whether you have -- are there any other interest from your [indiscernible] like the XJ and [indiscernible] and the others than that JCNE?

Yes, I think to answer the question directly, JinMing, they do continue with their business. There continues to be a relationship with our company. And as they need equipment, there's always a possibility that they're going to order more equipment from us. When you hear us talking about principally Inox and JCNE, it's because we're looking at how we're running the business, how we're planning to see results line up over the next quarters. The numbers that we described, the business that we're articulating, has really been desensitized from the Chinese market. Or if you want to look at it more positively, anything addition -- additional that we do in China, we would see it as upside. That's how we've trying to design the business. That's how we're looking to go forward after everything that we've been through. I'm very pleased that what the team has been able to do to really turn the company around, not only figuratively but literally, where we were once really driven by revenues from China, now we see China really as potential upside. I think it's a healthier position for us to be in. And I think you're right to ask the question. But I think the way that we look at it is we consider any revenues coming from the other licensees as potential upside. That doesn't mean that we don't believe that they're going to happen. We're just running the business in a way that if they do not happen, we can continue to go about building the nice business that we are trying to deliver here.

Okay. Switch to your D-VAR business. I think we see some trend on energy storing devices are incorporating into the power grid, either behind meter or not. That those energy storage systems will come with some energy management system carrying out some function for D-VAR. So do you see that as a threat? Or it really doesn't matter to you at this moment?

I see it as an opportunity in actuality. I mean, when we were back looking at utility scale solar, what we learned is we could think about developing new products, but in actuality D-VAR could be configured to support utility scale solar. We had a number of wins over a period of time in the solar market. Today, we see storage kind of similarly. It is a trend that appears to be emerging. It does not seem clear who is going to pay for storage beyond some of the programs that are being sponsored in California, specifically in the U.S. But we do have a platform in D-VAR that could be configured to take advantage of this emerging market opportunity. It's something that we watch. It's something that is there a potential in the horizon for. But again, we're trying to design the business in a way where what we need to do is deliver D-VAR into the applications that we support today. We're focusing more and more on utility applications because we're seeing a great bit of demand coming from those. But if energy storage emerges as a market, I think we have today a platform that could be expanded to take advantage of those potential opportunities.

And we'll go next to the site of Carter Driscoll with MLV.

I guess just going back to REG for a second. I'm assuming that as you've gone through the first phase and the learning process included therein that the expansion of the applications to suburban substations includes the same customer base. I guess what I'm trying to get at is trying to get a sense of you're not engaging 2 different sets of customers necessarily as it's crossing territories and that you're just expanding potentially the market size and the opportunity with the same set you've been talking with over a period of this first phase?

Yes, I think you nailed what you just said in the second part. And don't confuse my remarks today with Chicago. Chicago, what we're trying to do is bring system-wide reliability. I think the blessing that our company has is, I think, we have a great partner in ComEd. The openness that they've had with us, the ability to work together as a team, the desire to see this product come out and be part of their Grid, I think, is tremendously high. We've garnered, I think, a great deal of respect for their team. I think as well as they've developed some respect for our technical capabilities and our understanding of how the Grid works. And that was part of some of the themes where we're getting at today. When you think about our company, and way customers think about our company, they don't just think about the technology, they think about the systems and the expertise that we have. And I'm really proud of our team that's been working with the utility in Chicago to really understand the constraints in the system to turn this concept hopefully here relatively soon into a reality.

If I remember correctly, there was a portion of that the contract you signed that had an obligation for you to deploy it to other utilities. Can you talk about the form of what that encompasses and any time frame of which it might have to meet to satisfy that aspect?

Yes, so as part of the first phase, the way it reads is we have to have at least 2 other utilities come forth and want to do the analysis of a deployment in their Grid. I think, frankly speaking, that isn't the hard part. I think the part that you all want to hear is them going out publicly saying that they've done this work and that's something that we have to continue to work on, and hopefully, we're able to generate some news here in the coming months or quarters here where we can name names and talk specifics about other utilities other than New York and Chicago that we want to go forward and really explore REG. So the hope here is part of this first phase is we expand our team to include some additional utilities in the U.S. What we see really is a national interest. I think the good thing is with the number of conversations that we're having, with the depths of those conversations that we're getting to, is that we're ferreting it out that there may be a broader market for REG than we initially had thought. I think that's a blessing. I think it's also good for us in that if we're able to identify specific problems the utility is spending money today to solve, that means that the proliferation of REG could potentially happen sooner and to a greater degree. And that, I think, would be great news for our company if we're able to deliver that.

Okay. And so a little bit of base, but is there any aspect of the deployment that includes the actual monitoring of the systems themselves from specific, either physical or web-based attacks? Is there any component that they are in with [indiscernible]?

There's a piece to the DHS mantra is they have some sensitivities around that. What we need to do is to make sure that we show up in the Grid as a piece of hardware unlike any other piece of hardware that they would monitor. I mean, some of the good things about REG is there really isn't any software there. What it is the features that provide the current limiting control are inherent to the material. So there's no additional exposure to cyber attack. But a lot of the utilities as they look at reliability, they like this fact that we're not expanding the potential threats from a cyber attack. It makes the solution more elegant and I think more -- a stronger appetite for the product here in the near term.

So helpful. Maybe just shifting gears a little bit, I know it's not something you've wanted focus on given the direction you've taken the business, the progress you made on the cost side. Anything you can share with us on litigation? Sinovel obviously then potentially posting a profit at least means that risk of them going away might be limited and anything you could share there.

Yes, you can come up with your own opinions based upon the public information. What we said and what we continue to believe is at this point in time, it's really a government-to-government conversation. Those conversations continue. The litigation in Chinese courts has taken longer than probably even the government of China has wanted to take. At some point in time, do we believe there will be a resolution? I think if Sinovel wants to continue to operate as a company and be positioned to grow, they're going to need to find a way to reconcile with us. But as you know, and you hear every time we talk, we bring it up less and less. It's not because we've lost interest or focus on it. But we've principally placed our focus on running the day-to-day business, how do we deliver revenue, how do we focus really on generating positive cash from the business and how do we make sure as we build this business today, we do it in a very diversified way. And I think that's the part that our employees here get excited about, and I think we'll continue to get excited about is, the product line is quite broad still and that the depth of the conversations with many, specifically utility customers, really only brings to life the fact that we have a unique position with our Grid tech part of our business.

And just to clarify, I mean, we continue to monitor the situation, our counsel continues to keep tabs on what's going on, particularly as Sinovel's been going through their financial restructuring. But according to the terms of our arrangements with our counsel, we're not spending any money to do this. We are -- if there's any settlement or if there's any judgment in our favor, there the remaining amounts owed to them will be paid out of the proceeds.

Got it, okay. Just last question, if I may. Coming back to the wind side of the business, I think last quarter you talked about Hyundai looking for UL certification for the 5.5-megawatt turbine. Any update there? And then maybe you can at least talk about where the progress is for those large offshore projects that have been in the works for a while?

Yes, I think it was GL, similar don't blame me for thinking that way. I think I just want to focus on really where we are with India and where the potential upside rests with China. I think everything we've been through, what everybody wants to see us focus the business, get this business into a healthy position. I think the fact, again, we don't bring up Korea. It's not because we don't believe that there's an opportunity there. It doesn't necessarily mean that we're not spending some effort there. But I think when we get at the overall story what we're trying to get people to understand about the business is really focused on these 4 product lines. And for the Electrical Control Systems, we really see the lion's share of that coming in the near term from India with some upside in China. I don't know what's going to happen in the Korean market. Signs there have been positive, but slow. And I think your guess with public information is not much different than what our guess would be on what the market there's going to do.

And we'll go next to the site of Jeff Osborne with Cowen and Company.

I just had a couple of questions. One, you alluded to in your prepared comments about understanding deployment challenges with the ComEd process here, and I understand your timing for Phase 1 for your comments. But maybe just flush out what exactly are you talking about in terms of deployment challenges? And would that have any ramifications for the additional rollout of that more in the Phase 2 and 3 in the next fiscal year?

So to be clear, I don't think we're setting any expectations today when the second phase will start. What we -- why we had this first phase is just like in anything that's a large project. There's always a difference between concept and reality. And I think the thing that we've learned as we brought concept to reality with ComEd, because we have a very strong partner, they're very supportive, that there have been technical challenges. Those were expected. But I'm very proud of what our team has been able to do to figure out how to solve those. The saying is the devil is in the details. And I think the good thing is as we've learned the details, we've been able to think about the product maybe more broadly. But we've been able to progress on a timetable that we set out. We're following that timetable. I think after we get to a point with the first phase, we'll have some discussions publicly, hopefully, about kind of where we are when we get there. Then, as we've said before, it's really a 3-way discussion with DHS, the utility and ourselves on where we bring construction, how long this works, what's it going to finally cost, get it down to a detail of a funded project. And that we are hoping to do as quickly as we can. But we need to have our focus be on really completing this first phase and making sure everybody's happy with the work that's been delivered to date and will be delivered here in the March quarter and the June quarter.

Okay. And then on the degaussing, I understand getting new order here before March. But can you just talk about what the timing of any revenue that would be associated with that project? Would that be similar to the REG process kind of Phase 1 more of a design phase, where that would come in the upcoming fiscal year and then you would do a percentage of completion as the ships' built? I'm just trying to get a sense of perspective in terms of modeling as that award would be announced in the coming months?

Yes, I don't think that's necessarily a bad way to think about it. Until I have the contract in front of me and it's all signed up, I don't really want to talk about or set expectations on how the revenue's going to roll out. I think the thing that might be a little different if you compare and contrast the ship protection system with Resilient Electric Grid is, with the ship protection system, we've done a lot of that qualification work. We've done the actual deployments at sea to date. So there probably will be continued work to further refine the technology. Where we're being pushed by the Navy is to work on refinements that allow for broader proliferation within the fleet. That seems to be a clear signal that we're getting. I think that's good for us. I think it's good news for us. But we're not just focusing on a ship, we're focusing on the Navy. But I'm going to, again, leave it. Kind of as I said it to JinMing, the details will kind of get to when we announce a contract here in the near term.

Okay. And then last question, I guess maybe you can get a little bit more granular. And this one is just for the upcoming quarter, can you just talk about what's your expectations are from a sequential perspective for both wind and D-VAR business? You alluded to the continued strength in India with wind, but I wasn't exactly sure.

I think the main driver -- I'll let Dave answer it, but I think a lot of it, we're looking at coming on wind on things that are in backlog but -- Dave?

Yes, I would expect the growth that we'll see in fourth quarter will be primarily driven by wind. The Grid side will be flat -- flattish, maybe could even be down a little bit. But...

The real growth in Grid is going to come from REG and from SPS. You'll see incremental changes depending upon how the facts part of the business, the D-VAR business is doing. But real big growth will come from REG and SPS, and that's really the message today and what we're trying to get at is, we've kind of aligned everything in the right direction here, and now, we just got to go forward, deliver with some of these contracts, make more progress for Chicago, get more utilities involved and then we're going to have the business that I think that a lot of people have dreamed about for this company for a very long time.

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

Great. Thank you. I think one of the key points I want to make to everybody today, not just shareholders but our employees also listen to these calls, the success of our business is really derived from our supporting our customers and partners. That's the mindset we have to take. That's the mindset that we're taking. We need to be responsive to their needs and markets change, situations change. One of the things we've been able to demonstrate is that we've been adaptive in how we work with our partners. As Inox is ramping up, we want to make sure that we're good partner and we position our business to support their growth. That growth appears almost inevitable from the rhetoric coming out of Inox. We need to make sure that we're there to support them. Additionally, with JCNE, we're going to continue to make sure that we provide the technical assistance to expand their product line, getting the bigger wind turbines. And we want to make sure that we successfully commission these important wind farms this coming spring. With our REG solution, we really want to expand the additional cities to come and be part of the program. The interest is national. And now that we see these 2 main applications for the product, the ring and the branches we described, we see the potential opportunity as possibly expanding. With the Navy, the order that we expect to receive by the end of March really will be the next step in the commercialization of the technology and the ship protection systems. I think lastly, the part I want everybody to hear is how pleased I am in how our employees have handled our fiscal year so far. We're showing a stronger second half and it certainly is good to get the Ghodawat situation behind us and on to, hopefully, an even better fourth quarter. We look forward to talking to you here in the coming months, and we appreciate the questions, and we appreciate everybody's time and support. Thank you.

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