Good day, everyone, and welcome to AMSC's -- our Third Quarter of Fiscal 2017 Results Call. [Operator Instructions] With us on the call this morning are AMSC's President and CEO, Daniel McGahn; Senior Vice President and CFO, John Kosiba; and Manager of Investor Relations, Brion Tanous. For opening remarks, I would like to turn the call over to Brion Tanous. Please go ahead, sir.

Thank you, Cody, and welcome to our call to discuss our third quarter of fiscal 2017 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 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, 2017, which we furnished to the SEC on May 25, 2017, 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 sale of minority investments, stock-based compensation, amortization of acquisition-related intangibles, consumption of 0 cost basis inventory, changes in fair value of warrants and contingent consideration, noncash interest expense, tax effective adjustments and other noncash or unusual charges. 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 furnished to the SEC last night on Form 8-K. All of our press releases and SEC filings can be accessed from the Investors page of our website at www.amsc.com. And now I will turn the call over to CEO, Dan McGahn. Dan?

Thanks, Brion, and good morning, everyone. I will begin today by providing an overview of our financial results for the third quarter of fiscal 2017, which ended December 31, 2017. John Kosiba will then provide a review of our financial results for the third quarter and guidance for the fourth fiscal quarter, which will end March 31, 2018. Following John's comments, we will open up the line for questions. Third quarter revenues were in line with our expectations. Inox won nearly 30% or 300 megawatts of the first national auction and 30% or 300 megawatts of the second national auction in India. We anticipated our customer, Inox, will be commencing production in the third quarter for orders awarded during the first national auction in February 2017. However, Inox was working to execute contracts for the supply of turbines to its wind farm development partners. Inox had not put these contracts in place early enough for us to experience the ECS demand we expected during the third quarter. Our understanding is that these contracts are now in place, and Inox is expected to be in position to ramp up production potentially in Q4 and into Q1. Inox's backlog has returned to healthy levels and their expectation is for it to grow from here. The third national auction or SECI-3 is planned to be taking place this quarter. SECI-3 is expected to be for a total of 2,000 megawatts of wind power. The Indian government is anticipating a fourth auction of 2,000 megawatts also this quarter during the month of March 2018. We are seeing signs of a recovery and continue to be optimistic about the Indian wind market. The new policies are expected to enable the overall Indian wind business, to possibly reach higher levels than previously attained. Inox has also…

Thanks, Dan, and good morning, everyone. AMSC generated revenues of $14.9 million for the third quarter of fiscal 2017 compared to $27.1 million in the year-ago quarter. Our Grid business unit accounted for 82% of total revenues for the third quarter. The year-over-year reduction in revenue is driven by reduced ECS shipments to Inox from our Wind business segment, partially offset by higher Grid segment revenues. Looking at the P&L in more detail. Gross margin for the third quarter of fiscal 2017 was 33.6% compared to 18.6% in the year-ago quarter. The year-over-year increase in gross margin was driven by a favorable revenue mix, which included 100% contribution margin revenue from our Wind business segment as well as strong D-VAR revenues. R&D and SG&A expenses for the third quarter of fiscal 2017 were $8.5 million. This compares to $9.1 million in the year-ago quarter. These savings are primarily driven by reduced expenses resulting from our April 2017 reduction in costs. Approximately 17% of our R&D and SG&A expenses in the third quarter were noncash. Our net loss in the third quarter of fiscal 2017 was $4.2 million or $0.21 per share. This compares to $2.8 million or $0.20 per share in the year-ago quarter. Please see our press release issued last night for a reconciliation of GAAP to non-GAAP results. We ended the third quarter of fiscal 2017 with $22.3 million in cash, cash equivalents and restricted cash. This compares with $30.5 million as of September 30, 2017. Our cash burn in the third quarter was $8.2 million, which is in line with our previous guidance. Turning to our financial guidance for the fourth quarter of fiscal 2017. We expect revenues will be in the range of $12 million to $18 million. We are maintaining a wide revenue guidance range…

Thanks, John. Third quarter revenues grew over the second quarter. Based on our discussions with Inox, Inox intends to ramp up their production in the fourth quarter of fiscal 2017, and we expect to ship ECS to support their requirements. Inox anticipates a further increase in the ECS shipments in the first quarter of fiscal 2018. We are positioning ourselves to diversify our wind business into the offshore wind turbine market with Doosan. We are focused on continuing to grow our grid business. We had a record quarter for grid. Our D-VAR business is strong. Our VVO pipeline is developing nicely. Our REG business is moving forward on a number of fronts, and we are delivering long lead-time items for LPD 28. I'd like to cover 2 more items before we turn to questions from our analysts. On our last conference call, I mentioned that we had an ideal location identified for our headquarters and U.S. manufacturing operations just a few miles away from our Devens building. I am pleased to announce that we have successfully completed the transition of our administrative operations to our new building located in Ayer, Massachusetts. We intend to transition our manufacturing operations from Devens to the new Ayer building in the coming months. Our primary focus is on our customers and employees. We have seen an uptick in demand for D-VAR. We are timing the transition to avoid disruption to our customers. We said that we believe the Jackson Road Facility could be a form of additional liquidity to the business. Last week, AMSC signed a purchase and sale agreement for the sale of our Devens building in the amount of $23 million. The sale transaction is expected to close at the end of the fourth quarter of fiscal 2017. As a result of…

[Operator Instructions] And we'll take our first question from Philip Shen with Roth Capital Partners.

First one is on Inox. You mentioned and discussed a few times that they're ramping up their facility and factories. Can you give us an update on whether or not you think they have adequate capacity to serve their existing backlogs? They continue to win at an aggressive rate the auctions that SECI is conducting in India. Do you expect them to actually need to ramp up capacity -- new capacity going forward? Or do think they have enough existing capacity that you just have to ramp up the utilization?

Their state of capacity, if I remember, from their public information depending on the component of somewhere between 800 to 1,200 megawatts. So I think that, that means that they have ample capacity today to ramp with these new wins and then we'll see what they do going forward. I think that their focus is they want to make sure that they serve these customers with the change in policy. They want to become one of the leaders in the market. And if they're successful doing that, I think their prospects for growth certainly are higher than what we've seen in the past.

Great. Shifting over to margins, obviously, you had nice margins in the quarter. How do you expect margins to trend in 2018 overall?

We tend not to guide margins out in time, but I think you can see and, John, if you want to comment, some unique things about this quarter helping to amplify margins a bit, revenue that had little cost associated with it. As you know, part of our model is we will do contracted technology work. Sometimes the cost of those and the revenue of those are in different periods and you'll see higher or lower gross margin depending upon the timing of those events. Do you want to add to that, John?

Yes. I mean, just to highlight on what Dan's saying, our margin this quarter was surely enhanced by some of that 100% fall through revenue on the wind side. But additionally to that, I mean, when you have a really strong grid quarter, you'll have strong margins, assuming wind can produce a reasonable level of revenue. So we haven't guided the revenue for '18, so it'd be -- it won't be appropriate for us to guide on margins. But on a strong grid quarter like this coupled with reasonable wind to associate with that revenue, you could -- we should be able to expect some strong margins.

Good. That color is helpful. Coming back to the wind sector and you had your Doosan 5.5-megawatt ECS order announced last month. For that 60-megawatt project, can you talk about what the mix might be between the 5.5 and the 3-megawatt turbine? I think we've tried to address that in the past. Was wondering if you guys have some additional color on that now?

We don't and we haven't seen anything publicly from Doosan out there. We know that with this order, the timing of the 5.5 potentially gives them the ability to deliver 5.5-megawatt turbines before the end of 2019, which is the projected timing of this first 60 megawatts. But do remember that they won the 60 megawatts before they had access to the 5.5-megawatt. But I don't really frankly know definitively what they're going to do. We want to support them as best we can on both the 3 and the 5.5 as they need us.

Good, okay. And then can you give us an update on the marketplace interest for the possibility of HTS turbine? And are there any new developments or partners on the horizon for the wind sector in general?

I don't want to get too premature, but one of the kind of [ thesises ] that we invested in as turbines got bigger, can we help to deliver more unique-enabling technology to those turbines. So we'll start to see that benefit with the 3 and the 5.5 machines. I think it is commonly believed that to get to very large machines, you would need to change the drive to something significantly lighter. And we believe that, that may be a future potential for superconductor. But at this time, I think the market's kind of lagged what industry projections had to get to larger turbines. There's a number of larger turbines that are in prototype in the beginning of production, and we have in front of us a completed design for a very large wind turbine, larger than anything we've seen out there. So if we can find the right situation with the right partner, then maybe that's a potential future part of our business. But today, we want to focus on continuing to support Inox as they get through their production ramp and getting Doosan to have success in their local market with the hope that they can expand to the global market in the future.

Great, okay. One last question on Sinovel. You had the nice quotes there. Could you give us some additional detail as to how the restitution could happen? What are the possible avenues that either DOJ or the administration or both could take? And especially what might be interesting is how the outcomes of those cases or processes could be leveraged in your civil case in China?

A lot of pieces to that, Phil. It's hard for me to guess what the government is going to do. We wanted to share what was a publicly available letter to highlight that. The United States appears very committed to seeking restitution from us. We've been very consistent saying that we believe that there will need to be a government-to-government interaction in order to resolve the issue. I think the fact that United States government now has a criminal conviction for what we believe is the first time ever of a Chinese company that, that should allow the discussion really to become, again, front and center for this administration. So our hope is that the administration is about action. You know the solar market very well. You see there's already been action activity there. So we hope there'll be action that will help us with our case as well. As for dealing with the Chinese cases, it's hard to go into all the detail of all the evidence that came out, but there were a lot of specific details now about the case that will become public with the transcript. We've talked about how the fact that our evidence is overwhelming and that evidence now will become public information. So as that's out there, I think that should affect the Chinese ability to come up with other arguments for why the events happened. We have a conviction in Austria. We now have a conviction with the U.S. case in the U.S. court. The evidence is now not only overwhelming, but will be public knowledge for the media or for the government to be able to utilize. Sinovel clearly admitted in the transcript that they had obtained the IP. That I think should certainly help us in any jurisdiction that we have a case in, specifically China.

We'll now take our next question from Colin Rusch with Oppenheimer & Co.

Can you talk a little bit about seasonality impacts on the grid business? Obviously, you had a nice quarter and historically this has been a fairly strong quarter for the grid business. But what can we kind of think about as we go through the first part of next year? And obviously, you've guided for the March quarter, but just on a year-over-year basis within that business?

I think it's hard for us to go out and speculate at this point because we build backlog on a 3- to 12-month basis, so we have some backlog that's in hand. But we build a lot of that backlog here at the beginning of the year as new projects start. It's hard for me to dissect a specific seasonality coming from the grid business or specifically D-VAR. It's really project-to-project basis on when in the quarter equipment gets shipped, when in the quarter collections happen and revenue recognition happens. Sometime as we have pushes and pulls between different quarters based upon customer needs. So frankly, as when we look at our quarter-to-quarter, we worry a lot less about the quarter-to-quarter variation and we'll focus more on the annual growth, which we think we'll be able to deliver this year. As customers require product in one part of a quarter or another, we let it fall to where the customer needs it and the revenue and the collections will follow that. So it's hard for us to give you a direct answer on seasonality.

Okay. And then, I want to hear a little bit more about the sustainability at the gross margin levels. Obviously, it was a nice quarter on that regard and partially supported by the mix shift here. But could you talk about that as you lead the Devens facility, how we can think about that into the March quarter and beyond?

Well, you're seeing operating expense at kind of a new low. We can talk a bit about the cash portion of that to try get you to operating cash flow, making a margin assumption. But I think what John said pretty clearly, as you start to see grid at these kind of revenue levels, you have a lot more contribution margin coming from grid. So as long as we can couple these with reasonable wind revenues, we should be at margin levels that are near some of our all-time highs that we've demonstrated with the business over the past few years. So I think some of the things that aren't fully appreciated in the market is how strong gross margins can be if we have a relatively even mix of wind and grid. We don't really guide for gross margin out in time, but we're trying to give you some color to help you understand that people think the margins are going to be in the single digits or something. As we get to these levels of revenue, particularly contributing from grid, you're going to see stronger gross margin.

We'll now take our next question from Carter Driscoll with B. Riley FBR.

First question is just following up on the margins. The -- historically, I think your grid business before the kind of makeover with the Navy and some of the new product introductions had been a lower contributing segment than wind. Can you just talk about how that has changed? And maybe not rank, but talk about the different contributing factors in terms of how they impact grid, in particular? And I have a couple of follow-ups.

Yes. I think the single largest gross margin changing event is the move for Devens to Ayer. That the fixed costs are fundamentally different. The square footage is fundamentally different and our ability to get absorption, specifically in the superconductor projects, should happen at a lower revenue level. So we tried to be as direct as we could putting out, John had commented on a new level for kind of breakeven on an operating cash flow basis. If you're able to construct a margin profile, we talked about $4 million to $5 million of cost coming out with the move and the lion share of that was really coming from cost of goods sold. So that all should help margin. I think one of the challenges that we have and I think that you all are going to have is, with the new footprint the gross margin profile should be substantially better and we have to figure the best ways to help communicate that with you all, without guiding and making promises for the future. But I think we've tried to give enough for the nuggets of the different components. I mean, typically, our levels of cash operating expense are in the 70% to 80% of what we state for operating expense. And that I think for this quarter holds true as well. You have a new steady state really coming into the April quarter that we think allows the company to be in position, as John has stated, at revenue levels less than $25 million, depending upon the mix we see different scenarios where we should be operating cash flow positive. And I think implicit in there is a certain gross margin.

Okay. That's helpful. In terms of the move with the manufacturing, particularly after such a strong D-VAR quarter, have you contemplated or have you built any D-VAR inventory? I realized that it's not something you typically do, just to minimize the potential disruption as you make the transition?

What we want to manage first and foremost is cash, and second, making sure that we can meet customer expectations. So rather than to answer kind of explicitly what we kind of went through in the prepared remarks is we see an uptick in D-VAR demand and manufacturing, which means that we may be a little slower than we thought on moving manufacturing D-VAR over, but not that much slower. What we want to be cognizant of is if there's expense -- if there's any expense related to the move that shows up in Q1, that's a possibility and that may be different than what we had set the expectation before. We said the move would really be in the second half of the fiscal year. And kind of what we're getting at is, there may be some expense that trickles into the first quarter really due to delaying the move to deal with demand. Anything you want to echo on that, John?

No, I think one thing to notice that there is a difference between the -- within grid, the D-VAR, manufacturer move and the HTS factory move are at different levels. So with D-VAR, it's light assembly. So the transition time to transition from Devens to Ayer for D-VAR will be much, much quicker. You remember, we did this 3, 4 years ago from Wisconsin to here, and we were able to do that within 1 quarter. Obviously, doing in a few miles away, it's going to be, we believe, a lower degree of difficult and therefore an easier project.

Okay. Just a couple other quick ones. So the -- are there any triggers associated with the residual payments from the buyer and the facility, the 3, 9, 12 and 24 months. Are there any hurdles? Or there's just a timing?

Just timing. It's really kind of a payment plan and there's debt back on the building, like a mortgage back on the building. We talked about the value of the building being in the $20 million-ish range. I think explicitly we can say that the value of the building that we had on the books is $22.4 million and we're able to get $23 million. We're basically to get full value plus a little bit, and we're able to work with the buyer to structure his payments in a way that we're clearly saying we don't need all that cash now. But having those residual payments come a year and 2 years from now, I think will be a good thing.

Yes, absolutely. I mean, certainly you've done an excellent job on the cash front. Maybe just last question, back to Inox, is -- recognized they had a long process to rebuild their backlog after the change in the way projects were allocated through the auction system. Have you had any follow-up discussions about designing a 3-megawatt turbine, as you've realized them slower to kind of pull up the average power rating over time globally. Any follow-ups that you can elaborate upon?

I don't really have anything new to say today. I mean the echo what's been said, Inox kind of announced that they were intending to do a 3-megawatt with us. When and if we get to the point where we actually pay for that, we certainly would want to announce that because that will show further diversification of that product line, which we think will be good for them. But at this day, I don't have anything new to tell you.

[Operator Instructions] We'll move on to Jeff Osborne with Cowen and Company.

I might have missed this, but can you just -- for the building sale, in particular, I know your guidance doesn't include any cash proceeds from that. But can you just remind us of what the timing of the cash coming in over the multiple years is? Is there a way to say how much will be upfront? How to phase that?

Yes. So from the 8-K -- the way the 8-K reads is that, we believe that we should see $17 million of that come in the March quarter, $3 million of it to come the March of '19 quarter and then the last $3 million of it to come in the March of '20 quarter.

Got it. That's helpful. And then I think you also had a caveat on the cash burn guidance about the Infinia acquisition in the Make Whole. Can you remind us of the $3.75 million purchase price, how much was Make Whole? And if those triggers were hit, that you would have to pay any additional cash?

Yes, we did have to pay some and that approaches about $700,000. So that's not included in the cash guidance as well as any prepayments that will happen as part of the $17 million in the quarter as well as the $17 million itself in totality.

Okay. I think someone before tried to ask this, but so on the gross margin, if I'm going back to Gridtec, understand a lot of moving pieces. But I guess where I'm hung up is that there's 2 products that you're going to start selling over the coming months that we've never seen flow through the P&L. So I understand your production location is moving and there is less unabsorbed overhead as an issue and that makes perfect sense. But just generically speaking, when you introduced new products like VVO and/or the Navy-related revenue coming in, do you think that will be consistent with where D-VAR is today? Or is there any higher warranty provisions because there are new products? Or any timing of cost versus revenue with the Navy that we just need to consider as we factor those new products into the revenue stream over the coming quarters?

I think to speak specifically about grid, things like VVO, was we designed those products, we like to see margins that approach what we do with D-VAR. So we don't want to be introducing products that are going to have a drag on gross margin. We want to improve and where possible take advantage of expanding gross margins. I think specifically around superconductors and REG, to let you know though, we're trying to get absorption of the wire factory, which should be a positive to grid margin as well as the overall margin. But the actual margins on REG, given the size and the level of pass-through content probably will be less than what the rest of the grid business would see. We've kind of hinted that in the past in the Navy. We're trying to design a business that has superior gross margins than the rest of the business. There is the ability to do that with the military particularly when there is technology that's proprietary and necessary for deployment, and we think we have that in this case. I think the challenging part of the Navy will be, it's not really the margin or the cash collections, it will be when revenue is recognized for exactly the reason that you said because it's a new product, will probably as conservative. We'll work with the auditors, but make sure that we're conservative in our approach to how we recognize revenue. There's new revenue rules, particularly involving new kinds of products that if you don't have a demonstrated history of, the desire is to be more conservative with revenue recognition.

Okay, makes sense. And then...

I mean, on the overall margin part, I mean, you take the operating expense that you see coming out of this quarter, the cash part of that is between 70% and 80% of that. You're seeing margins here -- what we're trying to say in some ways is, don't expect these margins at these revenue levels, but at the revenue levels that we want to, you probably want to get to, you probably can expect this level of gross margin.

Makes sense. I think the last one I had -- no, that's very helpful. I think the last one I had is and I might have missed this or might be buried in the 10-Q which I'm not sure is out yet. But the wind revenue, the $2.6 million, can you just articulate how much of that was the 100% gross margin related?

We don't really break that out, but you can probably summarize that because that's where the 100% comes from, certainly that was reflected in the revenue to Inox. But we don't break it out between product types.

All right. Yes, that's unfortunate. So the revenue is attributed to Inox. And run that -- buy me again, why there is a mismatch on timing of cost relative to revenue for an established customer...

So in the case, when we do engineering work for them, royalties, those kinds of things, the margin typically -- when the revenue is recognized in those periods, typically is 100% margin. So obviously, given what we're showing in the margin, a good significant part of that Inox revenue certainly is coming from those types of revenue events. But we don't...

Over the coming quarters, do you expect any of those events to repeat themselves?

Historically, they have. There's always additional streams of royalty revenue and engineering revenue that come from our customers. So I think if you go back and look over time, particularly in quarters where we have probably higher than you're approximating for gross margin, we kind of continually have these kinds of revenues. It's hard to predict them and it's hard to guide to them, but they certainly help gross margin.

And that does conclude today's question-and-answer session. I would like to turn the conference back over to Mr. McGahn for additional or closing remarks.

I just want to make a couple remarks. First, I want to thank everybody for participating today. I want to thank John for the great job he's doing in helping to manage costs and getting this building transaction behind us. I hope that people were happy with what we're able to get from it. I think having it on the books for $22.4 million and getting $23 million, I think, is good for the company. Having that money, I think, certainly extends our runway substantially. To be clear, just as we've said, we have no intention to raise money in order to meet our objectives. Having this additional money, certainly, helps to expand that revenue, and I think should give people comfort for the balance sheet, not only shareholders, but certainly customers as well. Going forward from here, I think we're in great position to have demonstrated grid revenue growth year-to-year. I think that helps the business. I think a lot of the gross margin questions really revolve around that. We'll try to give as best color as we can going forward on that. But we think we're in a very good position, given this cost basis and the revenues that we've been able to demonstrate as Inox starts to grow back, the degree of difficulty today to get to revenues, to get the positive operating cash flow is certainly a whole different eremitic than it was even 2 years ago. So I thank everybody for their attention, and we look forward to talking to you very soon.

Thank you. And that does conclude today's conference. Thank you all for your participation. And you may now disconnect.