American Superconductor Corporation
Q4 2016 Earnings Call Transcript

Published: 25 May 2017

[Operator:]

Good day, everyone. And welcome to AMSC’s Fourth Quarter and Full Year Fiscal 2016 Results Conference Call. All participants will be in listen-only mode until we reach the question-and-answer session. With us on this call this morning are AMSC’s President and CEO, Dan 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.

[Brion Tanous:]

Thank you, David. And welcome to our call to discuss our fourth quarter and full year 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 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 risk factors, including those discussed in the Risk Factors sections of our annual report on Form 10-K for the year ended March 31, 2017, which we filed with the SEC earlier today and subsequent reports that we may 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 gain on sale of interest in minority investments, stock-based compensation, restructuring and impairment charges, amortization of acquisition-related intangibles, consumption of zero cost basis inventory, non-cash 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 CEO, Dan McGahn. Dan?

[Dan McGahn:]

Thanks, Brion. And good morning everyone. I'll begin today by providing an overview of our activities for the fourth quarter and full year of fiscal 2016, which ended March 31, 2017. John Kosiba will then provide a detailed review of our financial results and guidance for the first fiscal quarter, which will end June 30, 2017. Following John's comments, I was then provide an overview of our activities and business goals for fiscal 2017. After that, we'll open up the line to questions. Even if our revenues didn't reflect it, FY 2016 was a year of progress for AMSC. Progress from the action we're taking to reduce our footprint and to focus on growing our Grid business, progress in working to diversify our revenues and establish a sustainable mix of a Wind and Grid business for our company, including progress in our efforts to advance our Resilient Electric Grid or REG product. Progress reflected in the well-received introduction of our new grid product VVO, progress in the continued year-over-year increase in D-VAR revenue and progress with the U.S. Navy to insert our Ship Protection System products into the surface fleet. Building on this progress, earlier this month, we concluded an equity offering to support our efforts to grow our business in fiscal 2017 and beyond. We raised approximately $17 million in net proceeds through the issuance of 4.6 million shares of common stock priced at $4 per share. This includes $2.3 million of net proceeds from the overallotment option, which is expected to close early next week. I'm grateful that many of our existing institutional investors participated in this capital raise. We also welcome our new institutional investors. We see the interest in the offering as a positive sign that the market also believes in the growth opportunities in our Grid business. John and I believe as well. That's why we, along with some of our board members, purchased stock in the offering. I'm personally very proud of the work and effort put forth by our team to make this happen. Before John reviews the fourth quarter and full fiscal year results, I'd like to say a few words about our Wind business in India. Our Wind business underperformed in fiscal 2016 as our largest customer, Inox Wind, operated under self-described working capital constraints. Then in late February, a market event in India negatively impacted Inox's wind turbine demand and consequently demand for our ECS in the fourth quarter. Inox experienced a demand dislocation for their wind turbines which they view as temporary, which is caused by an unexpected change in the wind power tender system in India. This change in the pricing of wind generated power resulted from a record low power purchase tariff in the country's first national auction at the end of February. As a result, certain projects in India are seeking to renegotiate power purchase agreements in light of the national auction results. In this new auction-based market, wind developers, including Inox, are currently reevaluating their backlog of contracts and tenders won under the feed and tariff market regime. Much of this probably will be rebid under the new auction scheme. Consequently, demand for Inox wind turbines slowed in key states as projects stalled due to pricing uncertainty. This certainly presents a challenging first half for us. Longer-term, we believe there may be a silver lining in all of this. The national auction in February resulted in 1,000 megawatts being tendered to five wind developers, Inox's wind development arm included. In fact, in addition to the 250 megawatts won directly by Inox's development arm, Inox has secured 50 megawatts from another winning independent power producer. So, so far, Inox turbines will be in 30% of the first tender. According to Inox, the company is also in final negotiations for another 250 megawatts from the country's first 1,000 megawatt auction. So Inox may be positioned to capture potentially more than half of the initial 1,000 megawatt tender. A second auction-based tender for another 1,000 megawatts is currently underway and is expected to conclude in June. Inox is bidding on this second auction of 1,000 megawatts as well. Once the uncertainty created by this market change subsides, we anticipate a return to growth. The Indian central government is expected to auction a total of 4,000 megawatts of wind capacity this fiscal year, while the state governments are expected to auction an incremental 3,000 megawatts for a total of 7 gigawatts in 2017. Importantly, these contracts are larger than in previous years and are expected to be executed over an 18- month period. As a result, we could see the reduced seasonality in India's wind business going forward. Inox has communicated to us that they intend to return to higher levels of wind turbine production sometime during the second quarter. These near-term issues that Inox is facing demonstrate the importance of diversifying our revenues through growing our Grid business. We continue to be excited about the wind market in India and believe we're well positioned to support any expansion of Inox's business as a result of the new market dynamics being put in place there. Inox is optimistic about the wind market in India. Inox's optimism is based on the fact that the annual wind installed market in India appears to be set to double over the 3-plus gigawatts installed in 2015 just two years ago. On that note, I'll turn the call over to John to discuss our financial results for the fourth fiscal quarter and for fiscal year 2016 in greater detail. John?

[John Kosiba:]

Thanks, Dan. Good morning everybody. AMSC generated revenues of $16.2 million for the fourth quarter of fiscal 2016 compared to $27.5 million in the year-ago quarter. In the fourth quarter of fiscal 2016, Wind revenues declined 48% compared to a year ago results, while Grid revenues were down 25% versus a year ago. Wind revenue for the fourth fiscal quarter was down year-over-year due primarily to lower shipments of Electrical Control Systems to Inox. Grid revenues were down in the fourth quarter versus the prior year due primarily to the non-recurring portion of the license revenue from BASF, which was recorded in the fourth quarter of fiscal 2015. For the full fiscal year, revenues declined by 22% to $75.2 million from $96 million in fiscal year 2015. Revenues from our Wind down 31% year-over-year and represented approximately 63% of total revenues. On the other hand, grid revenues grew for the fiscal year and represented approximately 37% of our total revenues. 12-month backlog at March 31, 2017, was approximately $66 million. Looking at the P&L in more detail, gross margin for the fourth quarter of fiscal 2016 was 17.5% compares to 33.6% in the fourth quarter of fiscal 2015 and 18.6% in the previous quarter. The year-over-year decrease in gross margin in the fourth quarter was primarily due to lower revenues, including non-recurring license revenue from BASF in the prior year at 100% margin. For the full fiscal year, gross margin was 14.4% compared to 22.9% in fiscal 2015. We announced on April 04, that we intend to relocate to a new facility with a smaller manufacturing footprint, which is expected to result in lower fixed cost and accelerate gross margin improvement. R&D and SG&A expenses for the fourth quarter were $9.8 million. This was down from $10.9 million for the same period a year ago. For fiscal 2016 R&D and SG&A expenses were $38.2 million, compared to $41.2 million in fiscal 2015. Approximately 12% of our R&D and SG&A spending in the fourth quarter was non-cash. Our net loss in the fourth quarter of fiscal 2016 was $6.9 million, or $0.50 per share, this was up from $3.4 million, or $0.25 per share, in the year ago quarter. For fiscal year 2016 net loss increased to $27.4 million, or $1.98 per share, compared to $23.1 million, or $1.76 per share in fiscal 2015. Our non-GAAP net loss for the fourth quarter of fiscal 2016 increased to $7.1 million, or $0.51 per share, compared with $3.8 million or $0.28 per share, in the year ago quarter. For the full fiscal year our non-GAAP net loss increased to $27 million, or $1.95 per share, from $26.2 million, or $1.99 per share, in fiscal 2015. Please see our press release issued this morning for a reconciliation of GAAP to non-GAAP results. We ended the fiscal year with $27.7 million in cash, cash equivalents and restricted cash this compares with $26 million at December 31, 2016. Our cash balance at the end of the fourth quarter includes $2.5 million of net proceeds from the issuance of approximately 380,000 shares of common stock under our ATM facility at an average sales price of $6.79 per share. In conjunction with our equity offering, which closed on May 10, we terminated the ATM arrangement. Excluding this finance proceeds, the cash burn in the second half of fiscal year was $1.4 million. Operating cash flow in the fourth quarter was negative $700,000. As of March 31, 2017, the principal balance of our debt arrangements, excluding the debt discount, was $1.5 million which matures on June 1, 2017, when the entire outstanding amount will be repaid in full. Turning to our financial guidance for the first quarter of 2017. We expect that our revenues will be in the range of $8 million to $9 million. The lower revenue in the first quarter is due primarily to lower wind revenues as a result of the temporary demand dislocation in the Indian wind market Dan discussed earlier. The lower revenues coupled with a lower fixed cost absorption are expected to result in sequentially lower gross margin in the first quarter. In addition, we expect up to $2 million in restructuring charges in the first quarter for severance and other costs arising from the action we announced on April 4. As a result, we expect that our net loss for the first quarter will be less than $18 million or $1.05 per share. Our non-GAAP net loss for the first quarter is expected to be less than $17.5 million or $1.02 per share. Please see our press release issued this morning for reconciliation of GAAP to non-GAAP results. Excluding the proceeds from the recent equity offering, we expect a cash burn of $7 million to $8 million in the first quarter of fiscal 2017. We expect to end the first quarter with a balance of cash, cash equivalents and restricted cash greater than $36 million which includes approximately $17 million in net proceeds from our recent equity offering. The $17 million includes approximately 2.3 in net proceeds expected to be received upon closing of the overallotment option. With that, I'll turn the call back over to you, Dan.

[Dan McGahn:]

Thanks, John. I'd like to take time today to update our business goals for fiscal 2017. Our capital raising efforts earlier this month were undertaken in order to support these new business objectives, all of which target growth in our Grid business. An updated investor presentation is available on our website at www.amsc.com/investors. In fiscal 2017, our business objectives are

[Operator:]

Yes, sir. [Operator Instructions] We will take our first question from Philip Shen with ROTH Capital Partners. Please go ahead. Your line is open.

[Philip Shen:]

Hey, guys. Thanks for the questions.

[Dan McGahn:]

Hey, Phil.

[Philip Shen:]

First one is on Inox. I think in your prepared remarks you talked about activity, good pickup sometime in Q2. Just want to make sure you're talking about your fiscal Q2.

[Dan McGahn:]

Yes, every time we talk about a quarter, we're talking about our fiscal ones, which that will be the one that ends in September.

[Philip Shen:]

Great. And then as a follow-up to that. You mentioned the gigawatt tender and then there is a second gigawatt tender coming up, closing potentially in June. When would the – so would it be fair to say that the 300 megawatts that they secured for the first tender, the deliveries of ECS could start to happen sometime in your fiscal Q2. And then if they win a meaningful amount of projects from the second tender, when would you expect shipments to ramp up for that – the deliveries of that tender?

[Dan McGahn:]

So I will kind of hark into the words that they've used. What they said, when asked the same question publicly, is that they believe that they will start to see ramping starting as soon as September. There is work that still needs to be done that's in backlog, that's not part of the national tender and that's what's going to help supports some shipments here in the June quarter and into the September quarter. But obviously we're telegraphing that we're going to have a lighter first quarter here. But it looks like it's going to set up for a very strong second half from everything that Inox is saying. I don't know specifically with the June tender what – to guess what they might win or when those deliveries might start to happen. But I think based upon the first tender. They certainly start within the first six to nine months after the tender has been formalized.

[Philip Shen:]

Okay. That’s really helpful, Dan. Thanks. Have another quick one and then I will pass it on. As in relates to ComEd, can you share with us what the – you want to start construction sometime this year and lock down commercial contracts. Any sense of what the timing might be calendar Q3 or Q4? What and how would you characterize the timing of that?

[Dan McGahn:]

Yes, as this point, without having an agreement with them that's executed without having an announcement, I think in that announcement I would hope that we could be more clear with whatever the timing expectations are. It's been tremendously fulfilling working with Exelon and ComEd to really mature the product, to be ready for broad scale deployment. But I can tell you this today without a contract signed on when we would see the work to really begin. We are going to work with that with ComEd on their schedule. We characterize today that we're in advanced discussions with them. We've had work proceed with the project. As you remember, we had a $1.5 million phase of principal engineering work that's been completed and we have a $3.7 million phase of procurement of long lead time elements for construction that we're in right now. So hopefully that will complete in the next quarters. But we feel very optimistic based upon what we see overall in the market for REG this is a product that's going to work in Chicago but certainly well beyond that. And that's what we are ultimately focused on is how do we open up that larger market as quickly as we can.

[Philip Shen:]

Great. Thanks, Dan. I will pass it on.

[Operator:]

We will take our next question from Colin Rusch with Oppenheimer. Your line is open, please go ahead.

[Colin Rusch:]

Thanks so much. Can you just remind us what the timeline looks like for the Seattle City Light's study and how quickly that might get out into the public ground for folks to consider?

[Dan McGahn:]

It’s a good question Colin. I think with each of these studies, I don't think we've ever really kind of signal the timing. We try to talk kind of in general terms. It took us about a year with Chicago to get to a project design that we could start to contemplate for construction. One of the things that we do have in the current deck is, and we are a little forward leaning in this, and based upon what we know today, given the dozen-or-so conversations that we're having, given the fact that we've announced publicly with Boston, Washington D.C., San Francisco and now Seattle, that we think are going to be in position to take an order in our next fiscal year in 2018 potentially for commercial project. That would be Seattle, that could be one of the other cities. What we're trying to do as best as we can are to mature these projects in parallel, independent to the work from Chicago to try to present as big a pipeline for revenue rather than just pipeline on potential orders. And that's what the team is focused on this year to try to keep moving that forward. I can't definitively speculate on when we'll complete Seattle, but other than to say, I think things there from a electrical standpoint coupled with an environmental standpoint bode very well for REG. So we look at that opportunity with great optimism and we hope to be able to report more news in the future.

[Colin Rusch:]

Great. And then looking at the Navy opportunity, what's the real bottleneck or pinch point in moving that forward at this point. And that's it for me.

[Dan McGahn:]

The bottleneck has been is getting to the point where not only have we bought – had the Navy buy hardware sets that are ready to be deployed in multiple ship platforms, it's really getting that design change ratified in ship platform and that's what taken some of the time to move the business forward. Our understanding is that there is out some public information that says that the Navy intends to award another sole-source contract to us. So part of our objectives here of getting another SBS order, we feel very comfortable that, that could happen in the relatively near-term here, given the fact that, that public information is already out there. So our hope is in 2017 you really have a transition here for the Navy where we are moving out of kind of show to really a go-to-deployment phase with the Navy. I also mentioned in the prepared remarks that we are continuing on delivering the next Ship Protection System product to deployable unit. We're also continuing to work on the next product line offering, which would be power cables and really trying to position for the electrification of ships in the way of weapon systems next decade. And that will mean for us, dramatic expansion in content per ship. But right now we're trying in 2017, let’s get these next orders, let's start to show that we're diversifying our revenues into the Grid segment, including the Navy and we hope to get that done here in 2017.

[Colin Rusch:]

Fantastic. Thanks guys.

[Operator:]

We will take our next question from Carter Driscoll with FBR. Please go ahead. Your line is open.

[Carter Driscoll:]

Good morning, guys. Congrats on finally moving the ComEd contract forward.

[Dan McGahn:]

But we're not announcing. So let me be clear, and I was worried people would – all we're doing is we're trying to be more transparent with everybody as to where we're and we are setting our objectives so we're being clear on we are trying to move this forward as fast as we can. So I don’t want you to take it that we've executed the contract. We certainly have not a done that. We have a vehicle with DHS and that's it to-date.

[Carter Driscoll:]

I understand. But just to clarify, you had some – the original agreements you had, is the cost sharing arrangement with the DHS and with Exelon, you had anticipated over multiple years maybe being sized and if I recall correctly, in the kind of $60 million range. So what you're – I guess, your confidence of that, you are moving towards a commercial contract, reflects some of the parameters that would be required under such contract, such as the performance bonds and warranty of the product, which perhaps requires a little more financial wherewithal from – you guys deliver to the table, but that does signal confidence. My question is, can you talk about the scope, because you talked about, maybe, them moving forward with some, a smaller scope of the original project, because it seemed like it was very expansive originally and to – in order to rate base, and maybe that's an easier process to get through on the approval. Is that the right characterization of what you're seeing today, Dan?

[Dan McGahn:]

Yes, I think that’s exactly right. And part of what we're trying to get people to understand, because we've been in this relationship with ComEd now for a number of years and its hard to constantly be talking about what we're learning because a lot of it is specific to ComEd and how they operate. You are exactly right. We are trying to telegraph today that we're not assuming that we're going to take down all $60 million of that scope that we had with DHS. And the way we are looking at it now is it’s really becomes – hopefully if we're able to close the contract, we wind up having a contract with ComEd to deliver the system. And then the moneys from DHS would be used to subsidize in part all of that. The DHS mechanisms still is a cost-share mechanism. But what we're seeing from ComEd is they really want this as a permanent piece of the grid, which means putting it in the rate base, getting cost recovery, going through all those steps that part of what we're trying to get everybody understand is that was not contemplated when we went to DHS to go secure the $60 million in funding. We were hoping to get to the point we could put a scope in the grid, and then it would be up to the utilities to decide what do they want to do going forward. I think given where we're with the conversations with ComEd, clearly they like it enough that they want to put it in the grid. This is no longer science. This is now real construction and deployment, which means real terms. And that's kind of the double-edged sword with this. The terms that we have with the government are very forgiving when it comes to the commercial partners. The terms that we have ComEd, assuming that we can execute a contract, won't be that forgiving. And that's what we're trying to telegraph today. And that's really when we talk about going out and raising money for growth. We are at a situation in Chicago where we want to move it forward and we needed access to additional capital to go forward and then we are hopeful we’ll have positive conversations with ComEd in the near-term here and maybe we'll be able to announce something that everybody will be able to understand from a revenue and a timing standpoint. But at this point, I think it's premature to get to that point. We don't have a signed contract with ComEd.

[Carter Driscoll:]

Got it. And then just as a follow-up, so, in terms of the Navy, you've got a lot of different moving parts and all these approval process. I'm sure, it's frustrating. But you just got the technical award. But you actually got a reward last year, if I remember correctly, it was in the order of $8 million. But can you just kind of characterize the difference, what you expect this year. The SPS is not necessarily the not the deployable opportunity. That is an opportunity, but not what you are necessarily anticipating in fiscal 2017. Is that correct?

[Dan McGahn:]

I think we're anticipating from a development standpoint that, that will be work, there will be revenue associated with the work on the second product for SPS, which is the deployable. On the first product with SPS, which is degaussing, which is the permanent part of the ship, that's where we are intending to get an order this year for. And that's really what the services contract is intended to support. So we got into a situation with the Navy, that as we get ready to start to insert this questions on manuals and testing and teaching on how to do operation and maintenance and things like that, that those are efforts that have a cost to us and we had asked the Navy and we'd like for you to pay for those. And they responded with this additional $8 plus million order. So we have two of these now, right? So we have $16 plus million dollars of orders that we’ve secured with the Navy. This is on top of the $30 plus million that they’ve spent to develop the Ship Protection System product line with us. And we’re starting to see realization of some of those revenues from the first $8 million contract this year. I can't give you any comfort today on when the second $8 million vehicle the services part. We think the first one is hardware and the second one is services. That will probably align with, if we are able to secure the next order, really to support the insertion of that hardware on to a specific ship platform.

[Carter Driscoll:]

So the third order would pull-through when the second order is right?

[Dan McGahn:]

Correct.

[Carter Driscoll:]

Okay, I will go back to the queue.

[Dan McGahn:]

I think the safe way to think about it, that's different than we had hoped or anticipated is and we were asked questions would there be service revenue. And our hope was kind of once we got things going, maybe there will be O&M work that could be done but I think what we are kind of surprising the market with and ourselves with is there is going to be billable revenue and profit to come from the first insertions into fleet as well, on services side, not just on the hardware side.

[Carter Driscoll:]

Maybe I could just squeeze a quick one in. Do you anticipate Trump's budget in terms of increased defense spending to be galvanizing force or potentially securing a third contract or totally independent?

[Dan McGahn:]

I think it's not totally independent. I don't think the third contract is dependent upon that. I think the size of the market will potentially expand. Maybe the rate of insertion will expand and certainly I believe the number of ships probably will expand because they're talking about a much bigger surface fleet and overall fleet for the Navy. So I think that there are tailwinds. But they are not tailwinds required to get done what we need to get them here in 2017 in the near term.

[Carter Driscoll:]

Appreciate taking all my questions guys.

[Operator:]

And we'll take our next question from Jeff Osborne with Cowen & Company. Your line is open please go ahead.

[Jeff Osborne:]

Thanks, for all the details on a call so far, Dan, I was just hoping on the Reg side if you can talk about the cash implications over time, recognizing you don't have a ComEd contract signed, but just for companies such as yours that provide similar types of equipment that are permanently in the grid. Just hypothetically, if you were to be awarded say $50 million or $100 million contract, is there a general rule of thumb that utilities expect you to follow that certain percentages of the contract would have to be reserved in cash for the performance mechanisms that you talked about?

[Dan McGahn:]

Yes, it's hard with the data point to one and a handful of public studies and a couple of handfuls of discussions to projects to really come up with a rule of thumb. I think one way to think about this is, it does appear to be different when we think about investor-owned utilities and the way that they manage risk. I mean Exelon is one of the largest utilities in the country. The way that the look at risk is, maybe fundamentally different than even say a municipally owned utility. What we're trying to do is to make sure, in this project, that we have the ability to help bond the work that's to be done because ComEd is in a situation where if for some reason we can't get this thing over the goal line once we start, they're going to have cost that they have expended, that they really don't have a way to account for. So it's the stranded cost that we are principally protect against. Going forward, I would assume that this would get easier, not harder, as we take an additional utilities. But I can't give you a general sense on the rule of thumb. We just don't have enough data to do it. But it's something that we learn more in the market and if we find ways that we can communicate back to you all, we certainly will attempt to that. We're trying to be as transparent as we can be and you see a lot of that here on the call. John you want to add some?

[John Kosiba:]

So, Jeff, on our existing product line, once we get the order, it's milestone billing arrangements. So the working – other than the cost that Dan was just mentioning, the working capital throughout the project should not be substantial. We should be able to set up milestone schedules where payment reflects our cost within reason. So the real risk is the upfront risk reduction on the topics that Dan mentioned.

[Dan McGahn:]

We do bonding with D-VAR projects. So this isn't atypical. I think as we get to maturity with D-VAR at this point when we do – if we were doing $10 million, $15 million D-VAR project, what would be the bonding be given the maturity is 10%, 20%.

[John Kosiba:]

So at some point we think that number goes down. I think the other point that is different REG if I compare and contrast with D-VAR is the construction cost is a fraction of the total project cost are relatively small compared to REG, where in REG it could be one-to-one hardware to construction or could be even more than that. But I think that's something as we've learned is that the hardware is effectively cheaper than the construction in many ways, which is good I think for the product. But it's a different way that utilities have to think about and manage that risk because they don't have their own experience based rule of thumb on how to manage those construction cost. So we're all kind of going into this eyes wide open and trying to work together as a team to manage those risks.

[Jeff Osborne:]

Makes sense. And then theoretically, I guess, it was new news to me that you are going to be the prime contractor on these going forward. So obviously high revenue potential, but there's a lot of margin pass- through. How do we think about the financial ramification of that decision I guess?

[Dan McGahn:]

Yes I think that's the way to think about it and that is one of the hardest questions we get asked by the existing investors and new investors and we wanted to be as transparent as we possibly can be. But we really after initially is to get the absorption in the factory. That alone is going to dramatically change the overall gross margin of the company and that's really is the first step. The second step on an ongoing basis is how do we best manage that supply chain, how do we find as much content as we can contemplate that comes from us so we can be able to control pricing and margin. That's very we're evolving to. As being in the turnkey, I'm sorry, if that's something we haven't been a 100% clear with. When we announced REG and the contract with Chicago, we positioned ourselves as a turnkey provider. When we've done each of the studies, we positioned ourselves again as a turnkey provider. We might pull in an ECI or a Black & or someone else to do the engineering construction just like we would do a turnkey D-VAR. We pull in a Nexans who has done work to qualify the cable and the other components for REG, which we very grateful that they've been able to work on. So what we're trying to show is we are maturing the supply chain overall over the past couple of years and now we're in the point where hopefully we're going to go forward with some construction and hopefully we're going to go forward with some more contracts for REG.

[Jeff Osborne:]

Last real quick one. Just with the intense price pressure in wind in India, is there any acceleration of the 3 megawatts development programs that was out there as a potential?

[Dan McGahn:]

I think stay tuned is all I can say with that, we want to support Inox as best as we can and more products and more technology for them may wind up being part of the annexure that helps them to continue the strong growth that they want to deliver.

[Jeff Osborne:]

Got it. And then real quick is there any expectation of an inventory write-down obviously the inventory went done sequentially ending March, but how do we think about what transpired in April and May relative to the lack of demand?

[John Kosiba:]

Yes, there is no expectation of any inventory write-down, all the inventory we have we expect to use.

[Jeff Osborne:]

Got it. Thank you,

[Operator:]

[Operator Instructions] We have no further questions at this time. I’ll turn the call to you gentlemen.

[Dan McGahn:]

Great. Thank you everybody for your attention. I know 2016, from a revenue and from a number performance standpoint is challenged, we do understand given where the stock price has gotten particularly after the last raise. We are not in the position that I think that any of us want to be in. I think today we're trying to signal more transparency, longer visibility on the things that we're working on. So you can really see the transformation that's happening in the company. We want to grow through grid, that doesn't mean that we won't grow with Inox, we won't grow with other wind customers. But we want to purposely growth through grid and put the company in position so that we can be a sustainable, profitable company. That day is not that far off. I think that the level of revenue that we need to be at is an all-time low in the history of the company. We now need to execute on these milestones in 2017, and I think we are going to finally become the business that a lot of people had been dreaming about for decades here at American Superconductor. So with that, I look forward to talking to everybody in the couple of months' time and reporting on the next quarter results. Thank everybody.

[Operator:]

This conclude today's program. Thank you for your participation and you may disconnect at any time.