American Superconductor Q2 2024 Earnings Call Transcript

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Provided by Quartr
November 2, 2023

There are 7 speakers on the call.

Operator

Good day, and welcome to the AMSC Second Quarter Fiscal 2023 Financial Results Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Mr.

Operator

John Househorn, LAH. Please go ahead.

Speaker 1

Thank you, Dick. Good morning, everyone, and welcome to American Superconductor Corporation's Q2 of fiscal 2020 3 earnings conference call. I am John Heilshorn of LHA Investor Relations, AMSC's Investor Relations Agency of record. With us on today's call are Daniel McGahn, Chairman, President and Chief Executive Officer and John Kosiba, Senior Vice President, Chief Financial Officer and Treasurer. American Superconductor issued its earnings release for the Q2 of fiscal 2023 yesterday after the market closed.

Speaker 1

For those of you who have not yet seen the release, a copy is available at the Investors page of the company's website at www.amsc.com. Before starting the call, I'd like to remind you that various remarks that management may make during today's call about American Superconductors' future expectations, including expectations regarding the company's Q3 of fiscal 2023 financial performance, 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 set forth in the Risk Factors section American Superconductors Annual Report on Form 10 ks for the year ended March 31, 2023, which the company filed with These forward looking statements represent management's expectations only as of today and should not be relied upon as representing management's views as Of any date subsequent to today. While the company's anticipates that subsequent events and developments may cause the company's views Change, the company specifically disclaims any obligation to update these forward looking statements. Also on today's call, management will refer to non GAAP net across reporting periods on a consistent basis by excluding these non cash, non recurring or other charges that it does not believe are indicative of its core operating performance.

Speaker 1

The reconciliation of GAAP net loss to GAAP net profit and net income loss can be found on the Q2 fiscal 2023 earnings press release that the company issued and furnished to the SEC last night on Form 8 ks. All of American Superconductors' press releases and SEC filings can be accessed from the page of its website at www.amsc.com. With that, I will now turn the call over to Chairman, President and Chief Executive Officer, Daniel McGann. Daniel?

Speaker 2

Thanks, John, and good morning, everyone. I'll begin today by providing an update and sharing a few remarks on our business. John Kosiba will then provide a detailed review of our financial results for the 2nd fiscal quarter, which ended September 30, 2023 and provide guidance for the 3rd fiscal quarter, which will end December 31, 2023. Following our comments, we will open The line to questions from our analysts. Several quarters ago, we discussed possible business performance scenarios that could lead to increased shareholder value.

Speaker 2

We discussed revenue growth, margin expansion and expense control as factors driving potential cash breakeven and cash generating scenarios. Our 2nd quarter results stand as proof that this can be done. For the Q2 of fiscal 2023, we generated a modest non GAAP net income. We had positive operating cash flow. We showed expanded gross margins, we showed higher revenue We delivered another quarter of strong orders.

Speaker 2

All signs this quarter are quite positive. I believe we are ahead of schedule. Total revenues for the Q2 of fiscal year 2023 exceeded our expectations and came in above our guidance range. Our 2nd quarter revenue of $34,000,000 was driven primarily by strong new energy power system shipments. Our Grid segment revenue for the 2nd quarter accounted for over 80% of AMSC's total revenue and grew over 10% versus the year ago period.

Speaker 2

The remainder of the revenue came from our wind business, which also grew significantly as a percentage from a year ago. We had very strong bookings in the second quarter with both new and existing customers for our products. We announced a near record $37,000,000 of New Energy Power Systems orders in October and have a strong 12 month backlog of over $128,000,000 Our backlog grew nearly 30% versus the year ago period. If you look at the 12 month backlog over time, back in fiscal 2020, we had about $50,000,000 in backlog. In fiscal 2021, backlog grew to $80,000,000 Last fiscal year, it reached $100,000,000 And as you can see, we are now approaching 100 $30,000,000 again in 12 month backlog.

Speaker 2

We see general improvement in our pipeline, orders and overall business. We have a more diversified and more sustainable business with new and existing customers. Our business has turned a quarter. It feels like we have arrived. Over the past several quarters, the business secured an average of $40,000,000 of total orders per quarter.

Speaker 2

Orders for the Q2 totaled over $40,000,000 giving us visibility into fiscal year 2024. We see lead times for certain products starting to decrease to under 12 months. We were seeing long lead times During our Q2, we shipped systems to renewable projects in the U. S. And Canada, A mining project in Canada, semiconductor projects in the U.

Speaker 2

S. And Taiwan And please note, this is to multiple different ship manufacturers. SPS systems to the U. S. Navy projects And projects supporting the supply chain for batteries and electric vehicles in the U.

Speaker 2

S. We saw a diverse set of orders from renewables to semiconductors to materials and mining to industrials as well as for utilities and military applications. We are pleased with these results and excited about the rest of our year. Now I will turn the call over to John Kosiba to review our financial results For the Q2 of fiscal 2023 and provide guidance for the Q3 of fiscal 2023, which will

Speaker 3

end December 31, 2023. John? Thanks, Daniel, and good morning, everyone. I'd like to start off by saying I'm pleased with our 2nd quarter results. As many of you may recall from our investor call back in the Q3 of fiscal 2022, I mentioned we had taken several strategic steps to lower our OVAD cost structure.

Speaker 3

In addition to our revenue growth, These steps have clearly paid off. I also elaborated that as we moved into fiscal 2023, as revenue approached $35,000,000 in the quarter. I am pleased to report that in the second quarter, we reported gross margins of 25% and generated $900,000 of operating cash flow. AMSC generated revenues of $34,000,000 for the quarter of fiscal 2023 compared to $27,700,000 in the year ago quarter. Our grid business unit accounted for 84% of total revenues, Our wind business unit accounted for 16%.

Speaker 3

Grid business unit revenues increased 11% in the 2nd quarter versus the year ago quarter And wind business unit revenues increased 177% over that same time period as we are shipping more ECS to our India wind licensee. Looking at the P and L in more detail, gross margin for the Q2 of fiscal 2023 was 25% compared to 7% in the year ago quarter. Gross margin for this quarter was favorably impacted by increased revenues and a favorable product mix driven by revenue growth across our most profitable product lines. Additionally, increased service and Spares revenue had a meaningful impact on gross margins in the quarter. And lastly, the price increases we implemented over a year ago contributed to the improved gross margin we reported in the quarter.

Speaker 3

Now moving on to operating expenses. R and D and SG and A expenses for the Q2 of fiscal 2023 were $9,600,000 compared to $9,700,000 in the year ago quarter. Approximately 11% of R and D and SG and A expenses in the Q2 of fiscal 2023 were non cash. We generated a modest non GAAP net income for the Q2 of fiscal 2023 of less than $100,000 or $0.00 per share, compared with a non GAAP net loss of $6,500,000 or $0.23 per share in the year ago quarter. Our net loss in the Q2 of fiscal 2023 was $2,500,000 or 0 point 0 $9 per share.

Speaker 3

This compares to a net loss of $9,900,000 or 0.35 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 Q2 of fiscal 2023 with $24,000,000 in cash, cash equivalents and restricted cash. This compares with $23,100,000 on June 30, 2023. We generated operating cash flow in the Q2 of fiscal $900,000 We generated this cash flow through the strength of our operating results and continued to have a strong balance sheet with no debt.

Speaker 3

Now turning to our financial guidance for the Q3 of fiscal 2023. We expect that our revenues will be in the range of $33,000,000 to $36,000,000 Our net loss on net revenue is expected not to exceed $4,300,000 or $0.15 per share. Our non GAAP net loss is expected not to exceed $2,500,000 or $0.08 per share. Company expects operating cash flow to be breakeven to a Positive cash generation of $2,000,000 We expect to end the Q3 with no less than $24,000,000 of cash, cash equivalents and restricted cash. With that, I'll turn the call back over to Daniel.

Speaker 2

Thanks, John. Strong market demand from industrials, renewables and utilities drove orders for our Q2 of fiscal year 2023. We see government mandates as well as federal policies such as the Inflation Reduction Act supporting fossil Fuel retirement, renewables growth and electric vehicle sector developments. In calendar year 2022, Renewable energy generation, including hydropower, exceeded coal fired power. During the first half of this calendar year twenty twenty three, data shows that wind and solar power produced more U.

Speaker 2

S. Power than traditional coal. We see power generation from coal progressively declining and being replaced by natural gas and renewables. We see opportunities for our products and services as utilities address The addition of distributed power generation into the electric grid. Recently, the U.

Speaker 2

S. Retired nearly 14 gigawatts of coal capacity, nearly 7% of the coal fleet since 2022 Nearly 2 thirds of fossil fuel fired electricity generation capacity is expected to cease by 2,035. Solar, wind and natural gas made up more than 90% of the capacity added to the U. S. Electric grid in 2021.

Speaker 2

Investment in clean energy sources in 2021 increased by 10% from the prior year to about $50,000,000,000 and was estimated to grow by 16% to nearly $60,000,000,000 in 2022. The market drivers for a low carbon economy and a modern, reliable and secure power grid are in our favor. Our applications help harmonize the world's desire for decarbonization and clean energy with the need for more reliable, effective and efficient power delivery. That's why we believe to be well positioned for the longer term. We have a robust pipeline of opportunities, thanks to strong market demand and we are aggressively going after those opportunities.

Speaker 2

We are committed to the continued diversification of our business, expanding our scale and reach domestically and internationally and investing in resilient markets That create a path for a more sustainable world. Our key growth markets are renewables, Mining, materials and metals, particularly for electric vehicles, semiconductors, utilities and military. We believe the march towards a more sustainable world will be a driver for the markets we serve in the foreseeable future. Our products are expected to play a central role in this evolution and we continue to intensify our efforts and collaboration to take advantage of these trends. We continue to work towards growing a business that's supporting power management at the substation level For Renewables, Mining and Metals, Utilities and for military uses, as well as supporting customers in the semiconductor industry.

Speaker 2

We have turned a corner and delivered another remarkable quarter. We aren't looking back. We can see that the fundamentals of our business are well grounded. We generated cash and expect robust performance during the Q3. In conclusion, we delivered a strong first half of fiscal twenty twenty three.

Speaker 2

We are executing on orders from Inox Wind. We delivered multiple sets of 2 megawatt electrical control systems this quarter. We are supporting Inox Wind as they expand their offering to include an exceptional 3 Megawatt class wind turbine. We are supporting Doosan as they commission their 100 Megawatt offshore wind farm With our 5.5 Megawatt wind turbine design which they intend to complete next year. We are broadening our revenue base with multiple products for the U.

Speaker 2

S. Navy. We have won a total of 5 ship protection system contracts for the San Antonio class LPD. We've delivered and installed 1 ship protection system and are currently in the process of commissioning that system. We are delivering our 2nd ship protection system this fiscal year.

Speaker 2

We have a major utility project Driven by environmental mandates to reduce greenhouse gas emissions and are aggressively pursuing others. Our installed resilient electric grid system in Chicago is performing as planned and has become a showcase For the technology, our current backlog is strong, well diversified and growing. We delivered strong revenue of over $30,000,000 in the first quarter and over $34,000,000 for 2nd quarter and expect robust revenue during the Q3 of fiscal year 2023. We believe we are ahead of our plans and that's very positive. Overall, the business is performing well And we are serving an expanded set of customers in our grid business.

Speaker 2

Already our transformative power solutions are moving the world forward. We are executing on our vision and believe that our creativity can meet today's challenges and help us progress to a better future. This means using future facing technologies to harmonize the world's desire for decarbonization and clean energy with the need for more reliable, effective and efficient power delivery. We believe empowering progress by designing, developing and deploying power solutions that harmonize an increasingly complex energy system. We are very excited about our future.

Speaker 2

I look forward to reporting back to you at the completion of our 3rd fiscal quarter of 2023. Nick, we'll now take questions from Our analysts that are on the line.

Operator

Thank you. We'll now begin the question and answer session. First question will be from Colin Rusch with Oppenheimer. Please go ahead.

Speaker 4

Congrats on the progress here. It's great to see you guys delivering on the cash flow metrics. Can you talk a little bit about Where you're weighing and how you're weighing on the grid side and the cadence of orders? And then the follow-up question, I'll just hop back in the queue after this is Really around your ability to start rolling through lower component costs and potentially lowering working capital as you move forward given some of the rebalancing on the supply chain?

Speaker 2

Thanks for the compliment, Colin. So we're winning on with utilities, we're winning with mines, we're winning with things So, it's really across the board. We've tried to build this robust, diverse, sustainable business and we feel like it's now fully been built and we've been able to demonstrate John telegraphed back a few quarters that this was possible. And I think that we're here probably earlier than we thought. So the business is really, really performing even much Better than we had anticipated.

Speaker 2

I want to take his other question.

Speaker 3

Colin, can you repeat the second question? I didn't quite fully understand it entirely. I think you were asking something about component costs that has dropped and how it could impact working capital. We haven't quite seen I wouldn't say we've seen component costs drop yet. I think we have stabilized.

Speaker 3

I think what we're hoping is We've got a nice stable supply chain, one where lead times are starting to come down and prices are stable. As prices come down, that might change. As far as working capital, I don't see how that changes for us as much. Remember, our business is highly tied to milestone billings. So our working capital tends to be funded from our orders based on the milestone bill on schedule.

Speaker 3

But we can take this offline if you have any further questions.

Speaker 2

Yes, I think the key point is more we're focused more on trying to control lead time so our customers can get their projects started on time. That's really been the focus of the team and we're seeing some benefits there.

Speaker 4

Thank you. Next question will be from Eric Stine of Craig Hallum. Please go ahead.

Speaker 5

Hi, Daniel. Hi, John.

Speaker 3

Hey, there. Good morning.

Speaker 6

Hey, good morning. So maybe I'll just touch on margins you laid out. I mean, great to see the improvement. I'll second that. You laid out some of the reasons mix in other areas for that improvement.

Speaker 6

But could you maybe just Drill down. I mean, should we look at this as evidence that you're finally through, the Neotran backlog, the low price backlog, That's kind of thing in the past. I mean, and is this a level, plus or minus that we should view as sustainable?

Speaker 2

I'll answer the sustainable part. I mean given the guide, clearly we're guiding to potentially increased revenues and increased operating cash flow. So When you look at the backlog, the backlog is the thing that's really given us the confidence there. We're able to sustain about this revenue level for the next 12 months. We're looking to get new orders into 2024, which hopefully will help be able to add additional growth on top of that.

Speaker 2

So we're very bullish on what the business looks like, obviously for next quarter and beyond, but we're really only guiding out the 1 quarter in time as we eventually do.

Speaker 6

Yes, understood. But that bullishness extends to margins, right, just to confirm?

Speaker 3

Yes. I mean, so we don't guide to margins, so I want to be careful on that. But I will say what I will say is that if you look at what I explained for the gross margins, one of them is we had a we're starting to see the impact of our price increases. Well, that's going to in theory, that's going to continue. We did have a very strong service revenue this Quarter.

Speaker 3

We put a lot of effort to do that. That wasn't by accident. So to the extent we can continue to deliver on a strong Service component of our total revenue. That's going to help our margins as we move forward. And then lastly, as our margins overall, our product mix changes, We are seeing strength in our best performing product lines.

Speaker 3

So to the extent we can do that, we're going to continue to see strong gross margins. To comment on your Neill trend, surely as we shift off that backlog, that surely is having an impact on our margin growth.

Speaker 2

Think though, Eric, to be very blunt with you, we're going to stop talking about either the acquisitions. They've been integrated. They're working. Everything's behind us that we have. We really like the business, how it sits today, how it complements each other.

Speaker 2

We like the constituent components and the teams out selling everything as a full solution. So I think that mission accomplished with trying to get both of these pieces of the business Becoming part of the main part of the business. So going forward, we're really just focused on how do we grow grid, how do we help continue to support our wind customers and hopefully We'll see some wins in the future as well on the Navy side and more cities for REG for sure.

Speaker 6

Okay. That's helpful. And maybe Last one for me, just on wind, obviously another good quarter. I think last quarter you had talked about that this is Maybe a level to expect for the next several quarters and that the next step would come when you start to get ECS orders for the 3 megawatt Platform from Inox, is that still the way that we should think about things here going forward both near term and then longer term?

Speaker 2

Yes. I think if you continue to see the orders come from Inox, you see steps forward, not backwards. You see the potential for growth. They were very positive on their most recent call about where they are with the 3 megawatt platform. They seem highly excited about it, probably even more than they were 3 months ago.

Speaker 2

So we're we will work with our constituency, including you. You'll see if we get orders, We'll certainly look to announce them or mention them on calls or what have you, because we know they're important to people seeing progress. But yes, we are at a different level in wind. And then given again with the backlog, it's stable to support the overall business as I said earlier.

Speaker 6

Yes, absolutely. Okay, thank you.

Operator

Thank you. Next question will be from

Speaker 5

So I guess the first one I wanted to ask about is you did talk about the gross margins where if you're at a level of Say $35,000,000 in revenue, 25 percent margins are an expectation or a reasonable expectation. As you move to higher levels of revenue, if you get to 40 or above, can your gross margin continue to expand In that type of scenario?

Speaker 2

Absolutely. That's we're trying to get leverage. We want to drive the top line disproportionately to the cost line. So We think there's a great deal of leverage in the business. We haven't put out Justin any numbers.

Speaker 2

We've kind of put this out. John has mentioned the time period, it It wasn't that long ago, and we've been able to make that. I know we probably people are going to now say, well, what's next and where do you go? I The overall probably theme what you guys are after is the sustainability and I think it's in the backlog, the pricing is there. We've Doing a great job on the service side.

Speaker 2

We've been able to see robust revenue across the product lines. So we're very happy and very pleased with where we are and I believe where we're going to go next.

Speaker 5

Got it. Okay. And then you got strong bookings in Q2 here. I was wondering if you could talk about the trend that you're seeing in project sizes that you can supply And then also the content per project and that ability to cross sell between the different various product offerings that you have. If you could speak to that, that would be helpful.

Speaker 2

Sure. You're kind of leading cause and effect. So we're now selling more content per project, which means the revenue per project is going up. And that's part of the strategy and the leverage of Selling the different products together as a complete solution. So that's working out very nicely.

Speaker 2

And we've seen it very In semi, we've seen some in renewables and we've certainly seen it in the mining and the materials, as well as kind of general industrial. So We feel we're a very different business today than we were. We've talked about getting there. Now I feel like we're there we want to go and continue to do more and more in the future.

Speaker 5

Okay. And then just one more, shifting gears To wind and it might be a little bit early for this one, but Inox was talking about that Their 3 megawatt turbine is a more profitable turbine than the 2 megawatt. So I was wondering if There is an opportunity there for you to potentially have a better margin profile for the 3 versus the 2 if your customer is capturing greater value for the product that you're providing?

Speaker 2

Yes. With respect to our customer, we don't talk and break out margin by I'm certainly not going to break it up by customer. So I don't want to offend you, Justin, but I'm just not going to answer. Okay. Got it.

Speaker 2

Sure.

Speaker 5

All right. Thank you, guys. I'll pass it

Operator

on. Thank you. That ends the question and answer session. I'd like to turn the call back over Mr. Daniel McKeown for closing remarks.

Speaker 2

Great. I think we're at a whole new place here, guys. We said that we were nominally positive with non GAAP. I'm not an accountant to break through what all that means with GAAP and non GAAP. But The good news is John predicted it, the business has delivered it.

Speaker 2

It's a result that we haven't been able to do since back in 2010. This is a huge, huge, huge milestone for the company. Most of you investors that have been with us for a long time always asked you when is this going to happen. We've always talked about how. And then as I said, John telegraphed how and now we've delivered it.

Speaker 2

So We think onward and upward, the backlog really is strong. The pipeline is very strong. There's a lot of diversity. There's a strong move in the world to decarbonization and we're Really right at the center of it and we hope to benefit from it. So thank you all for your support, your attention and look forward to getting back to you in about 3 months' time.

Speaker 2

Thank you, everyone.

Operator

Thank you. Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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American Superconductor Q2 2024
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