American Superconductor Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 1, 2023

There are 8 speakers on the call.

Operator

Morning, and welcome to the AMSC 4th Quarter Fiscal Year 2022 Financial Results Conference Call. All participants will be in a listen only mode for the duration of the call. After today's presentation, there will be an opportunity to ask questions. Please also note that this event is being recorded today. I would now like to turn the conference over to John Househorn of LHA.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Joe. Good morning, everyone, and welcome to American Officer and John Kasebo, Senior Vice President, Chief Financial Officer and Treasurer. American Superconductor earnings release for the Q4 and full fiscal year 2022 yesterday after the market closed. For those of you who have not seen the release, a copy is available in the Investors Before starting the call, I'd like to remind you that various remarks Management may make during today's call about American Superconductors' future expectations, including expectations regarding the company's Q1 of fiscal Reform Act of 1995. Actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, Those set forth in the Risk Factors section of American Superconductors' Annual Report on Form 10 ks for the year ended March 31, 20 23, which the company filed with the Securities and Exchange Commission on May 31, 2023, and the company's other reports filed with the SEC.

Speaker 1

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 While the company anticipates that subsequent events and developments may cause the company's views to change, The company specifically disclaims any obligation to update these forward looking statements. Also on today's call, management will refer to non GAAP net loss and non GAAP financial measure. The company believes non GAAP net loss assists management and investors in comparing the company's performance 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. The reconciliation of GAAP net loss to non GAAP net loss can be found in the Q4 and full fiscal year 2022 earnings press release The company issued and furnished the SEC last night on Form 8 ks. All of American Superconductors' press releases and SEC filings can be

Speaker 2

Daniel McGann. Daniel? Thanks, John. Good morning, everyone, and thank you for joining us. I'll begin today by providing an update and sharing a few remarks on the business.

Speaker 2

John Kosiba will then provide a detailed review Our financial results for the Q4 and full fiscal year 2022, he will also provide guidance for the Q1 of fiscal 2023, which will end June 30, 2023. Following our remarks, we'll open up the line for questions from our analysts. I'll begin today with a brief recap of our Q4 before discussing fiscal year 2022. In the March ending quarter, our 4th quarter, we saw revenues grow by more than 10% against the year ago period as we reached a recent record Both wind and grid grew. Our wind business revenue increased by more than 30% over the year ago quarter, While our grid business revenue grew by 10% over the same period, we believe this unprecedented quarterly revenue level represents an inflection point for our company.

Speaker 2

As we have stated, margins will be compressed As we work off the EMEALTRAN backlog, the good news is we were able to complete several of these projects during our 4th quarter and only have a couple more to deliver. Orders that we have been generating across our product lines have been in many cases at higher prices and with expected higher margins. As we work off the remainder of this backlog, we expect to See gross margin expansion as well as dramatic operating cash flow improvement. I think this is one of the main themes you'll hear throughout this call. Additionally, our 12 month backlog of more than 100 $25,000,000 indicates that we could be able to maintain these revenue levels going forward.

Speaker 2

During fiscal 2022, we've decreased overhead spending and have raised prices across all product lines where possible. Fiscal year 2022 was one of continued business diversification and strong global orders growth. We announced $150,000,000 of new Energy Power Systems orders during the year. This is an increase of more than 75% over the prior year levels. In fiscal 2022, we saw robust order bookings for the entire company Over $165,000,000 our revenues for fiscal 2022 were $106,000,000 Clearly, our backlog is telegraphing growth.

Speaker 2

We delivered our 1st ship protection system and are installing it on the ship. We are in the process of delivering the 2nd ship protection system. We received an order for our 5th ship protection system. We began engineering work to specify a potential solution for foreign navies. We have been talking about more ship content coming and you can see this with our recent announcement of our mine countermeasure system.

Speaker 2

If and when this program goes into production, it would dramatically impact the business' cash Generation Capabilities. We met specified performance requirements with our resilient electric grid system, Releasing $5,000,000 of restricted cash in the quarter. Our installed system in Chicago is performing as planned It has become a showcase for the technology. We are in active detailed discussions with several utilities about specific possible projects for each utility. We've been working on developing more than a dozen projects here in the United States.

Speaker 2

We saw nearly 20% year over year growth in our wind business as Inox business prospects begin to improve. We'll talk more about the prospects for this part of our business and our recent announcement later in the call. We saw nearly 20% increase in international revenues versus fiscal 2021. Similar to fiscal 2021, we saw diverse revenue in renewable, industrial, semiconductor, mining and Navy projects. About 1 fourth of our sales were for renewable projects.

Speaker 2

Industrials represented about a fourth as well. Semiconductor projects accounted for about 15%, metal, mining and materials were nearly 10% and the Navy was just above 10%. The diversity of orders and sales allowed us to transition from almost a pure play in wind to a company now focused on the power grid and military resiliency markets. The primary challenge now will be Can we stabilize at these revenue levels and demonstrate margin improvement? Secondly, What is the pathway to grow to even higher levels of quarterly revenue?

Speaker 2

We will discuss more on this after John talks to the financial results for the quarter. Now I'll turn the call over to John Kosiba to review our financial results for the Q4 and full fiscal year 2022 and provide guidance for the Q1 of fiscal 2023, which will end June 30, 2023. John? Thanks, Daniel, and good morning, everyone. Total revenues for the Q4 of fiscal 2022 were $31,700,000 This is

Speaker 3

an increase of 12% compared to the year ago quarter of $28,300,000 Grid business revenues of $28,300,000 increased by 10% versus the year ago quarter. This was led by strong new energy power system sales. Wind business revenues of $3,400,000 increased by 33% versus the year ago quarter. This was led by increased ECS shipments to Inox. Looking at the full fiscal year, our total revenues were $106,000,000 This was led by our Grid business.

Speaker 3

In fact, Grid Business Revenues of $94,600,000 Represented 89 Percent of Fiscal 2022 Revenues. Our wind business revenues of $11,400,000 represented 11% of fiscal 2022 revenues. Looking at the P and L in more detail, gross margin for the Q4 of fiscal 2022 was 12%, which was flat compared to the year ago quarter. Gross margin for the 4th quarter included a $1,800,000 benefit associated with employee retention credits or ERCs Processed and accounted for in the quarter. This was offset by approximately $2,300,000 of project losses at Neotran as we continue to ship and deliver the acquired Neotrend backlog.

Speaker 3

For the full fiscal year 2022, AMSC generated gross margin of 8%. This was down from 12% in fiscal year 2021. Now moving on to operating expenses. Research and development and SG and A expenses totaled $8,500,000 for the Q4 of fiscal 2022. This was down from $9,000,000 in the year ago quarter.

Speaker 3

Approximately 14% of R and D and SG and A expenses in the 4th quarter were non cash. For the full fiscal year, research and development and SG and A expenses totaled $37,000,000 in fiscal 2022 compared to $38,000,000 in fiscal 2021. Approximately 13% of R and D and SG and A expenses in fiscal 2022 were non cash. A net loss in the Q4 of fiscal 2022 was $6,900,000 or $0.25 per share compared to $5,000,000 or $0.18 per share in the year ago quarter. Our non GAAP net loss for the Q4 was $1,000,000 in restructuring charges.

Speaker 3

For the full fiscal year of 2022, our net loss was $35,000,000 or $1.26 per share. This compares to a net loss of $19,200,000 or $0.71 per share in fiscal 2021. For the full fiscal year 2022, our non GAAP net loss was $28,800,000 or $1.03 per share. This compares to a non GAAP net a reconciliation of GAAP to non GAAP results. We ended fiscal year 2022 with $25,700,000 in cash, In the Q4 of fiscal 2022, we consumed $5,400,000 in operating cash flow.

Speaker 3

Now turning to our financial guidance for the Q1 of fiscal 2023, we expect that our revenues will be in the range of $26,000,000 to 30,000,000 Great. The quarter over quarter improvement to our net loss, non GAAP net loss and operating cash flow guidance reflecting the expected more favorable product mix as we start to ship and deliver post acquisition Neotrend revenue. We expect to end the Q1 of fiscal 2023 with no less than $22,000,000 in cash, cash equivalents and restricted cash. With that, I'll turn the call back over to Daniel. Dan?

Speaker 3

Thanks, John.

Speaker 2

We are clearly guiding to a significant reduction in operating cash burn for our Q1 of fiscal 2023. We see strong market demand and positive OAR's momentum. We expect that our new Energy Power Systems products should provide a strong base of grid revenues in fiscal 2023. And we expect the additional orders from Inox and the U. S.

Speaker 2

Navy to positively impact revenue in the near term. With that, I'll move on to discussing near term opportunities that can potentially impact our business in fiscal year 2023. Let's start with the Navy and ship protection system. Our systems help move U. S.

Speaker 2

Navy ships into the future by installing protection systems that help them stay hidden from our enemy threats. To date, we have a total of 5 SPS contracts for the San Antonio Class LPD. The USS Fort Lauderdale, which we have delivered and are currently installing. The USS Harrisburg, scheduled to be delivered this fiscal 2023. The USS Richard McCool, the USS Pittsburgh and LPD 32, which is yet to be named and offers improved pricing on the SPS system.

Speaker 2

In April, we announced our proprietary high temperature superconductor mine countermeasure or MCM system to be designed, built, integrated and deployed on the U. S. Navy's mine countermeasure unmanned service vehicle. Our proprietary MCM system is a capability that is incorporated into an unmanned service vehicle and launched during mine countermeasure operations that patrol for and neutralize mines. This system represents our 3rd commercialization of our core superconductor technology following our resilient electric grid system in Chicago and our ship protection system for the San Antonio class LPD.

Speaker 2

Let me explain the importance of our MCM This nearly $8,000,000 multiyear contract builds on prior work on the deployable MCM solution, allowing us to leverage our proprietary technology to develop the capabilities needed for possible Future Ship Systems. We believe that this program is positioned to grow Navy related revenue for us in the near future. The MCM contract as it is structured already contemplates the Navy buying commercial systems. If and when this happens, our Navy business could turn from being an investment to being a source of operating Cash flow. We are also working on parallel pathways to deploy SPS into additional U.

Speaker 2

S. Ships and are performing engineering work on ship protection systems for allies. Another near term opportunity is wind. We design wind turbines and provide electrical control systems or ECS to make the turbine more competitive and profitable. We recently announced an agreement to deliver nearly $20,000,000 of demand for our wind turbine ECS to Inox.

Speaker 2

We amended our existing contracts on the 2 megawatt with enhanced pricing. We have secured nearly $15,000,000 Of 2 Megawatt wind turbine ECS demand from Inox, we received our initial 3 Megawatt class wind turbine ECS order of over $5,000,000 We expect to ship the 2 Megawatt and 3 Megawatt ECS systems during fiscal year 2023. We completed the commissioning of the 3 Megawatt class wind turbine in India and expect type certification this fiscal 2023. Once type certification is completed, the 3 megawatt class wind turbine is expected We are supporting Inox's growth through our proprietary technology that can enable our partner to deliver superior products to the marketplace. Let's discuss our expanding opportunities in our grid business.

Speaker 2

We have orders and backlog generated from demand associated with The electrification of transportation, where we expect to deliver multiple units of the same design. We are seeing demand for identical solutions for repeat customers. We expect these near term opportunities to positively contribute to gross margin expansion and lower cash burn. Our future facing technologies 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 long term The world is quickly moving towards decarbonization to slow down climate change and create a path for a more sustainable world.

Speaker 2

Transitioning to a low carbon economy potentially increases demand for our new energy power systems through 2 main avenues: renewables and the key materials for the new energy economy. In 2022, Renewables saw nearly half a In the United States, we saw the introduction of the Inflation Reduction Act, which was enacted in part to address the challenges of climate change with the goal of reducing emissions by 40% by 2,030. And India, the world's fastest growing electricity market is forecasting wind power demand to double to 140 gigawatts by 2,030. Key materials for the new energy economy are mainly driven by the electrification of transportation. These key materials include metals, mining as well as semiconductors.

Speaker 2

In 2020 Nearly $100,000,000,000 was invested globally in the mining and processing materials as well as an estimated Science Act of 2022, the CHIPS Act, is intended to enable the reshoring of critical manufacturing capability to the U. S. The CHIPS Act provides over $50,000,000,000 of funding for the development of U. S. Manufacturing research and development and workforce development Programs.

Speaker 2

The materials industry is being driven by the electrification of transportation, the need to prioritize energy security and the need to bolster domestic supply chains. This exciting energy future for mining and semiconductors depends on computer chips, batteries and fuel cells that are built from silicon, lithium and carbon. All of these building blocks must be mined, processed and assembled into components and final products. Industrial manufacturers of these insensible materials must be able to power their factories in waves that scale without adding complexity The increased levels of activity that we're seeing in these markets is highlighted by our new Energy Power Systems orders increased of over 75% for fiscal 2021 levels. Right now, we are powering the evolution of a grid that is fit for the future, a more reliable and In summary, as we enter fiscal 2023, we feel confident about the future and believe there are tremendous opportunities ahead of us.

Speaker 2

Through diligent execution We ended fiscal 2022 with over $125,000,000 in backlog. We've worked through most of the Neeltran backlog, which is reflected in our 4th quarter gross margins. We anticipate Further gross margin expansion. We raised prices where possible. We are capturing integrated synergies of our new Energy Power Systems offerings and reduced Our cost structure.

Speaker 2

We are optimistic our business may benefit from the investments in our key growth markets, for Renewables, Mining and Metals, Semiconductors and Military. We are confident of our near and long term prospects. I am very proud of how the team delivered diversification while managing through the daily challenges of a constrained supply chain and an inflationary environment. 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.

Speaker 2

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 in powering progress by designing, developing and deploying power control solutions that harmonize an increasingly complex energy system. Additionally, to note, we've revamped our IR deck to better reflect how the business is now positioned and we posted that to our website. I look forward to reporting to you again following the completion of our Q1 of fiscal 2023. Joe, we can now open up the line to any questions from our analysts.

Operator

We will now begin the question and answer session. At this time, we will take our first question, which will come from Eric Stine with Craig Hallum. Please go ahead.

Speaker 4

Hi, Daniel. Hi,

Speaker 2

John. Hey, Eric. Good to hear your voice.

Speaker 5

Hey, good morning. So very good to see Inox So, come back here. You talked about fiscal in fiscal 'twenty three, you expect certification. Are there any things we can look for, signposts to judge the timing of that and then curious, does that what kind of order Maybe outlook does that set off? I mean is that something that would spur an order obviously Higher than the order, which is kind of an initial order or how should we think about that?

Speaker 5

Yes.

Speaker 2

I think it's an important To kind of go through and make clear for everybody, you can see we tried to explain it and bifurcate it into 2 megawatt. So we're basically showing demand for 2 megawatt that's a bit heavier than it's been in the past few years. We see that product as Being in the market, we see it as being very valuable to Inox's customers, and we see that demand coming at a relatively stable pace. We have already working off of a built supply chain. It's a known product and we're making copies of that product to the volume that Inox needs in order to satisfy their customer demand.

Speaker 2

The 3 megawatts are a whole new product introduction. So we have to Go through the supply chain and order parts. We just got the order and got it paid for. There is a lead time for those products. So that means that the 3 megawatt related revenues will be towards the end of the year.

Speaker 2

I believe from what I understand with public information from Inox that they are looking to secure a wind farm with the 3 megawatt That's bigger. It's probably 2 to 3 times bigger than what we have on order for the 3 megawatt. They certainly could order more Product to be delivered within our fiscal 2023, which is their year and the Indian year as well. But right now, we're just happy to be able to announce to you that we're kind of back in business with Inox. The business has the potential to expand with this addition of this 3 megawatt product, which we think is a great And I just say stay tuned.

Speaker 2

As Inox needs more, they're going to hopefully buy more and we want to be able there to We have not been in a position where we've ever had to let Inox down in meeting their growth. And part of why the relationship works Well, as I think, we feel very good about how we understand them and their needs. And I know that they really understand us very well that the Time that we've taken going through the year this year of kind of waiting for the business to come back has really helped I think to strengthen, Broadened deepened the relationship and I think Gynox is back.

Speaker 5

Yes. Good. And maybe sticking with wind And staying away from specifics for obvious reasons, but as you've kind of gone through this couple of years where wind has been Just curious how we should now think about margins as this comes back. I think in the past you talked about that over the long term wind Should be accretive to gross margins. I mean, is there any reason to think that that's different, as you kind of come out of it and the outlook has improved?

Speaker 2

I'll answer and let John add color commentary on it. We're not breaking out any of the businesses or products by Different margin. And the reason is they're all about the same. So I think for our listeners, you have to understand that A slug of revenue from any one product line as we've improved the backlog in the one part of the business, We'll all have margins that are similar. We think as we get to scale with the military, there's this possibility for potentially higher margins there.

Speaker 2

Note that in all the prepared remarks, I was very kind of clear about we have changed pricing across the product line. That has taken time And that takes time to get into the order book and then into the backlog and then to the supply chain and be able to ship to the customer. All that's now coming in 2023. There's a lot of signals in here that we're talking about margin expansion. John, do you want to talk more on it?

Speaker 3

Yes. So I think Dan hit it on that. We really are at a point now where many of the product lines within grid and the end now with wind coming back We're in the similar contribution margin range. So as we expand revenue on all those, we should see margin improvement. So your Short answer is the answer is yes.

Speaker 3

We should see margin expansion as we increase sales for wind to the same level we would if we Seeing margin expense revenue expansion for grid.

Speaker 6

Got it. Thank you.

Operator

And our next question will come from Colin Rusch with Oppenheimer. Please go ahead with your question.

Speaker 7

Thanks so much guys. If you look at the evolution of the opportunity with the ship protection systems, can you talk a little bit about are at in the sales cycle in terms of qualification with those incremental ships and how many ships a year you think you can actually deliver on here over the next call it 3 years?

Speaker 2

Yes. I mean, our goal, Collyn, to be very broad is all of them. We see the investment in this highly differentiated We do have some visibility because we are doing engineering work for multiple ship platforms, be it for the U. S. Navy and Allied Navy To be very blunt, I think that we are in a period right now where we're doing an installation.

Speaker 2

And I think all eyes are asked to make sure that the system works as advertised and where they are able to support the Navy for their needs going forward. I know that at a Congressional level to the top brass at the Navy, this is an important program for the future of technology insertion in the fleet. So We're usually very good when it comes to making sure we can deliver technology. That's what we're really good at. So I feel very optimistic at some point, Colin, we could have it all, and that could be for all the surface fleet for the U.

Speaker 2

S. Again, I'm only talking Forward fit, I'm not talking anything beyond that. We're trying to get designed into new builds of known types of ships. And then as I mentioned, we have been contracted to do some engineering For some Allied Navies as well. So it's hard to prognosticate us when the things go into production.

Speaker 2

We're trying to be very clear with the MCM. This is a multi year arrangement. It's about years for design, development test, but in there are clauses in that contract to start to buy commercial level of production. So that could occur It is as early as 2 to 3 years from now.

Speaker 7

Excellent. And then just with baseline OpEx, how should we be thinking about The cash OpEx on a quarterly basis with this restructuring complete?

Speaker 3

Yes. So, like I said last quarter, and I don't see any real changes to that. We look, I think right in that $9,000,000 a quarter range is Still solid.

Speaker 7

Excellent. And then I guess the last one is really around quotation activity and order Due to the opportunity set for the grid products, clearly, you guys have moved into a handful of incremental markets with these acquisitions And there's a fair amount of build out that's happening in the country right now. So I just want to get a sense of if we look back 12 months 24 months where you're at right now in terms of number of customers, number of projects and the opportunity set kind of in some as we think about that business going forward.

Speaker 2

Yes. Going forward, I think some of the challenge for us is going to be how do we meet this demand. It's growing dramatically. And I kind of said in the remarks about now we're getting to the point we can deliver Identical companies, basically productized solutions across the product line, not just for the existing organic business, but for the acquired business as well. The quotation levels are extremely high.

Speaker 2

The pipeline is extremely robust. Our concerns are going to quickly Here turn to how do we manage growth because it feels like growth is about to really start to blossom.

Speaker 7

Excellent. Thanks so much guys.

Operator

And our next question will come from Justin Clare with ROTH. Please go ahead with your question.

Speaker 4

Yes. Hi, guys. Thanks for taking my question. So, first off, you had indicated that your 12 month backlog as of March 31st of this year was just over $125,000,000 And then you've also over the past month or so announced $50,000,000 In new orders with the new energy business and then also with Inox, and it sounds like those orders are expected to largely be realized Recognized into revenue this year. So if I add it all together, I get to something like $175,000,000 in Orders that could be delivered this year, so just wondering were the new orders incremental to your backlog as of March 31 or am I double counting here, Trying to understand when the orders in the backlog could be delivered?

Speaker 2

Yes, I think you're double counting for sure. So one of the things and we tried to be as Clear as we could and maybe we didn't get it across, but I'll try to go back and repeat. With the $20,000,000 that we're talking about from Inox, 5 of it is new for 3 megawatts. 15 is basically a de risking of demand that was in an old contract at a lower price that's now been amended to be firm fixed at a higher price. So a little bit incremental, maybe change on that $15,000,000 of a higher price, but don't fall in the trap of looking at all backlog.

Speaker 2

And For our recent history with wind, we've had a large standing order in place for the 2 megawatt. And we have had to try to predict with Inox's help particularly through payments for product on how much of that would convert into revenue within a 12 month period. Going forward, we don't really have to do that anymore. Now the order will show and we'll have just as we're going to do for the 3 megawatt, we'll from fixed releases for 2 megawatt demand. So I think you're double counting at least $15,000,000 that's in there.

Speaker 2

There's some book and burn that's in there that would go into the year. There's some Revenue in that order book that's beyond 12 months as well. And I think all those data points are in the release in the K. That's why we wanted to try to make you clear, Justin, that the 12 month backlog is now at about 125,000,000 And that $125,000,000 projects that we should be able to maintain, if not grow revenue just based upon the existing backlog. We have

Speaker 3

always the opportunity to bring

Speaker 2

in orders. It's only We have always the opportunity to bring in orders, it's only now June, that could be delivered for March. But as we go into later months for sure, lead times Right now for us in general are 12 months plus. But there will be for certain customers, if they need things sooner, we'll work to make that happen.

Speaker 4

Got it. Okay. That's helpful to understand. And then just on the margin expansion expectations here, You had talked about last quarter, if you can get to a revenue level that's approaching $30,000,000 you could see cash Gross margins approaching 20 percent and then if you get to $35,000,000 in revenue, you could get to 25% on the gross margin level. Are those still the expectations that we should be anticipating here or given the pricing Changes that you have made, are there any changes to the margin expectations?

Speaker 2

No, I think the way you said it is right. I think just one little caveat that John said when he originally went through those is, expect the potential for those to expand over time Because again, you have the resident time of the backlog. So you may have backlog that's a little further out in time, say later in the year, Which is now going to be at those levels that you just recited, which is about 20%, again cash margin, not full gross margin. So we're trying to correlate Incremental revenue to incremental cash so people could see that clearly.

Speaker 4

Got it. Okay. And then just one final one on Inox. You indicated that you have changed pricing for the 2 megawatts. Just wondering if there's any meaningful difference in the, let's say, Price per watt for the 2 megawatt ECS versus the 3 megawatt and any difference in the margin profile for each of those products?

Speaker 2

Yes. Why don't we take that offline to try to look at modeling questions and things. But for the general audience, Just assume basically linear, and to us, we just want Inox to be successful if it's with the 2 or the 3. Our We don't have a financial benefit if it's one way or another. We want to make sure that they're successful in totality.

Speaker 3

Got it. Okay. Thanks very much.

Operator

Our next question here will come from Chip Moore with EF Hutton. Please go ahead with your question.

Speaker 6

Good morning. Thanks. Hey, everybody. Congratulations on the Awesome momentum. I wanted to ask one, I guess, more specifically on margin expansion, more near term cadence, I guess, with Remaining Neeltran backlog, just any sense of size there?

Speaker 6

You had that benefit in Q4 and then any Order timing to take into account larger debar deliveries or other systems.

Speaker 2

Yes. I think I'll Say one comment. Benefit is relative. So one of the things I think we're able to do as a team very well is we tried to get as much of the existing backlog We cut out. That's why our revenue is a little bit elevated.

Speaker 2

John telegraphed clearly the impact on margin last quarter and what that would feel like. And we're trying to get All of this congested backlog that's at compressed margin out of the system as best we can. Going forward, we now only have a couple of projects we have to do. And the impact of those on a margin on a quarter basis, We'll probably talk to you, but they're not going to change directionally where we think that things are going to head. Mark, good morning.

Speaker 2

Granularity on it.

Speaker 3

Yes. So Chip, I think the intent moving forward is we stop talking about Neotran as a drag on the original acquired If we have an event or 2, we'll highlight it. But the margin, I think what you're going to see in our guidance in Q1 and you'll see in our Backlog and over time, hopefully, that what we said as far as margin expansion over the coming quarters, that will be reflective both one of it, The immediate improvement, and I said it in my opening remarks, the step change, for a lack of better term, in our Q1 guidance is Highly reflective of the fact that we are comfortable that we're going to be shipping on the Neotrans post acquired backlog, and that's going to have a positive impact on our revenue mix. And that's within our Q1 guidance. And then remember what we said a couple of quarters back, it was going to take time for us to get the margin Up related to inflationary pressures across all the product lines.

Speaker 3

And so that's the part that we're going to phase in over Q1 and Q2. And so a combination of Neotran is we're feeling much more comfortable today and we're way bolder on our statements. And then you'll see incremental gains over the coming quarters as we bleed off the inflationary pressure that was not priced in So other product lines within the business.

Speaker 6

Perfect. That's helpful. Appreciate that. And then Daniel, I think in the press release, you talked about potentially seizing some new market opportunities and penetration with existing customers. Maybe just Expand on that.

Speaker 6

I think you touched on a lot of it in the call, but anything else to keep in mind?

Speaker 2

I think to piggyback on also what John Well, John was saying, this might be the last time we'd say the words Neutrino and EPC going forward. We see the businesses integrated, working well together. Big step here is getting the backlog purged out That we had there. Some of those projects, why we looked at them and said, We think this is really a good business is because there is large growth opportunities and if we could get the product and the pricing right, We think that part of our business really could grow gangbusters. So I know people have had, Kylie, maybe limited patience with me on how is the acquisition going and just be here or there or the other where.

Speaker 2

We saw it as an investment in some new markets. And part of what we're kind of saying here today is There are already orders in the backlog for some of these new markets with a more combined offering, With better control of parts and labor that go into the building of those products. The good news is that part of our history is now behind us. We have a couple of more, as I said and John concurred, that we have to get through, but They're not going to be anywhere near the magnitude and change on margin that we've seen in the past. So When people would push me about, well, why are we doing this or that with investment in the acquisition, further investment in the acquisition Because we see a huge market opportunity and I think we're going to pay that off over the coming quarters and coming years, just based upon the macro investment.

Speaker 2

That's why I went through all the large I mean, the amount of money being invested globally in this new energy economy, of everything is enormous. And I think we now have a great product lineup to be able to go out and serve those customers And to be able to do it in a way where if they build a factory to make whatever they're making, just like we've done in semiconductor, then they want to go build the next one and the next one, and we're basically having Same product over and over again that's going in the substation, that's powering the equipment at the factory, that's helping in this transition of the electrification of everything. So just to kind of conclude with everybody, So I kind of wind down the call. We're delivering on our strategy. We believe we're well positioned for a very strong Fiscal year 2023, our backlog is strong.

Speaker 2

It's very well diversified at higher margins. The pipeline, as we talked about on the call, for new business is very robust. We are now executing on order for Inox Wind. We're broadening our revenue base with multiple products for the Navy. As I just kind of was talking about, we're serving on an expanded customer set on the grid side.

Speaker 2

We really have turned a corner

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Earnings Conference Call
American Superconductor Q4 2023
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